October 1, 2008
Loyalty Programs Suffer from One-Size-Fits-All Approach
By Tom Ryan
According to two professors, many customer loyalty programs aren’t boosting marketing share as intended because most retailers adopt a one-size-fits-all approach. They argue that product discounts aren’t changing the long-term buying behavior in shoppers who value things like personalized service, convenience or shopping pleasure more.
Writing in The Wall Street Journal, Professors Lars Meyer-Waarden of the University of Toulouse III-Paul Sabatier in Toulouse, France, and Christophe Benavent of the University of Paris X-Nanterre argued that customers buying on price promotion would likely revert back to their regular brands or buying habits shortly afterward. At best, only a temporary change in sales and market share results.
The professors also said loyalty programs often aren’t attracting new customers. In researching grocery stores, they found that 88 percent of loyalty card holders were clients of the store two years before joining the program. The rewards are often not compelling enough to attract many new customers or the proliferation of programs has made them less unique.
Not surprisingly, the professors argued that retailers should focus on providing
customers with more “individualized rewards, based on what they value.” As
such, the scholars identified five different purchase motivations in surveying
shoppers in France from 2005 to 2007:
- An economic motivation: the main goal
is to save money; - A hedonistic motivation: the aim is to feel pleasure;
- A routine-loyal/risk-avoiding
motivation: the goal is to reduce the risk of being disappointed by a purchase
by remaining loyal to a favorite brand or store; - A relational motivation:
buyers seek to establish a relationship with a store or its staff and be
recognized as a privileged client; - A functional motivation: the aim is to
decrease the time and effort devoted to making purchases.
The professors noted that companies could use customers’ ages, incomes, sex and other factors to draw general conclusions about what drives purchases. In grocery stores, for example, younger customers generally tend to be economical, but also hedonistic. Older clients with higher incomes tend to be relational and routine-loyal consumers but also functional ones. Low-income consumers are usually economically orientated, while women are more hedonistic. Men, especially executives, generally are more functional.
Motivations can vary, depending on what’s being bought. For example, a functional consumer in a grocery store might be hedonistic in a clothing store.
After grouping customers this way, rewards can be better tailored based on purchase motivations.
The professors concluded, “Collecting and analyzing this data would allow companies to identify the customers they consider most important and target them with appropriate rewards offers, increasing the likelihood of retaining their patronage and capturing a greater share of consumer dollars overall.”
Discussion Questions: Do you agree that many customer loyalty programs are largely unproductive due to a one-size-fits-all approach? What are the opportunities and challenges in driving rewards programs around individuals’ purchasing motivations?
BrainTrust
Recent Discussions
Discussion Questions
Poll
I think Loyalty Programs are failing due to the fact that most are bad deals for consumers. Many grocers have used loyalty programs to restrict promotional pricing pass through to consumers. In almost every case, manufacturers discount pricing in return for promotional consideration and price reduction. I have experienced many occasions when a posted shelf sale price was not passed on to me because I didn’t have the retailer’s Loyalty Card.
How is it possible that Publix prospers without a Loyalty program while the vast majority of its competitors struggle? Could it be that Publix works at earning loyalty while its competitors try and find a way of “buying” loyalty? The fact is that Loyalty programs are a “silver bullet” swallowed by inept lazy management who won’t work hard enough to earn their customers’ loyalty.
I would agree that most loyalty programs are not used properly–a loyalty program should not be a paperless coupon program.
A loyalty program should be driven by collected data on the individual, shopping patterns, preferences, affinity products, and most importantly, managed by a team dedicated to maximizing the relationship between brand (and/or retailer) and consumer. It should be dynamic, topical to the retail environment, and a revenue generating program.
If the aforementioned fails to happen, then a loyalty program falls into a paperless coupon category…which aside from the waste of valuable data, is not necessarily a bad thing.
The five purchase motivations summary in this article is useful, although certainly derivative of prior work. Overall, I find no truly new insights.
Of course frequent shopper card programs do little to attract new customers–they are designed for customer retention, data gathering and communications, not for customer acquisition. In many supermarkets they are also designed to capture manufacturer promotion dollars, an agenda that tends to subvert the other goals.
The authors maintain that there is reason to offer rewards other than monetary to card holders, but they do not address how these other rewards may vary in practicality and effectiveness in different retail environments. Value added services, like access to an airport waiting lounge, are not likely to have an analog for home center store shoppers, to cite a blunt example.
So let’s re-cap the reality for most frequent customer card programs: Retailer or service provider wants to capture information about customers and use it to communicate in targeted ways that stimulate re-patronage and attract promotional dollars from suppliers. Motivations, usually monetary in nature, are promised to attract customers and persuade them to sacrifice their privacy by enrolling in the program. A vast majority of enrolled customers were already repeat shoppers to begin with. Most of those are also repeat customers at competitors, and they enroll in those programs also. Each retailer tracks its own repeat purchases and convinces itself that it owns the shopper relationships, when in fact, it’s the customer who is and always has been in control.
Almost no true affective loyalty–an emotional state–is created under this scenario. Each frequent shopper card program captures an incomplete picture of the shopper’s total purchase and consumption behavior, since card data reveals nothing about what the customer is buying elsewhere.
