A Three-Step Approach for Retail Loyalty Program Success

by

Analyst, Software Advice

Deep discounting with online services like Groupon and LivingSocial allows retailers a way to quickly attract new customers, and many retailers have jumped on the daily deals bandwagon. I wrote about daily deal companies back in July, and concluded that these programs do have their place and merit.

However, many retailers are paying the Groupons of the world to access a group of customers – only to have those buyers never return after redeeming their deals. With this type of quick-sale model, it can be difficult for retailers to follow up with customers and retain them.

Retailer-managed customer loyalty and rewards programs can help establish the right platform to retain and analyze key customer data, while cultivating an ongoing relationship with buyers.

Effective Loyalty Programs Offer More than a Free Sandwich

Many retailers have some form of a loyalty and rewards system in place, but far too often these are punch card rewards. While free sandwiches are great on the tenth visit (who doesn’t love a free sandwich?), paper punch cards fail to capture rich data about who customers are and what types of products they are purchasing.

With customer-spending data to analyze, retailers can make better decisions about product inventory and future sales/promotions to offer. Central to a successful retail operation – and loyalty program – is having the right point of sale (POS) software in place, and many of today’s POS systems offer customer relationship management (CRM) and loyalty program features to provide retailers with the tools they need.

Whether retailers are looking to develop a new loyalty program or rejuvenate an existing one, here are some best practices to keep in mind.

1. Create a Program that Drives Loyalty

First and foremost, a good loyalty program needs to be exclusive (but easy to join), offer rewards of high perceived value (but not at the retailer’s expense) and present your brand in a positive way. A few other key points to consider:

Discount your items for members only. Promotions should put the retailer in a position of gaining repeat customers. Providing non-members access to discounts reduces the allure of loyalty programs and dilutes their effectiveness and appeal. Ensure that promotions are for registered customers only, and use them to entice new customers to join the program. Retailers will need a POS solution that can identify loyalty members using a membership number at the time of sale to provide rewards and track purchases.

Premium (pay) programs should always provide a premium service. Customers have been spoiled by premium rewards programs such as Amazon Prime, but there’s a reason people pay $79 per year for the service. The program offers great shipping rates on purchases, and this encourages customers to return and spend more. Today, traditional point accumulation programs shouldn’t have a fee. Only premium programs should. Some of the country’s largest chain retailers are realizing this. Best Buy recently removed the yearly fee for their Reward Zone points program, and now provides a rewards program based on points per dollar spent.

Offer rewards that are worth something. If your program has a prize at the end of the tunnel, make it worth customers’ while. That means retail rewards programs shouldn’t match the Dave and Buster’s arcade model. That is, don’t make customers spend hundreds of dollars to receive a generic, cheap and uninteresting reward. Instead, provide a reasonable reward of higher perceived value that also encourages continual spending and participation – like future discounts.

2. Develop Program Membership

Developing a strong program oftentimes sells itself, but taking the initiative to get the program snowballing goes a long way, too. Most important in developing a large loyalty membership is making the program easy to join, easy to use and easy to share with customers’ friends and family.

Reduce the point of entry for program access. In 2011, leaving a membership card at home shouldn’t bar customers from receiving purchase credits. Allow customers to use their email address, phone number, account number or a unique user name to connect purchases to their loyalty account. It’s a win-win because the retailer gets more valuable data, and customers receive more reward benefits.

Entice customers to return – and bring a friend along, too. These rewards hit on multiple levels: they provide incentive to return to your store, as well as bringing new customers in. For example, a local burrito chain in Austin recently ran a promotion where if a customer brought a friend on the next visit, both could eat for $10. Loyal customers are some of your strongest brand ambassadors, and sharing a good experience is likely to rub off on friends. Email marketing features within POS solutions allow you to easily reach out to members and have them connect with friends for additional rewards.

Integrate with social media and check-in applications. There are a number of social media opportunities for retailers out there, but it takes more than just inputting your information on your Yelp page or securing twitter.com/yourbrand. Ensure that these media are actually encouraging browsers to join your rewards program. For example, put a promo code up on Twitter, or offer a discount for loyalty program members when they check-in with Foursquare. Using the database within the POS system, retailers can track which promotions are most effective, and which customers redeem them.

3. Collect and Analyze Good Customer Spend Data

Once you’ve developed a great loyalty program, mining data to discover trends, weaknesses and strengths is one of the greatest benefits of a loyalty program – as well as one of the most frequently ignored or underused. This is where POS systems with strong CRM and loyalty-specific functionality become a great asset.

Play to different customer types. Sales expert Mark Hunter describes five different types of customers that are all important to a store’s success. The discount shopper is much different than the need-based or loyal customers. Creating multiple reward methods – or individual plans – can expand the depth and reach of a program, leading to data that is more indicative of the average store customer. Retailers using CounterPoint by Radiant Systems have the ability to customize multiple loyalty programs and set parameters such as point ranges per purchase and redemption methods.

