Customer Loyalty vs. Customer Rewards
Two weeks ago I wrote about how gaining customer loyalty should be the primary goal of every retailer. In addition I highlighted several ways to boost your own customer loyalty for the purpose of increasing business revenue. Notably missing from that list of strategies was the execution of a customer loyalty program. One of the reasons that I did not include this option is because Loyalty programs are based less on customer loyalty and more on giving customers incentives to continue doing business with your store. These incentives can be either monetary, in the form of store credit and discounts, or giving away physical product, such as coffee and sandwiches. Customers participate in these programs not because they feel loyal toward your store, but instead because they will gain something by spending money with your store. Because these programs do not foster true customer loyalty I believe that a better description, or rather title, for these types of programs should instead be Customer Rewards Programs.
While it is important to understand that a rewards program will do little increase true customer loyalty, it should not deter you from implementing your own rewards program. In truth, rewards programs are a very useful and highly successful tool used by retail businesses of all types and all sizes. Unfortunately many businesses with reward programs do not take advantage of their full potential.
How Rewards Programs Work
There are three supermarkets within a ten minute drive of my house. All three stores carry the exact same products, have fantastic produce, amazing delis and two of them have a sit down eating area for the morning breakfast and afternoon lunch crowd. Also, for the most part, their base prices are generally close in most product categories. However every Friday when my wife and I go grocery shopping we will travel to the farthest one from our house because they have the best rewards program.
In addition to being able to take advantage of their weekly special discounts; being a part of their rewards programs entitles us to gas savings, discounts on bakery goods, pharmacy discounts, pet food discounts and access to a college savings program for our kids.
In return for these rewards the grocery store not only gains our business, as opposed to us spending money with their competitors, but they also have the ability to track our purchases and tailor their marketing specifically towards our purchasing decisions. They know for instance that we do our shopping on Fridays and because of this they send us an email with their weekly specials every Thursday afternoon, even though theyve been running the same specials since Monday. Furthermore we receive discounts on products that are tailored to our purchasing decisions. Such as our favorite brand of ice cream (Ben & Jerrys), cookies (Oreos) and soda (Coca-cola).
From a consumers point of view, it is a great thing because we get discounts for purchasing items we typically purchase anyway and are lead to believe the supermarket is just making it easier and more affordable. In reality the supermarket is actually able to increase our total dollar amount spent at the store because we end up buying things that are not necessary or that were not on our shopping list at all. Also the total costs of the discounts are very minimal to the retailer because they can be offset by operating margins and manufacture deals. For instance, the gas savings rewards program at the supermarket requires $100 to be spent at the store for a $0.10 discount at the pump. This ends up costing the retailer only $1.50 or 1.5% of the amount I spent at the store. At an average %20 – %40 mark-up the supermarket just made a huge profit at little cost and at the same time ensured my continued patronage.
Rewards Programs in Your Store
There are 4.5 million small businesses in America with fewer than 50 employees. For many of these companies it is simply not financially feasible to build such an extensive rewards programs as that of larger corporations. Luckily rewards programs take many different shapes and sizes. Perhaps the most simple rewards programs is based off of a Punch card system, in which the consumer receives a free item once they have purchased a set number of the same item. These types of programs are common in sandwich shops and convenience stores, with the prime goal being that the free reward will entice their customer to continue buying their product. Unfortunately very little information is gained from the punch card system. Generally no personal information is exchanged, there is no product tracking, and the reward doesnt prompt the consumer to make additional purchases other than their standard order.
There are a few simple and cost effective ways to improve this type of rewards program. First, require that the customer submit their name, address and email with their punch card before redeeming the reward. You can then use this information to produce a weekly or monthly email list in which you can tell customers about your up-coming specials or events. To take this one step further, create a simple database that you can use to track how many sandwiches a person has redeemed and other vital information.
Second, along the same idea of tracking information, have a different stamp or hole-punch to represent different products. As an example use a star to represent a coffee, a circle to represent a hot chocolate, and a square to represent tea. When you receive the card add this information to the database that you created and use the information not only to gauge popular products but to also to create targeted emails or mailers. You now have the ability to tell which customers drink coffee and as opposed to tea and can create an email just for them.