Card holders are aware of the manipulation taking place and they are mildly inconvenienced by it, but they play along to avoid missing the monetary rewards. This is not loyalty, it’s gamesmanship.
In deference to several well considered comments above, let’s not denigrate the value of expressions of loyalty by the retailer toward the customer. David’s examples above stand out in this regard. When a card program is used to identify best customers and acknowledge them with special treatment, it can help create the sought-after emotional bond. In the best of all worlds, a card program could be used to identify potential best customers and find ways to move them to “best” status. This is much more difficult to accomplish, regardless of the rewards offered.
Wow–so many comments–great to see how engaged everyone is in loyalty marketing!
Yes everyone (or at least too many companies) take a one-size-fits-all approach. And it is fundamentally wrong. Loyalty marketing needs to be customized around five key dimensions of any company:
1. Customers: loyalty is not about all customers but rather which groups present the most opportunity for incremental business.
2. Operations: especially for retailers, if the program can’t be delivered in the store, across channels and with employees, it will never reach and affect the right customers. Loyalty program should be about software LAST rather than the “tail wagging the dog” approach embraced by too many on the merchant and supplier sides.
3. Brand: customers have relationships with brands, not with marketing programs. This point alone nullifies the one-size approach.
4. Business model: loyalty marketing, and programs especially, should be about making more money. So there should be a P&L and a positive NPV (most programs don’t make money in year 1).
5. Distinction: Whatever a company does is relative to its competition. Merely achieving parity is challenging your competitor to do more. This goes close with being in brand synch (i.e., your brand should be distinctive to start with).
One other important concept: loyalty programs are really not meant to work in isolation. Properly done, they are platforms for differential relationship marketing. They are mechanisms to get more customers opting into the brand relationship and direct communications. This is where the promotion that Lisa references is most powerful, least dilutive and ultimately, game changing when done well.
Most merchants have done themselves few favors with their current loyalty programs. Indeed, in many cases, it’s not even a loyalty program but a discount card. Offering discounts and a few cash backs doesn’t drive loyalty. Look to merchants like Tesco who has crafted a variety of loyalty schemes, including funeral and education benefits. And look to companies like Canada’s Futura Rewards who has crafted a variety of savings programs for participants.
The really nice thing about loyalty programs is that there’s basically only one rule: create a program that resonates with the target consumer. Retailers should start by gaining a deep understanding of the target consumer’s life, both inside the shopping experience and outside the shopping experience. Then they need to get really creative and fashion a program that presents that consumer with rewards that resonate with the way they shop and the way they live.
I believe that the best retailers empower store managers to do things that create customer loyalty. And, managers should be financially rewarded based on store performance.
This is purely anecdotal, unrepresentative and unscientific but over the past three months I’ve looked at loyalty programs in three different states. Several types of store. Several types of customer. Everyone seems happy and virtually every one of the people I spoke to would have considered it irritating to be targeted with more personal offers. It strikes me as more sensible to let customers pick and choose the offers they want rather than retailers spending time and money picking for them and possibly losing some customers along the way.
Not only do most retailers execute the one-size-fits-all approach to loyalty programs but even more watered down is the fact that in the eyes of the consumer, most retailers are doing almost everything the same way as each other. Retailers need to create programs, images and concepts that offer points of differentiation and uniqueness.
Loyalty program software should and can tailor promotions to the buying habits of customers. I agree that most retailers offer a one-size-fits-all promos but some actually cater the offer to the individual customer.
Shoppers Drug Mart’s Optimum program actually sends out customer specific emails and coupons based on past product purchase and spending habits. The points redemption or accumulation offer is designed specifically for that customer.
Loyalty programs will be the key to navigating through these stressful economic times as consumers will be searching (demanding?) more value from their retail dollar. Now is the time for retailers to reach out to customers via their loyalty programs. The data is there, it’s just a matter of tweaking the offers to cater to the individual’s spending and shopping habits.
Many retail loyalty programs are one size fits all and therefore are hard to differentiate from one another and are boring for consumers. Good loyalty programs not only ask consumers to try alternative brands, but they get the consumer to buy more items in one stores, increasing market basket size.
To be successful, a loyalty program should be tailored to the individual consumer with offers to buy items that are complimentary with the products she usually purchases. The program should offer monetary and practical rewards (saving time, trying something new that fits with other purchases).
A loyalty program is part of customer service. Consumers willingly share their purchase information and in return, get something of value. Too often, retailers use discounts as the reward. In this regard, they fail to differentiate their program from a competitor’s, which defeats the whole point of a loyalty program.
Let’s not make this more complicated than it has to be. Loyalty programs are for the best customers. That is why they are called Loyalty Programs. The fact that 88% of the cardholders were shopping in that outlet two years earlier is a measure of success.
Loyalty programs are not designed nor should be designed to attract new customers. Most basically, they are geared to break the tie when two entities are offering essentially the same product. I fly American to Chicago rather than United. I go to Staples rather than Office Depot. I order online from Amazon rather than Barnes & Noble. In each case, we are looking at essentially the same product and price, but I get closer to some reward, be it miles, dollars or points that breaks the tie in my choice of purchase.
