How much extra are your regular customers worth?
"We would like to introduce a card program that rewards our regular customers. Neither the standard two-tier pricing nor the 1% (point-based) rebate programs seem to reward regular customers enough. What are you seeing that might address our goal?"
This was the essence of a recent call from a very successful food retailer. It excited me: here was someone who not only wanted to make rewards the centerpiece of his company's "loyalty" card program but wanted to quantify how much he should deliberately set aside to reward his regular customers, so that he could measure and manage his investment.
The call reminded me of Gerald Weinberg's Law of Raspberry Jam: The wider you spread it, the thinner it gets. And the thinner it gets the less you taste it which describes many "loyalty" card programs today. Weinberg tells us that if you want customers to take notice put a blob of jam on just one part of the slice; don't spread it thinly. If customers don't taste (and remember) the jam, you are wasting your money. My caller clearly understood the principle.
So, how much extra should your regular customers be rewarded? And how can you make your rewards meaningful, memorable, and measurable?
What follows is a composite picture of practices of various retailers in several countries quietly rewarding and retaining their regular customers. It foreshadows a new element in card-based marketing of food (and some non-food) retailers.
Imagine having a program...
Launching your 5% Rewards Program
Imagine a quiet, in-store launch with no radio, TV, or circular promotion (remember, this is a rewards program for regular customers, not a promotional program for all in the marketplace). Customers entering your stores see large signs and one-page explanatory sheets highlighting a list of 12-15 items at crazy unbeatable prices available every day as rewards to regular customers. Possibly the items are eggs for 1c each (12c dozen), soda pop for 5c can (60c 12-pack), bananas for 9c lb, and diapers for $3.99. These are in addition to your regular promotional program. Such crazy prices remain the same for 6-12 months (seasonal items for 1-3 months) for the longer the price period, the more you "own" each price in your customers' (and the marketplace's) minds.
To receive such rewards for being a regular customer, a customer simply redeems a specified number of points (eg, 100 points for the bananas and 200 points for the eggs). Points come easily to regular customers. Typically, a customer accumulates them based upon her spending, when she buys bonus point items, and when she gains additional points on multi-point purchases. All customers are invited to opt into the program: most regulars will, many irregulars may not (because rewards are based on spending).
Obviously, if you don't have a card program in place, you launch your new rewards program.
If you already have a card program, such as two-tier pricing, you decide to either add these rewards to the two-tier program or you can retire the two-tier program and just focus on rewarding regular returning customers.
Alternatively, if your existing program is the standard 1% (point-based) rebate type, this is a great opportunity to replace it with a more flexible, more competitive and more compelling program. The biggest decision in this case will be how to best handle members' existing point balances during the transition to the new rewards program with its different point-based configuration.
Underpinning this deceptively simple program lie four key decisions: choosing the crazy price Loss Leaders, their markdowns amounts, the number (and weightings) of points issued, and then how they are financed. The following will familiarize you with the program's decision-points and metrics.
7-Step Planning Process
These steps are presented to help you create your own Customer 5% Reward Program:
Who Wins When Giving Your Regular Customers Access to Additional Value?
What's Special About this New Approach?
It's a rewards program. It focuses on your regular customers with rewards that are meaningful, memorable, and measurable. Its purpose is refreshingly clear: to reward your customers' loyalty. In addition, it integrates merchandising with your card program; it muddies the price gap between you and the competitive low-price giants; and it gives your customers more reasons to return. There's really only one question: is 5% of your Gross Profits enough? The answer, from the numbers I have seen, is yes - to start. Once your Rewards Program settles down, however, you will discover what happens when you offer more rewards. The optimal percentage has yet to be discovered!
The techniques and metrics Brian Woolf has developed have become guiding principles for those operating some of the world's most successful programs. He is the President of the Retail Strategy Center, and has consulted, and spoken at conferences, in the US, Europe, Japan, and Australasia.
Prior to his total commitment to loyalty marketing, his corporate roles included Deputy Managing Director of Progressive Enterprises, a major New Zealand retailer; and Chief Financial Officer of Food Lion, a leading US food retailer. He has an M.Com. (Economics) from the University of Auckland, New Zealand, and an MBA from the Harvard Business School.