Finally, when a customer redeems a reward have the reward be something that they typically wouldnt buy. Example: Buy five Café subs, get a free Signature sub. This encourages your customer to try something new that may be more expensive or that they may not typically buy. If they like it you have then been able to convince that customer to purchase a more expensive product on a regular basis.
The Punch Card Rewards program is a simple, affordable way to encourage spending at your store. The only cost is the price of the card you use and the product that you give away. As you may have noticed, the information and data that that you gain from this rewards program should be information that an attentive employee should already know, especially if you practice good customer loyalty building techniques. However you now have the ability to compile this information and use it to your advantage outside of your normal face to face interactions with your customers.
The Points Program:
While the punch card system is a cheap, affordable and low-tech way of starting a great customer rewards program there are several draw backs. First there is a limit to how much information you can gain by using this system. In addition, any information that you do gain needs to be manually added to a database which requires a significant amount of time. Also the customer is only limited to one or two types of products that he or she is being rewarded for, as opposed to being rewarded for shopping in every product category. Furthermore for the less than honorable customer it is an easy system to game, as the only thing you need is stamp or a hole-puncher to appear to have purchased more than they really have.
For almost as many issues that the punch card reward program has, the computer controlled points program solves. Instead of keeping track of purchases on a piece of paper, customer sales are tracked by assigning the customer a number that corresponds with a computer database, this number is then stored on a reward card. When that customer swipes their reward card their purchase is recorded and the customer is given a set number of points for every dollar spent throughout the store. Once the consumer receive a certain number of points they can then redeemed them for a discount or free item. Credit Card companies use this sort of system as an incentive to customers to purchase products with their cards.
In addition to being able to track sales records for each customer, you can typically gain more personal information by offering special coupons for important events in customers lives. Example: Share your birthday with us and get a free coffee every year for your birthday.
Because of the nature of this type of program there are expenses associated with setting this rewards system up. To take full advantage of this program you will need to track and catalog the individual items that your customers purchase. In order to do this you will need to have some sort of Point of Sales (POS) software as well as a Customer Relationship Management software (CRM). Most commonly reward points programs are included in the Customer Relationship Management Software, luckily many POS systems have the ability to integrate with (or are already built with) CRM software. That is why my first recommendation is to contact your current POS provider and ask about reward programs and CRM integration. Odds are, if you already use a POS system, you may have been paying for this feature and not even have realized it. In that case the only thing that you will need is to purchase are standard magnetic swipe cards and you will be all set up to run.
If you are not lucky enough to have a POS that integrates with a CRM, or you do not have any POS software at all there are some good alternatives. The best alternatives that I have found use Cloud based software (software that operates over the internet). The advantage to cloud based programs is that the only hardware that they require is a computer with an internet connection.
There are several cloud based CRMs available but the best value that I have found is by a company called Firefly Rewards. Although Firefly does not have every feature than that of a more expansive (and expensive) CRM, it accomplishes the prime goal of increasing sales through promotional reward programs.
What makes firefly especially attractive is that it is free (Up to 1,000 customers) and operates on a card free platform, meaning you have no expense in printing scan cards or punch cards. After you reach 1,000 the system does require you to subscribe at the cost of $49.00 per month, which is still an affordable price. Every store is unique and will require your own evaluation on whether this cost would be worth it, but at a 1,000 customer limit there will be plenty of data to evaluate.
The down side to firefly rewards is that it does not track individual purchases but only sales totals. As such you do not have some of the more detailed reports that CRMs that integrate with a POSs have. Firefly works by looking up the customer by name (which is great for customer service because it requires your sales associates or cashiers to be on knowledgeable about their customers), and then inputting how much that customer spent in that transaction. The program then assigns a point value for the purchase and adds it to the customers account. Once the customer hits a certain number of points the system alerts the customer and they can redeem them for whatever reward you want to give them.
While a customer rewards program is certainly no substitute for building customer loyalty, used affectively a rewards program will increase your essential repeat business and help you with tracking sales and focusing on marketing efforts. In the end this will increase your bottom line. I urge anyone currently using a rewards program to evaluate it and determine if you can make it more effective. I hope that the information that I have provided will help you in that assessment and that you will be able to benefit by it. If you use my tips, have your own ideas and helpful tips, or simply want to give us a shout out, wed love to hear from you.