I have seen various loyalty programs across retailers. Some are less creative than others. Much of the loyalty programs’ success is simply the retailer’s desire to follow the data that is being collected.
In supermarkets, at certain times of the year, certain products are key to the retailers’ promotion. Those products are also the ones most likely to move a shopper from their primary retailer to another. In a supermarket, that might be a turkey at Thanksgiving. In this case the retailer can lock in their loyal customers by a heavy duty promotion (did I say “free”) for those loyal customers they can drive to hit purchase volume to pay for the turkey. For the next level down, perhaps it is a large discount.
The professors are correct in that various shoppers have various motivations on why they shop in one retailer rather than another. But, these motivations should be addressed in the basic profile of the retailer on an everyday basis. A shopper who loves Wegmans is not going to spend a lot of time buying their groceries at Costco. No loyalty program is going to change that behavior and neither retailer wants that behavior changed.
The way that most loyalty programs are run today, they are more of a nuisance than a benefit. At our local Jewel supermarket you have to show your loyalty card in order to get the best prices on everything. What a pain and minor inconvenience. The retailer is amassing an enormous amount of data about you and your shopping habits that is being used to make you a marketing target.
Whatever happened to the concept of rewarding their most loyal customers? Giving me coupons on something I probably don’t want that is encouraging me to spend more money than I want is rewarding my loyalty? And giving me the lower prices ONLY if I use my loyalty card when everyone has a loyalty card is somehow rewarding me? It comes across that they are insulting my intelligence at best and may not be deserving of my loyalty? Add to this the highest prices in the area and you are left with only a convenient location as a motivation to shop. Maybe they should save the money spent on loyalty programs and become more price competitive….
Ah…the discussion on customer loyalty programs continues to occur and still boggles the mind. Whenever I get a sinking disillusionment with retailing, it’s when this topic comes up. It gets worse when I hear the words customer loyalty and card program in the same sentence. They simply don’t go together. Yet, we continue to have the discussion about why they don’t work or at a minimum, are ineffective. Maybe that’s the same thing; isn’t it?
From my view there is really no such thing as a ‘customer loyalty program’. Retailers don’t own customer loyalty, thus how do you have a program that has nothing to do with loyalty and think it is returning it to you? Customers own their loyalty–period. No card, no program, no incentive, no reward has anything to do with loyalty. It is what it is. It’s a futile program with an ulterior motive.
When you force a customer to do something for something that they never had to do before; how is that creating loyalty? Sure, you can offer customer rewards, but that doesn’t create loyalty either. It does nothing more than create an incentive for customers that are willing to jump through the hoops that you have provided them and get something for doing so. I’d rather see that happen with dogs on old reruns of the Ed Sullivan Show than have to do so to buy groceries and not get ripped off.
Loyalty is created when a customer chooses you, when they have other choices. It’s that simple. That loyalty is theirs. It’s not the retailer’s to incent or win with a swipe of a card. They respond negatively to programs that drive suspicion and lessen trust. When they question your motives, they question their motivation to shop with you.
Sadly, these programs generally cost retailers millions to launch and maintain and deliver little success to the intended motive. That’s probably because they really aren’t intended to create loyalty, they have another motive.
Imagine if retailers motives were genuine. Imagine if they really understood customer loyalty. Imagine if they talked to their loyal customers without the motivation toward anything more than to understand why they choose to continue to enter their doors when there are other choices. There are other choices–for everything. Customers make them everyday. They don’t want to be hoodwinked in to thinking that they can earn a trip to Disney World or anywhere else just from buying groceries. They are smarter than that. They know they paid for it. They know that they paid too much for it. They wished you sold them what they bought for a fair price and skipped the gimmick.
Spend the millions on what will really create loyal customers. Spend it on soap. Spend it on paint. Spend it on customer service training. Spend it on the experience. Spend it on reducing out-of-stocks. Spend it on quality. Spend it on additional labor. Spend it in training the labor on your products and services. Spend it on additional service at peak shopping times. Then you might stand a chance to earn customer loyalty. It’s something you earn.
Cards, points, trips, cars, free items, card based pricing, fall nowhere into the equation of loyalty. They fall into programs that have other motivations. To think otherwise is simply dishonest.
I’ll leave the discussion about new customers to another day….
May I add to Bernice’s comments that this “research” was conducted in France and has little application here, in the continuing consumer center of the world?
Couptron is the only loyalty RefresherApp I’m aware of that reconfigures the one-size-fits-all model in a customized way. I’ve consulted on a few initiatives of this type, and that’s my impression. (RefresherApps integrate seamlessly with existing loyalty programs without compromising store communication backbones or residing on store or chain servers. It’s much cheaper than complete new program installations.) If a retailer decides to refresh its loyalty program, choosing a RefresherApp is a good way to go. They’re inexpensive and often free.
First of all, it is clear that many retailers have difficulty even doing basic loyalty programs, let alone more customized programs. Also, few programs collect such attitudinal data that would allow for motivational segmentation.
However, it is also clear that the problem with current loyalty programs is that they don’t produce real loyalty. They simply train customers to seek better deals.