Allow for multi-channel rewards redemption and access. If you’re a multi-channel retailer and have both a physical and online presence, customers should be able to redeem and receive credit for both types of transactions. A great example of this is Barnes & Noble’s reward program, which allows customers to receive a percentage discount on all items both in-store and online. POS systems with integrated e-commerce portals can log customer purchase information in its internal database.

Make promotional decisions based on sales analysis. Analysis of your sales can identify your weakest or slowest moving items, making them potentially great promotional items to your loyalty members. Alternatively, you can find the items that sell the fastest and allow loyalty members first chance at purchasing them, further developing the value of the program. Reporting tools that pull customer data will be useful in determining future promotions. In addition, retailers using Retail STAR from Cam Commerce can assign specific reward values on either a per-item or per-department basis, allowing retailers to create a very personalized program.

 

I’m interested in what loyalty programs you’ve found effective, and what are the key factors to consider in managing these programs? Please share your experiences below.

Thumbnail created by Dennis Hill.

 
  • http://twitter.com/JitendraGupta Jitendra Gupta

    Michael, 

    Thanks for emailing me a link…Good post. I completely agree with you that if a retailer’s loyalty program is not collecting data on the customers then the retailer is leaving money on the table. There are two issues:

    1. Collecting customer data via POS system is not optimal as you are likely to slow down your line speed. This can be huge issue for a restaurant that gets a lunch crowd etc. Taking an additional 5 seconds to serve one customers can end up costing you a pretty penny ($0.5/second/customer based on one estimate at a restaurant)

    2. Most retailers have very little idea of what to do once they have a lot of data. Processing data and gaining insight from it requires expertise that most small retailers and even some big retailers do not possess. What is needed is a turn-key solution that is designed to not only collect data but also to process it and drive important follow on actions like sending emails or offers to individual users. 

    Couple of other things a retailer’s loyalty program should do are:

    1. Bring back customers – Most POS based program give users cards or are based on customers phone number/email. These programs do very little to bring back customers. Just imagine that you are watching a baseball game and you don’t know the score…Are you going to keep watching it? A loyalty program should be structured such that the customers are in charge and always know the score…they should know what are they gonna get and when. Mobile loyalty program are so much more effective than POS based programs (2-4X more effective based on our studies) because customers are in charge and always know the score. 

    2. Drive referrals – Most loyal customers to a retailers come back because they like the retailer. If the loyalty program does not allow the loyal customers to interact with the business by leaving reviews etc. again the retailers are leaving money on the table. These reviews can be powerful content generators and drive viral and referral loop for the retailers to drive their profits sky high. In addition, by opening up a direct channel with the customers, retailers can avoid most ugly reviews on public sites like Yelp that have the potential to be really damaging to businesses. 

    I believe its time to rethink the loyalty programs by putting customers in charge of their programs. 

    Thanks, Jitendra
    Founder/CEO Punchh
    http://punchh.com
    Punchh cards on your mobile phone

  • Finbarr

    Hi Michael,

    Youa re absolutely correct in your analysis.

    Iwould like to add 1 more section and that is to Preplan your programme for the 6 months ahead with the various promotions that are possible.
    the biggest issue we find is that retailers start their loyalty programme with a fanfare and then it goes nowhere once the excitement wears off.

    There are three stages to a loyalty programme and retailers need to know where they are;

    1 Infancy.
    2 Adolescence 
    3 Maturity

    Infancy- 
    Symptoms=Low redemptions, High initial customer interest-database building, low promotion uptake.
    Adolescence-
    Like any adolescent child there are two directions your programme can go in;
    A. inaction and low or no promotions leading to boredom and that statement that drives me crazy “oh the loyalty is not really working”.
    OR
    B- Action with constant promotions and incentives leading to greater membership and increased redemptions and in turn increased turnover. 3,
    Stage 3-Maturity-
    -Regular Key performance analysis,
    -Rotating Rewards
    -Regular texting/sms/email campaigns 
    -Loyalty promo days, E.G. shop Wednesday for double points and loyalty only offers,
    -E.G.loyalty members all day today get a chicken for 3 euro plus dual pricing etc.
    -High redemption rates 60% plus
     However most local or small retailers and even some big retailers do not preplan their loyalty actions for the year and instead create them on the hoof. This leads to adhoc inconsistencey and poor results.
    As an example we now sit down with our clients and get them to preplan their loyalty actions for 12 months. They pick from a large variety of promotions and plot them over a period of time taking into account seasonality and other factors. Why?
    Because the technology wont grow your business-Its what you do with the technology that actually matters.
    A loyalty programme capability and a few free points will do nothing for your business but if you use the data wisely and have the right plan in place it works really well whether you are a small retailer or a department store. We have had clients who regularly get sales boosts of 30% on promotion days yet because they are well planned they may only hit the margin for that day by 1%.
    If you would like further infor please do not hesitate to contact me…

    Finbarr Malone
    CEO Customer Connect Loyalty
    http://www.customerconnectireland.com
    http://loyaltyinaction.blogspot.com/

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