October 28, 2008
CSD: Creating Loyal Customers
By Len Lewis
Through a special arrangement, presented here for discussion is an excerpt of a current article from Convenience Store Decisions magazine.
Faced with rapidly escalating costs, cutthroat commodity pricing and broader competition, the time is right for convenience stores to adopt more aggressive loyalty marketing programs that will attract new customers and reward existing ones.
For nearly 80 years, loyalty and frequent shopper plans have proven to be highly effective promotional and brand-building tools for businesses ranging from airlines to supermarkets. This is underscored by industry estimates indicating that these plans have attracted more than 1.3 billion members in the U.S. alone, most of them concentrated in the financial services, travel and retail sectors.
Given lower transaction sizes and limited traffic in c-stores, the question is how they can best initiate, participate and profit from loyalty programs with a minimal upfront investment and a realistic return.
At present, relatively few c-stores stores nationwide offer more sophisticated programs, despite the fact that gasoline has become the “ultimate currency” for loyalty plans. However, many more are said to be on the fence and about to jump on to the loyalty bandwagon.
“It’s one of the faster growing segments of the industry,” said Rick Ferguson, editorial director of COLLOQUY, a magazine focusing on the global loyalty marketing industry. “The problem was that five years ago, the technology was a bit prohibitive and required a big upfront investment. Chances are you would have had to change POS systems or put in kiosks to build the IT infrastructure in the database. Today, a lot of Web-based platforms and software service companies are more affordable. That’s made it easier for retailers to get in the game.”
Anton Bakker, CEO of Outsite Networks, agreed. “I’d say there are sophisticated, integrated loyalty systems in place at about 5,000 stores right now. The horse is out of the gate and not going back,” he said.
Some c-store programs enable retailers to engage in data mining for core customers. But as Mr. Ferguson noted, “You have to walk before you can run and even the best marketers in the travel industry are not as sophisticated in data analysis as they’d like to be.”
One of the issues is that many tools now available are more focused on customer retention than sales lift. “Some people are already buying as much from you as they can. They can’t buy more gas, soda or cigarettes,” Ferguson said. “Those are the ones you want to keep from gassing up at Wal-Mart or Sam’s Club by launching an awards program that lets them know you value their business.”
Discussion Questions: Given the lower costs now involved, what do you think of the opportunity for customer rewards programs at convenience stores? How would the challenges in establishing such programs be different from supermarkets and other retailers?
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Given the nomenclature of CONVENIENCE, I wonder how useful a loyalty program would be. For the most part, these are not destination trips. They are convenient or they are habitual (the same group of good old boys gathers at my local Shell station for coffee every morning). I’m not sure how radically, or even subtly, we can change shopping patterns by adding on a loyalty program.
Some C-Stores we have overlooked are those connected to gas stations which, in turn, are connected to full-zoot supermarkets. Both the Safeway and the Raley’s near my home offer these vestigial convenience stops to service their gas dispensers (they’re dispensers, not pumps–pumps are buried underground beside the tanks). And while Raley’s does not have a loyalty program, Safeway does and their cards are used in their C-Store as well as the main store 30 yards away. This joint use makes a lot of sense because it allows Safeway to analyze and reward combined usage between the two stores and correlate it with gas purchases. (Safeway cardholders scan their cards at the gas dispenser for a 10¢ per gallon discount.)
So, it seems to me that free-standing C-Stores that sell fuel can build loyalty on gas discounts. There would be no slowing of service inside the store because customers would scan their membership card at the gas dispensers when they scan their payment cards. And after all, isn’t most of the business done outside on the driveway, and aren’t gas discounts the most valuable reward a C-Store could give?
As several people have pointed out here, convenience equals speed. I was excited about some of the blink card technology that was developed two years ago. If consumers can swipe a card and update all their loyalty program information, this has a chance to work.
I just want to point out that with stores like Fresh & Easy and Marketside–and quite a few others–supermarkets are beginning to morph in the direction of c-stores. C-stores have pushed the other direction, too. So I think we are moving in the direction of a continuum. As phones and PDAs become functional loyalty devices in supermarkets (it is already happening at a very low level), it makes no sense that they won’t work similarly in c-stores.