Ultimately, we need to move to a dynamic marketing system where customers receive the benefits that appeal to them based on their buying behavior. For example, some retailers offer new baby programs where you buy diapers 5 times and get the sixth free or something like that. This works for any interest groups with repetitive purchases like wine, or pet food. Others offer tie-in promotions for products that appeal to the same shopper.
Successful loyalty programs focus on building relationships with customers one at a time. The loyalty comes from the relationship, not the discount.
I’m still raising my eyebrows a bit over women being “more hedonistic.” I think those labels depend a lot on the merchandise categories–I may be hedonistic in shoes and functional in groceries depending on my passions and interests. Okay, so that being said I don’t ‘think there’s a ton of new news here. This supports why the Tesco/dunnhumby model worked and why Kroger is having success with it as well.
Understanding your customers’ motivations and tailoring offers and benefits to meet their needs is fundamental to driving true loyalty–but price discounts and special offers can help pump up sales when you need them most. Many retailers may need a mix of both, just don’t call the second one a “loyalty program.”
I’m sure some companies don’t take advantage of all the opportunities that a loyalty card program provides. Sure, giving discounts is important. Giant Eagle had done a great job with gas discounts based on stores purchases. Some companies have added reverse discounts inside the store based on fuel purchases.
I have one client that makes sure each store manager knows who their top 100 customers are at each store and they are personally visited each year by the manager who presents them with a gift. Another client makes sure that his top customers, like the ones who spend over $1,000 per week in a supermarket get a trip to Las Vegas or Disney World comped to them now and then.
One client used the data to analyze market share by neighborhood on a regular basis. If the market share is declining in a certain neighborhood he will send out $5 gift cards to the people in that neighborhood. If a customer who normally spends $150 a week or more suddenly isn’t, that customer is contacted and asked why they quit shopping and perhaps given an incentive to return.
Sometimes something so simple as to plot the top 500 customers on a map can be very educational. There is really no excuse for being unproductive with card data.
An incentive to one person can be a deterrent to another. This article nails that fact perfectly. And while it’s easy to say how retailers should create loyalty programs that meet the needs and desires of each shopper, this could lead to a cost and logistical nightmare.
Sure, simply giving out “points” that shoppers could redeem for whatever they want seems like a great idea, but do these work any better?
Maybe retailers need to realize that at the end of the day, great prices and premium customer service are the best tools for creating a loyalty program that works.
One reason Loyalty Programs are ineffective is that everyone has the same program. In my car is a ring with 15 loyalty cards. The decision where to shop is dependent on where I am, not the card, as we have all of them. The original intent of Loyalty Programs was not two or three tier pricing. It was to bond with the consumer and minimize weekly special newspaper advertising. Except in a few rare cases, this has not happened. We are in a state like in the 50s, where everyone is giving S&H Green Stamps, thus there are no retailer differences.
There is no doubt that better targeted frequent shopper programs can increase their effectiveness. The challenge is two fold–increasing the gross profit dollars sufficiently to cover the administrative costs and avoiding hurting a customer’s self image by excluding them from certain offers.
Depending on your product and customer mix, I don’t believe the gross profit dollars are there to cover the administrative costs. Unless you have some high gross products and a large demographic that can be reached with a common promotion campaign, I just don’t think a supermarket can make enough additional dollars to cover the expense. You might be able to justify it as a way to reduce defections, but the uncertainty involved with measuring something like that really makes justification difficult.
On the other hand, you are liable to really discourage some of your best customers if you leave your 300 pound snack aisle shopper out of the Speedo ads. When you start targeting your customers you have to be really careful that you don’t somehow antagonize them, either by including or excluding them from a particular offer. If the particular customer thinks they look great in Speedo, then the retailer should too.
The responses to the survey question are all over the map…that in itself is indicative of some dissatisfaction with loyalty programs.
It would be interesting to ask consumers whether they would agree that loyalty programs actually engender loyalty. Airline frequent flier programs have provided genuine value to customers; but it’s also arguable that grocery loyalty programs have resulted only in HIGHER prices for customers who aren’t carrying the card.
When retailers can demonstrate that they understand their customers and can provide real value, the answers to the question won’t be all over the map.
While certainly popular (more than 75 percent of Americans hold at least one loyalty card according to Jupiter Research), loyalty programs may not work as well as they could. Research conducted by The Walker Group, an Indianapolis-based research firm indicates the existence of a “loyalty gap” which illustrates the point. In the study, some 43 percent of shoppers surveyed said they “felt trapped” by retailers–likely to continue doing business with them–but that they were “less than satisfied” with their relationship. With this “chasm” between loyalty and customer satisfaction, retailers can expect less than half of their customers being “loyal.”
In truth, loyalty programs can quickly become a cost center for retailers and can’t simply be discontinued, despite the fact that often become more of a mechanism for cannibalizing sales as opposed to being part of a customer acquisition strategy.
What retailers really need is to constantly measure and manage their customers’ loyalty and satisfaction, ensuring their brand promise is being executed each and every day in each and every one of their locations.
It’s necessary to make the distinction between customer loyalty, as a strategic objective, and customer loyalty programs. These opt-in programs use the banner of customer loyalty to inexpensively market to self-identified customers, and at their core, are marketing programs rather than customer loyalty programs.
What’s unclear from these programs is whether those opting in, and choosing to share their personal information, are truly loyal customers, or become more loyal once they’ve opted in. From a marketing perspective, these programs serve the same purpose that department store credit cards once served, to build a database of known customers, and track their purchases.
Being able to target specific promotional messages is not the same as building customer loyalty in your store, however. These loyalty programs may help drive more business into the store, but do not necessarily create new or more loyal customers. It’s only what happens in the store that can do that.
Customer loyalty is built one customer at a time, through the quality of their experience once they are in the store. When that experience exceeds their expectations, they’ll be back, and they’ll tell their friends. It’s what happens in the store that counts. That’s true not just for loyal customers, but for all customers. It’s how customers become loyal in the first place.
Most “loyalty programs” = discount cards. Most retailers adopt the programs because they’re meeting the competition. Most American supermarkets and drug stores feel they have to copy each other. Their promotions, displays, pricing, assortments, store designs and procedures are very similar. Loyalty cards have nothing to do with loyalty. Abercrombie & Fitch, Dollar General, and Whole Foods have no loyalty cards. But they have more loyal customers than almost all the retailers with loyalty cards.
More Discussions
As Boomers ‘Age Out of Peak Purchasing,’ How Can National Brands Retain Interest With Gen Z?
According to a recent First Insight study titled “Is Gen Z Still Choosing Your Brand,” while…Is Supply Chain Volatility Here To Stay?
Can we expect an ongoing volatility to remain in terms of retail supply chain?Has Same-Day Delivery Become an Expectation Across Retail?
Are expectations around retail delivery speed in flux?
I think Loyalty Programs are failing due to the fact that most are bad deals for consumers. Many grocers have used loyalty programs to restrict promotional pricing pass through to consumers. In almost every case, manufacturers discount pricing in return for promotional consideration and price reduction. I have experienced many occasions when a posted shelf sale price was not passed on to me because I didn’t have the retailer’s Loyalty Card.
How is it possible that Publix prospers without a Loyalty program while the vast majority of its competitors struggle? Could it be that Publix works at earning loyalty while its competitors try and find a way of “buying” loyalty? The fact is that Loyalty programs are a “silver bullet” swallowed by inept lazy management who won’t work hard enough to earn their customers’ loyalty.
I would agree that most loyalty programs are not used properly–a loyalty program should not be a paperless coupon program.
A loyalty program should be driven by collected data on the individual, shopping patterns, preferences, affinity products, and most importantly, managed by a team dedicated to maximizing the relationship between brand (and/or retailer) and consumer. It should be dynamic, topical to the retail environment, and a revenue generating program.
If the aforementioned fails to happen, then a loyalty program falls into a paperless coupon category…which aside from the waste of valuable data, is not necessarily a bad thing.
The five purchase motivations summary in this article is useful, although certainly derivative of prior work. Overall, I find no truly new insights.
Of course frequent shopper card programs do little to attract new customers–they are designed for customer retention, data gathering and communications, not for customer acquisition. In many supermarkets they are also designed to capture manufacturer promotion dollars, an agenda that tends to subvert the other goals.
The authors maintain that there is reason to offer rewards other than monetary to card holders, but they do not address how these other rewards may vary in practicality and effectiveness in different retail environments. Value added services, like access to an airport waiting lounge, are not likely to have an analog for home center store shoppers, to cite a blunt example.
So let’s re-cap the reality for most frequent customer card programs: Retailer or service provider wants to capture information about customers and use it to communicate in targeted ways that stimulate re-patronage and attract promotional dollars from suppliers. Motivations, usually monetary in nature, are promised to attract customers and persuade them to sacrifice their privacy by enrolling in the program. A vast majority of enrolled customers were already repeat shoppers to begin with. Most of those are also repeat customers at competitors, and they enroll in those programs also. Each retailer tracks its own repeat purchases and convinces itself that it owns the shopper relationships, when in fact, it’s the customer who is and always has been in control.
Almost no true affective loyalty–an emotional state–is created under this scenario. Each frequent shopper card program captures an incomplete picture of the shopper’s total purchase and consumption behavior, since card data reveals nothing about what the customer is buying elsewhere.
Card holders are aware of the manipulation taking place and they are mildly inconvenienced by it, but they play along to avoid missing the monetary rewards. This is not loyalty, it’s gamesmanship.
In deference to several well considered comments above, let’s not denigrate the value of expressions of loyalty by the retailer toward the customer. David’s examples above stand out in this regard. When a card program is used to identify best customers and acknowledge them with special treatment, it can help create the sought-after emotional bond. In the best of all worlds, a card program could be used to identify potential best customers and find ways to move them to “best” status. This is much more difficult to accomplish, regardless of the rewards offered.
Wow–so many comments–great to see how engaged everyone is in loyalty marketing!
Yes everyone (or at least too many companies) take a one-size-fits-all approach. And it is fundamentally wrong. Loyalty marketing needs to be customized around five key dimensions of any company:
1. Customers: loyalty is not about all customers but rather which groups present the most opportunity for incremental business.
2. Operations: especially for retailers, if the program can’t be delivered in the store, across channels and with employees, it will never reach and affect the right customers. Loyalty program should be about software LAST rather than the “tail wagging the dog” approach embraced by too many on the merchant and supplier sides.