The question isn’t what to do with this data, but how to use the data we have to move forward, now. Lots of people screwed up the use of loyalty data, that is, were ineffective, before dunnhumby showed the way. And of course, there’s is still not the only way. But the foundation of that program was NOT truckloads of data, but a small sampling, followed by very intelligent marketing responses.
It seems like the group is split on this one. I’ll weigh in on the “not a good idea” side.
C-stores ought to focus on the basics to achieve true loyalty without just giving away margin. That means conveniently-located sites that are clean, have the right products, and have helpful and hard-working staff. That describes less than 5% of c-stores in America, but those that achieve that standard (e.g., Wawa and QuikTrip) already have loyalty today.
As an aside, in other retail verticals where loyalty programs are common, retailers seldom understand the true incremental benefits of these programs. Often, sales lift and ROI analysis is done in a way that inflates the numbers–incorrectly attributing sales that would have happened anyway to the loyalty program. Retailers in general should take care to get the economic analysis right, or they risk throwing even more money at customers without any real return.
It seems there are many diverse opinions on this question.
There must be some differentiation for any C-store to be successful with a loyalty program. Consumers feel that they have too many cards for rewards programs already. The question has always been, what do you really need to know from loyalty data and how are you going to apply it to your business decisions? Data overload is common.
I vote on the side of getting the basics right for customers to come back again, and again. Offer great service, great coffee (not the standard java), some healthy choices for breakfast/snacks in addition to the regular food choices, and clean (yes, clean!) restrooms. C-stores could look at German rest stops for ideas on great convenience in gas and food choices and spotless restrooms and facilities.
I love the idea. The challenge is that the focus of convenience runs counter in some ways to loyalty. Perhaps a convenience store that is dominant in a specific market could create loyal customers with a focused campaign. If it is too broad, I do not see it being successful.
C-store loyalty/reward programs are a good idea, long overdue. In today’s tight economy with shoppers cutting back spending and store trips, these programs should definitely be under consideration. And while there are differences in how programs are structured across retail channels, the key for every merchant is developing a program that actually resonates with what the store’s core consumer seeks both inside the store (e.g., discounts, free merchandise, cash-backs) and outside the store (e.g., movie passes, savings programs, discounts at partner retailers). But that requires knowing the consumer. It can’t be a carbon copy program, but one that’s unique to the target consumer’s lifestyle.
Hey, give it a break. C-stores can’t keep the coffee fresh and get their gas pumps to deliver receipts. How are they going to execute any type of loyalty program? Unless some vendor pays them to allow the vendor to execute a loyalty program for free, there is no way they should waste 5 minutes even thinking about this.
ExxonMobile came close with their Speedpass. It actually saved us the time it takes to insert and remove a credit card and provided the retailer with an opportunity to capture all sorts of data. Was any of this ever used for anything other than trying to push overpriced product or services on the “members”?
Doesn’t sound like any of my compatriots feel this is a good idea–and I would have to agree. Even if the c-stores came up with some brilliant way of creating more loyalty, are they equipped to accurately measure it? Even the most sophisticated retailers these days have mounds of unanalyzed data they don’t know what to do with. Look how long it’s taken the grocery industry to get even the smallest grip on their loyalty data.
A few random thoughts….
I think David’s touched on a key issue when he cautions against slowing down checkout. Can stores/chains tie a program to the new pay-pass systems, maybe get the card companies involved in a tie-in promotion at the beginning that rewards folks for getting the cards (which can be debit–so no credit-worthiness elitism) and using them and then evolves into a broader program?
Can stores find other ways to do the programs that don’t materially slow checkout? i.e., hand every customer a card or a ticket, a la Subway, that the recipient then takes the time to assemble? It’s not environmental, so we’d need data on how much customers value the programs that already exist and on how the stamp program at Subway is working (if they still do it that way).