3. Brand: customers have relationships with brands, not with marketing programs. This point alone nullifies the one-size approach.
4. Business model: loyalty marketing, and programs especially, should be about making more money. So there should be a P&L and a positive NPV (most programs don’t make money in year 1).
5. Distinction: Whatever a company does is relative to its competition. Merely achieving parity is challenging your competitor to do more. This goes close with being in brand synch (i.e., your brand should be distinctive to start with).
One other important concept: loyalty programs are really not meant to work in isolation. Properly done, they are platforms for differential relationship marketing. They are mechanisms to get more customers opting into the brand relationship and direct communications. This is where the promotion that Lisa references is most powerful, least dilutive and ultimately, game changing when done well.
Most merchants have done themselves few favors with their current loyalty programs. Indeed, in many cases, it’s not even a loyalty program but a discount card. Offering discounts and a few cash backs doesn’t drive loyalty. Look to merchants like Tesco who has crafted a variety of loyalty schemes, including funeral and education benefits. And look to companies like Canada’s Futura Rewards who has crafted a variety of savings programs for participants.
The really nice thing about loyalty programs is that there’s basically only one rule: create a program that resonates with the target consumer. Retailers should start by gaining a deep understanding of the target consumer’s life, both inside the shopping experience and outside the shopping experience. Then they need to get really creative and fashion a program that presents that consumer with rewards that resonate with the way they shop and the way they live.
I believe that the best retailers empower store managers to do things that create customer loyalty. And, managers should be financially rewarded based on store performance.
This is purely anecdotal, unrepresentative and unscientific but over the past three months I’ve looked at loyalty programs in three different states. Several types of store. Several types of customer. Everyone seems happy and virtually every one of the people I spoke to would have considered it irritating to be targeted with more personal offers. It strikes me as more sensible to let customers pick and choose the offers they want rather than retailers spending time and money picking for them and possibly losing some customers along the way.
Not only do most retailers execute the one-size-fits-all approach to loyalty programs but even more watered down is the fact that in the eyes of the consumer, most retailers are doing almost everything the same way as each other. Retailers need to create programs, images and concepts that offer points of differentiation and uniqueness.
Loyalty program software should and can tailor promotions to the buying habits of customers. I agree that most retailers offer a one-size-fits-all promos but some actually cater the offer to the individual customer.
Shoppers Drug Mart’s Optimum program actually sends out customer specific emails and coupons based on past product purchase and spending habits. The points redemption or accumulation offer is designed specifically for that customer.
Loyalty programs will be the key to navigating through these stressful economic times as consumers will be searching (demanding?) more value from their retail dollar. Now is the time for retailers to reach out to customers via their loyalty programs. The data is there, it’s just a matter of tweaking the offers to cater to the individual’s spending and shopping habits.
Many retail loyalty programs are one size fits all and therefore are hard to differentiate from one another and are boring for consumers. Good loyalty programs not only ask consumers to try alternative brands, but they get the consumer to buy more items in one stores, increasing market basket size.
To be successful, a loyalty program should be tailored to the individual consumer with offers to buy items that are complimentary with the products she usually purchases. The program should offer monetary and practical rewards (saving time, trying something new that fits with other purchases).
A loyalty program is part of customer service. Consumers willingly share their purchase information and in return, get something of value. Too often, retailers use discounts as the reward. In this regard, they fail to differentiate their program from a competitor’s, which defeats the whole point of a loyalty program.
Let’s not make this more complicated than it has to be. Loyalty programs are for the best customers. That is why they are called Loyalty Programs. The fact that 88% of the cardholders were shopping in that outlet two years earlier is a measure of success.
Loyalty programs are not designed nor should be designed to attract new customers. Most basically, they are geared to break the tie when two entities are offering essentially the same product. I fly American to Chicago rather than United. I go to Staples rather than Office Depot. I order online from Amazon rather than Barnes & Noble. In each case, we are looking at essentially the same product and price, but I get closer to some reward, be it miles, dollars or points that breaks the tie in my choice of purchase.
I have seen various loyalty programs across retailers. Some are less creative than others. Much of the loyalty programs’ success is simply the retailer’s desire to follow the data that is being collected.
In supermarkets, at certain times of the year, certain products are key to the retailers’ promotion. Those products are also the ones most likely to move a shopper from their primary retailer to another. In a supermarket, that might be a turkey at Thanksgiving. In this case the retailer can lock in their loyal customers by a heavy duty promotion (did I say “free”) for those loyal customers they can drive to hit purchase volume to pay for the turkey. For the next level down, perhaps it is a large discount.
The professors are correct in that various shoppers have various motivations on why they shop in one retailer rather than another. But, these motivations should be addressed in the basic profile of the retailer on an everyday basis. A shopper who loves Wegmans is not going to spend a lot of time buying their groceries at Costco. No loyalty program is going to change that behavior and neither retailer wants that behavior changed.
The way that most loyalty programs are run today, they are more of a nuisance than a benefit. At our local Jewel supermarket you have to show your loyalty card in order to get the best prices on everything. What a pain and minor inconvenience. The retailer is amassing an enormous amount of data about you and your shopping habits that is being used to make you a marketing target.
Whatever happened to the concept of rewarding their most loyal customers? Giving me coupons on something I probably don’t want that is encouraging me to spend more money than I want is rewarding my loyalty? And giving me the lower prices ONLY if I use my loyalty card when everyone has a loyalty card is somehow rewarding me? It comes across that they are insulting my intelligence at best and may not be deserving of my loyalty? Add to this the highest prices in the area and you are left with only a convenient location as a motivation to shop. Maybe they should save the money spent on loyalty programs and become more price competitive….
Ah…the discussion on customer loyalty programs continues to occur and still boggles the mind. Whenever I get a sinking disillusionment with retailing, it’s when this topic comes up. It gets worse when I hear the words customer loyalty and card program in the same sentence. They simply don’t go together. Yet, we continue to have the discussion about why they don’t work or at a minimum, are ineffective. Maybe that’s the same thing; isn’t it?
From my view there is really no such thing as a ‘customer loyalty program’. Retailers don’t own customer loyalty, thus how do you have a program that has nothing to do with loyalty and think it is returning it to you? Customers own their loyalty–period. No card, no program, no incentive, no reward has anything to do with loyalty. It is what it is. It’s a futile program with an ulterior motive.
When you force a customer to do something for something that they never had to do before; how is that creating loyalty? Sure, you can offer customer rewards, but that doesn’t create loyalty either. It does nothing more than create an incentive for customers that are willing to jump through the hoops that you have provided them and get something for doing so. I’d rather see that happen with dogs on old reruns of the Ed Sullivan Show than have to do so to buy groceries and not get ripped off.
Loyalty is created when a customer chooses you, when they have other choices. It’s that simple. That loyalty is theirs. It’s not the retailer’s to incent or win with a swipe of a card. They respond negatively to programs that drive suspicion and lessen trust. When they question your motives, they question their motivation to shop with you.
Sadly, these programs generally cost retailers millions to launch and maintain and deliver little success to the intended motive. That’s probably because they really aren’t intended to create loyalty, they have another motive.
Imagine if retailers motives were genuine. Imagine if they really understood customer loyalty. Imagine if they talked to their loyal customers without the motivation toward anything more than to understand why they choose to continue to enter their doors when there are other choices. There are other choices–for everything. Customers make them everyday. They don’t want to be hoodwinked in to thinking that they can earn a trip to Disney World or anywhere else just from buying groceries. They are smarter than that. They know they paid for it. They know that they paid too much for it. They wished you sold them what they bought for a fair price and skipped the gimmick.
Spend the millions on what will really create loyal customers. Spend it on soap. Spend it on paint. Spend it on customer service training. Spend it on the experience. Spend it on reducing out-of-stocks. Spend it on quality. Spend it on additional labor. Spend it in training the labor on your products and services. Spend it on additional service at peak shopping times. Then you might stand a chance to earn customer loyalty. It’s something you earn.
Cards, points, trips, cars, free items, card based pricing, fall nowhere into the equation of loyalty. They fall into programs that have other motivations. To think otherwise is simply dishonest.
I’ll leave the discussion about new customers to another day….
May I add to Bernice’s comments that this “research” was conducted in France and has little application here, in the continuing consumer center of the world?
Couptron is the only loyalty RefresherApp I’m aware of that reconfigures the one-size-fits-all model in a customized way. I’ve consulted on a few initiatives of this type, and that’s my impression. (RefresherApps integrate seamlessly with existing loyalty programs without compromising store communication backbones or residing on store or chain servers. It’s much cheaper than complete new program installations.) If a retailer decides to refresh its loyalty program, choosing a RefresherApp is a good way to go. They’re inexpensive and often free.
First of all, it is clear that many retailers have difficulty even doing basic loyalty programs, let alone more customized programs. Also, few programs collect such attitudinal data that would allow for motivational segmentation.
However, it is also clear that the problem with current loyalty programs is that they don’t produce real loyalty. They simply train customers to seek better deals.
Ultimately, we need to move to a dynamic marketing system where customers receive the benefits that appeal to them based on their buying behavior. For example, some retailers offer new baby programs where you buy diapers 5 times and get the sixth free or something like that. This works for any interest groups with repetitive purchases like wine, or pet food. Others offer tie-in promotions for products that appeal to the same shopper.
Successful loyalty programs focus on building relationships with customers one at a time. The loyalty comes from the relationship, not the discount.
I’m still raising my eyebrows a bit over women being “more hedonistic.” I think those labels depend a lot on the merchandise categories–I may be hedonistic in shoes and functional in groceries depending on my passions and interests. Okay, so that being said I don’t ‘think there’s a ton of new news here. This supports why the Tesco/dunnhumby model worked and why Kroger is having success with it as well.
Understanding your customers’ motivations and tailoring offers and benefits to meet their needs is fundamental to driving true loyalty–but price discounts and special offers can help pump up sales when you need them most. Many retailers may need a mix of both, just don’t call the second one a “loyalty program.”
I’m sure some companies don’t take advantage of all the opportunities that a loyalty card program provides. Sure, giving discounts is important. Giant Eagle had done a great job with gas discounts based on stores purchases. Some companies have added reverse discounts inside the store based on fuel purchases.