Improving specialty foods seems like a no-brainer, especially given ever-better technology for keeping food fresh. I would think there’s a real opportunity in making those improved products a big part of a loyalty push, especially if a chain developed a signature item, or line of items.
Finally, as our family travels I-64 every summer, I notice the endless local causes the C-stores are promoting. (And often there’s a fund for a very sick child….) What about doing a program that adopts a community organization–a children’s charity, or the youth sports league, in every market? That could actually substitute for a loyalty program, AND get the local management extra visibility in the community–a nice counterweight to the perception of the chains as being somewhat faceless and corporate.
David and Peter both make excellent points about the nature of the C-store visit and the reality of achieving “customer loyalty” at all. But the C-store visit is often one where the convenience is based on proximity as much as speed. When the same people visit the same location multiple times a week–well, like they said on “Cheers”–“Sometimes it’s nice to go where everybody knows your name….” Recognizing those frequent customers in a small way that says “thanks for your business” may well be more of a maintenance strategy than a growth strategy. But in this economy and a competitive playing field where “convenience trips” are going to Walmart based on price, is that such a bad thing?
Convenience stores are built upon their key drivers of location, convenience and product. Customer retention programs would have little impact here, since they are generally not destination locations built upon price. Impulse item sales are driven by the few items that attract customers (gas, cigarettes, alcohol) which are price sensitive, and create stability for the customer base. Getting the customer to repeat this business is very difficult, given the issues that c-stores are faced with customer churn and maintaining a continued pull as a destination location.
Perhaps C-stores will be compelled to adopt loyalty programs as a competitive necessity, but the notion that they can “create loyal customers” to a meaningful extent is absurd. Very few (if any) retailers can accomplish this lofty goal. The best they can hope for is that customers who are already inherently loyal will reveal themselves through such a program. That’s nice to know, but it’s not clear if it justifies the cost of the program….
OK, here comes a contra opinion. C-stores do not need to get into loyalty programs. In fact, I think it’s a terrible idea because anything they try to do will simply slow down the checkout process, and cause less “convenience” for the customer in a hurry. What C-stores can do to increase loyalty is to further upgrade to improve specialty foods, even better coffee, and other convenient quality benefits to everyday “C-onsumers.”
Any retailer of any size that does not have some sort of loyalty program is really taking away a huge element from the customer experience. Gas companies here in Canada are rapidly consuming market share in the convenience category. With their own loyalty programs in place for gas and store items, gas stations are raising the bar for non-gas convenience outlets. Smaller stores must adapt and offer some kind of loyalty marketing effort. Even the simplest “buy 10, get the 11th free” campaign will add value to the customer shopping experience.
Convenience stops are usually stops out of habit. Therefore, loyalty is easier to get; if the habitual pattern is broken, the store has lost a customer. Convenience stores can more easily enact a loyalty program with a free cup of coffee, car wash, discount on gas, etc. The loyalty program card will help ensure commitment and appreciation whereby when the competitor starts a price enticing program the consumer will be less likely to sway or if they do they will come back as long as the quality of product, service and cleanliness of the store is good.
Loyalty programs that require an action first from the consumer are not going to work over the next few years. Companies need to build programs that bring them to the consumer.
Convenience stores would be better served in finding ways to make an even stronger connection with their consumers. The first place to start is in the area of convenience.
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Given the nomenclature of CONVENIENCE, I wonder how useful a loyalty program would be. For the most part, these are not destination trips. They are convenient or they are habitual (the same group of good old boys gathers at my local Shell station for coffee every morning). I’m not sure how radically, or even subtly, we can change shopping patterns by adding on a loyalty program.
Some C-Stores we have overlooked are those connected to gas stations which, in turn, are connected to full-zoot supermarkets. Both the Safeway and the Raley’s near my home offer these vestigial convenience stops to service their gas dispensers (they’re dispensers, not pumps–pumps are buried underground beside the tanks). And while Raley’s does not have a loyalty program, Safeway does and their cards are used in their C-Store as well as the main store 30 yards away. This joint use makes a lot of sense because it allows Safeway to analyze and reward combined usage between the two stores and correlate it with gas purchases. (Safeway cardholders scan their cards at the gas dispenser for a 10¢ per gallon discount.)
So, it seems to me that free-standing C-Stores that sell fuel can build loyalty on gas discounts. There would be no slowing of service inside the store because customers would scan their membership card at the gas dispensers when they scan their payment cards. And after all, isn’t most of the business done outside on the driveway, and aren’t gas discounts the most valuable reward a C-Store could give?
As several people have pointed out here, convenience equals speed. I was excited about some of the blink card technology that was developed two years ago. If consumers can swipe a card and update all their loyalty program information, this has a chance to work.
I just want to point out that with stores like Fresh & Easy and Marketside–and quite a few others–supermarkets are beginning to morph in the direction of c-stores. C-stores have pushed the other direction, too. So I think we are moving in the direction of a continuum. As phones and PDAs become functional loyalty devices in supermarkets (it is already happening at a very low level), it makes no sense that they won’t work similarly in c-stores.
The question isn’t what to do with this data, but how to use the data we have to move forward, now. Lots of people screwed up the use of loyalty data, that is, were ineffective, before dunnhumby showed the way. And of course, there’s is still not the only way. But the foundation of that program was NOT truckloads of data, but a small sampling, followed by very intelligent marketing responses.
It seems like the group is split on this one. I’ll weigh in on the “not a good idea” side.
C-stores ought to focus on the basics to achieve true loyalty without just giving away margin. That means conveniently-located sites that are clean, have the right products, and have helpful and hard-working staff. That describes less than 5% of c-stores in America, but those that achieve that standard (e.g., Wawa and QuikTrip) already have loyalty today.
As an aside, in other retail verticals where loyalty programs are common, retailers seldom understand the true incremental benefits of these programs. Often, sales lift and ROI analysis is done in a way that inflates the numbers–incorrectly attributing sales that would have happened anyway to the loyalty program. Retailers in general should take care to get the economic analysis right, or they risk throwing even more money at customers without any real return.
It seems there are many diverse opinions on this question.
There must be some differentiation for any C-store to be successful with a loyalty program. Consumers feel that they have too many cards for rewards programs already. The question has always been, what do you really need to know from loyalty data and how are you going to apply it to your business decisions? Data overload is common.
I vote on the side of getting the basics right for customers to come back again, and again. Offer great service, great coffee (not the standard java), some healthy choices for breakfast/snacks in addition to the regular food choices, and clean (yes, clean!) restrooms. C-stores could look at German rest stops for ideas on great convenience in gas and food choices and spotless restrooms and facilities.
I love the idea. The challenge is that the focus of convenience runs counter in some ways to loyalty. Perhaps a convenience store that is dominant in a specific market could create loyal customers with a focused campaign. If it is too broad, I do not see it being successful.
C-store loyalty/reward programs are a good idea, long overdue. In today’s tight economy with shoppers cutting back spending and store trips, these programs should definitely be under consideration. And while there are differences in how programs are structured across retail channels, the key for every merchant is developing a program that actually resonates with what the store’s core consumer seeks both inside the store (e.g., discounts, free merchandise, cash-backs) and outside the store (e.g., movie passes, savings programs, discounts at partner retailers). But that requires knowing the consumer. It can’t be a carbon copy program, but one that’s unique to the target consumer’s lifestyle.
Hey, give it a break. C-stores can’t keep the coffee fresh and get their gas pumps to deliver receipts. How are they going to execute any type of loyalty program? Unless some vendor pays them to allow the vendor to execute a loyalty program for free, there is no way they should waste 5 minutes even thinking about this.
ExxonMobile came close with their Speedpass. It actually saved us the time it takes to insert and remove a credit card and provided the retailer with an opportunity to capture all sorts of data. Was any of this ever used for anything other than trying to push overpriced product or services on the “members”?
Doesn’t sound like any of my compatriots feel this is a good idea–and I would have to agree. Even if the c-stores came up with some brilliant way of creating more loyalty, are they equipped to accurately measure it? Even the most sophisticated retailers these days have mounds of unanalyzed data they don’t know what to do with. Look how long it’s taken the grocery industry to get even the smallest grip on their loyalty data.