I have one client that makes sure each store manager knows who their top 100 customers are at each store and they are personally visited each year by the manager who presents them with a gift. Another client makes sure that his top customers, like the ones who spend over $1,000 per week in a supermarket get a trip to Las Vegas or Disney World comped to them now and then.
One client used the data to analyze market share by neighborhood on a regular basis. If the market share is declining in a certain neighborhood he will send out $5 gift cards to the people in that neighborhood. If a customer who normally spends $150 a week or more suddenly isn’t, that customer is contacted and asked why they quit shopping and perhaps given an incentive to return.
Sometimes something so simple as to plot the top 500 customers on a map can be very educational. There is really no excuse for being unproductive with card data.
An incentive to one person can be a deterrent to another. This article nails that fact perfectly. And while it’s easy to say how retailers should create loyalty programs that meet the needs and desires of each shopper, this could lead to a cost and logistical nightmare.
Sure, simply giving out “points” that shoppers could redeem for whatever they want seems like a great idea, but do these work any better?
Maybe retailers need to realize that at the end of the day, great prices and premium customer service are the best tools for creating a loyalty program that works.
One reason Loyalty Programs are ineffective is that everyone has the same program. In my car is a ring with 15 loyalty cards. The decision where to shop is dependent on where I am, not the card, as we have all of them. The original intent of Loyalty Programs was not two or three tier pricing. It was to bond with the consumer and minimize weekly special newspaper advertising. Except in a few rare cases, this has not happened. We are in a state like in the 50s, where everyone is giving S&H Green Stamps, thus there are no retailer differences.
There is no doubt that better targeted frequent shopper programs can increase their effectiveness. The challenge is two fold–increasing the gross profit dollars sufficiently to cover the administrative costs and avoiding hurting a customer’s self image by excluding them from certain offers.
Depending on your product and customer mix, I don’t believe the gross profit dollars are there to cover the administrative costs. Unless you have some high gross products and a large demographic that can be reached with a common promotion campaign, I just don’t think a supermarket can make enough additional dollars to cover the expense. You might be able to justify it as a way to reduce defections, but the uncertainty involved with measuring something like that really makes justification difficult.
On the other hand, you are liable to really discourage some of your best customers if you leave your 300 pound snack aisle shopper out of the Speedo ads. When you start targeting your customers you have to be really careful that you don’t somehow antagonize them, either by including or excluding them from a particular offer. If the particular customer thinks they look great in Speedo, then the retailer should too.
The responses to the survey question are all over the map…that in itself is indicative of some dissatisfaction with loyalty programs.
It would be interesting to ask consumers whether they would agree that loyalty programs actually engender loyalty. Airline frequent flier programs have provided genuine value to customers; but it’s also arguable that grocery loyalty programs have resulted only in HIGHER prices for customers who aren’t carrying the card.
When retailers can demonstrate that they understand their customers and can provide real value, the answers to the question won’t be all over the map.
While certainly popular (more than 75 percent of Americans hold at least one loyalty card according to Jupiter Research), loyalty programs may not work as well as they could. Research conducted by The Walker Group, an Indianapolis-based research firm indicates the existence of a “loyalty gap” which illustrates the point. In the study, some 43 percent of shoppers surveyed said they “felt trapped” by retailers–likely to continue doing business with them–but that they were “less than satisfied” with their relationship. With this “chasm” between loyalty and customer satisfaction, retailers can expect less than half of their customers being “loyal.”
In truth, loyalty programs can quickly become a cost center for retailers and can’t simply be discontinued, despite the fact that often become more of a mechanism for cannibalizing sales as opposed to being part of a customer acquisition strategy.
What retailers really need is to constantly measure and manage their customers’ loyalty and satisfaction, ensuring their brand promise is being executed each and every day in each and every one of their locations.
It’s necessary to make the distinction between customer loyalty, as a strategic objective, and customer loyalty programs. These opt-in programs use the banner of customer loyalty to inexpensively market to self-identified customers, and at their core, are marketing programs rather than customer loyalty programs.
What’s unclear from these programs is whether those opting in, and choosing to share their personal information, are truly loyal customers, or become more loyal once they’ve opted in. From a marketing perspective, these programs serve the same purpose that department store credit cards once served, to build a database of known customers, and track their purchases.
Being able to target specific promotional messages is not the same as building customer loyalty in your store, however. These loyalty programs may help drive more business into the store, but do not necessarily create new or more loyal customers. It’s only what happens in the store that can do that.
Customer loyalty is built one customer at a time, through the quality of their experience once they are in the store. When that experience exceeds their expectations, they’ll be back, and they’ll tell their friends. It’s what happens in the store that counts. That’s true not just for loyal customers, but for all customers. It’s how customers become loyal in the first place.
Most “loyalty programs” = discount cards. Most retailers adopt the programs because they’re meeting the competition. Most American supermarkets and drug stores feel they have to copy each other. Their promotions, displays, pricing, assortments, store designs and procedures are very similar. Loyalty cards have nothing to do with loyalty. Abercrombie & Fitch, Dollar General, and Whole Foods have no loyalty cards. But they have more loyal customers than almost all the retailers with loyalty cards.