A few random thoughts….
I think David’s touched on a key issue when he cautions against slowing down checkout. Can stores/chains tie a program to the new pay-pass systems, maybe get the card companies involved in a tie-in promotion at the beginning that rewards folks for getting the cards (which can be debit–so no credit-worthiness elitism) and using them and then evolves into a broader program?
Can stores find other ways to do the programs that don’t materially slow checkout? i.e., hand every customer a card or a ticket, a la Subway, that the recipient then takes the time to assemble? It’s not environmental, so we’d need data on how much customers value the programs that already exist and on how the stamp program at Subway is working (if they still do it that way).
Improving specialty foods seems like a no-brainer, especially given ever-better technology for keeping food fresh. I would think there’s a real opportunity in making those improved products a big part of a loyalty push, especially if a chain developed a signature item, or line of items.
Finally, as our family travels I-64 every summer, I notice the endless local causes the C-stores are promoting. (And often there’s a fund for a very sick child….) What about doing a program that adopts a community organization–a children’s charity, or the youth sports league, in every market? That could actually substitute for a loyalty program, AND get the local management extra visibility in the community–a nice counterweight to the perception of the chains as being somewhat faceless and corporate.
David and Peter both make excellent points about the nature of the C-store visit and the reality of achieving “customer loyalty” at all. But the C-store visit is often one where the convenience is based on proximity as much as speed. When the same people visit the same location multiple times a week–well, like they said on “Cheers”–“Sometimes it’s nice to go where everybody knows your name….” Recognizing those frequent customers in a small way that says “thanks for your business” may well be more of a maintenance strategy than a growth strategy. But in this economy and a competitive playing field where “convenience trips” are going to Walmart based on price, is that such a bad thing?
Convenience stores are built upon their key drivers of location, convenience and product. Customer retention programs would have little impact here, since they are generally not destination locations built upon price. Impulse item sales are driven by the few items that attract customers (gas, cigarettes, alcohol) which are price sensitive, and create stability for the customer base. Getting the customer to repeat this business is very difficult, given the issues that c-stores are faced with customer churn and maintaining a continued pull as a destination location.
Perhaps C-stores will be compelled to adopt loyalty programs as a competitive necessity, but the notion that they can “create loyal customers” to a meaningful extent is absurd. Very few (if any) retailers can accomplish this lofty goal. The best they can hope for is that customers who are already inherently loyal will reveal themselves through such a program. That’s nice to know, but it’s not clear if it justifies the cost of the program….
OK, here comes a contra opinion. C-stores do not need to get into loyalty programs. In fact, I think it’s a terrible idea because anything they try to do will simply slow down the checkout process, and cause less “convenience” for the customer in a hurry. What C-stores can do to increase loyalty is to further upgrade to improve specialty foods, even better coffee, and other convenient quality benefits to everyday “C-onsumers.”
Any retailer of any size that does not have some sort of loyalty program is really taking away a huge element from the customer experience. Gas companies here in Canada are rapidly consuming market share in the convenience category. With their own loyalty programs in place for gas and store items, gas stations are raising the bar for non-gas convenience outlets. Smaller stores must adapt and offer some kind of loyalty marketing effort. Even the simplest “buy 10, get the 11th free” campaign will add value to the customer shopping experience.
Convenience stops are usually stops out of habit. Therefore, loyalty is easier to get; if the habitual pattern is broken, the store has lost a customer. Convenience stores can more easily enact a loyalty program with a free cup of coffee, car wash, discount on gas, etc. The loyalty program card will help ensure commitment and appreciation whereby when the competitor starts a price enticing program the consumer will be less likely to sway or if they do they will come back as long as the quality of product, service and cleanliness of the store is good.
Loyalty programs that require an action first from the consumer are not going to work over the next few years. Companies need to build programs that bring them to the consumer.
Convenience stores would be better served in finding ways to make an even stronger connection with their consumers. The first place to start is in the area of convenience.