Fall 2006
Thank You, Come Again! By Mollie Neal

Loyalty Card and Program Options

Frequent-buyer programs are becoming increasingly popular with today's businesses. By some estimates, 15 to 20 percent of American retailers have full-scale customer-loyalty programs.

A customer-loyalty program can be as simple as offering punch cards to shoppers and rewarding them with free products or discounts based on past purchases. If you'd like to develop a more sophisticated approach, you may want to sign on with one of the many companies that offer turnkey programs. With these providers, you can generate reward certificates and acquire customer data through your point-of-sales system or separate data entry terminals. The data can be useful for making business decisions and creating long-term marketing promotions.

An inviting atmosphere, unique products, popular collectibles and an attentive sales staff surely enhance customer satisfaction in gift shops. However, these factors alone aren’t enough to keep your customers coming back. In fact, experts agree that most businesses lose an average of 20 percent of their customer base each year. One way to increase sales and retain customers is to develop a frequent buyer or loyalty program. In fact, various studies indicate that a mere 5 percent increase in customer retention can result in a 25 to 75 percent increase in profits.

The advent of the loyalty movement began 25 years ago with airlines, and has since expanded to cover every major industry. More than 75 percent of consumers have at least one loyalty card in their wallet, according to Jupiter Research. Many small business owners are realizing that you don’t need to be a household name with a massive marketing budget to develop a successful customer-loyalty program.

The keys to success

All successful retail loyalty programs share three essential elements:

A knowledgeable staff

Inviting customers to enroll and explaining the benefits are crucial. An unhelpful or poorly trained employee is often the weak link in a customer-loyalty program. Assuring customers that their information will not be sold or shared with anyone else is essential.

Real value

Customers must feel that their reward for being loyal is valuable and attainable. According to the Maritz Loyalty Poll, a survey conducted by Maritz Loyalty Marketing Inc., 69 percent of respondents stopped participating in loyalty programs because it took too long to accumulate rewards. Small rewards that are earned more often are more effective than larger rewards that are harder to earn. If your customers don’t feel their prize is within reach, they won’t bother trying.

Some retailers reward customers with free items after a certain number of purchases. However, most retailers reward customers with discounts on future purchases. “Rewards can be flexible depending on what works for your business,” says Elliot Eskin, chief executive of Pro/Phase Marketing, the Eden Prairie, MN – based provider of the RepeatRewards loyalty program. “You don’t want to make it so rich that you erode your profit margins, but anything less than a 5 percent reward is perceived to have little value.” Giving customers a $5 reward after spending $50 or $75 appears to be an average among retailers. Remember that a successful program will enhance profitability, not diminish it.

Keep it simple

Participation should be simple and easy. Otherwise, members will become frustrated and disinterested.

Types of loyalty programs

Punch-card programs

One of the easiest and cheapest ways to launch a loyalty program is with a simple punch-card program. You can purchase 250 of these cards from your local printer or online for about $50. Simply print some cards with the terms of your frequent-buyer program, your business name and contact information, and the numbers you’ll punch or stamp for every purchase. Including an expiration date compels customers to buy more often. Using a specialty stamp or a hole punch with a unique design or shape discourages fraud. These are also available online or from your local office supplies store.

This small-scale rewards program will promote your store, encourage increased sales and bring customers back. Think of the punch card as free advertising. Every time your customers look in their wallets and see their cards, they’ll think of you. The program can also be helpful during slow periods. For example,if your store is traditionally quiet on Mondays, make it your “double punch day.”

There is a downside to this approach. “Punch cards are easy for your competitors to copycat, and don’t really differentiate your business,” says Terri Gaughan, of Colloquy, a Medford, OH – based provider of loyalty marketing publishing, educational and consulting services. They’re also a dime a dozen. From ice cream shops to coffeehouses and bookstores, they are ubiquitous in today’s retail environment.

Glossy plastic membership cards

These come in the form of key tags or resemble credit cards, and thus have a higher perceived value than traditional punch cards.

Numerous service providers offer turnkey loyalty marketing programs designed especially for small businesses whose owners don’t have the time or technical prowess to launch and maintain a program on their own. Retailers generally pay a startup fee of around $300 to $600 and a monthly service fee, which usually averages $100 to $200 per month. Yes, these programs are more costly than using punch cards, but their return on investment can also be greater.

Providers of this service typically offer membership application forms and cards, in-store promotional signage and data transmission tools. When shoppers enroll in the program, you collect customer information, such as name, address, age, special dates (birthdays and anniversaries, for example) and product preferences.

Members then receive a magnetic stripe card with an embedded account number and begin making purchases.

Transactions are recorded through your point-of-sale system or via a standalone data-collection terminal, and are transmitted to your service provider. Reward certificates are printed in store, mailed or obtained via the Internet, depending on your service provider.

The benefits of a formal loyalty program

Both you and your program members can realize valuable benefits with a strategic loyalty program.

Increased sales and customer retention

You increase store traffic, retain more customers and gain a greater share of their shopping dollars. According to the Maritz poll, 80 percent of people who participate in loyalty programs say their memberships impact their purchasing decisions. RepeatRewards program members, for example, shop four times as often and spend twice as much money at the businesses offering the programs as nonmembers do, according to Eskin.

Measure performance

Ongoing reports provide valuable data regarding enrollment and redemption rates, customer buying habits and sales trends that can be used to shape business decisions.

Database management

Most service providers store your membership information in a private database. This can be segmented by customer value, geographic area, product preferences and other variables for direct mail marketing efforts that keep customers engaged in your business and generate additional revenue.

“The real value of a loyalty program for a retailer comes from the knowledge and wisdom you gain that can be used to strategically grow your business,” says Jay Upell, program administrator for Ideation’s Power Pass loyalty service. “Tracking transaction data and building a marketing database give you valuable and actionable tools to grow your business in today’s competitive marketplace,” he says.

Gaughan agrees. “A true loyalty program is a customer-centric, data-driven, financially accountable marketing strategy that will identify, maintain and increase the yield of your best customers through long-term, interactive, value-added relationships,” she says.

While loyalty programs have long been associated with big businesses, small businesses can profit from them, too. In fact, “small businesses thrive on outstanding customer loyalty,” according to Ben McConnell, co-author of the book, Creating Customer Evangelists: How Loyal Customers Become a Volunteer Salesforce. “It’s their currency of growth and their best differentiator. Without loyalty, small businesses are destined to compete on a playing field with larger competitors, where they are outnumbered and outwitted.”

Gift Shop Owners Extol the Benefits of Loyalty Programs

Residents of suburban Buffalo, NY, are looking for real value when they shop in their economically struggling community. Bill Abel, owner of The Paper Factory, provides that to the 5,000 people who are actively earning rewards through his Power Pass loyalty program. That’s about 75 percent of his repeat customers.

The Power Pass program is instrumental in differentiating his two stores from his competitors, says Abel. “The program gives customers a reason to come back,” he says.

Once customers spend $50 on regularly priced merchandise, they receive a $5 rewards certificate. Shoppers don’t just redeem their reward for an equally priced item. Instead, they spend more. Many even save the certificates and use them for a discount toward an item they wouldn’t ordinarily splurge on, like a collectible Willow Tree item (such as a figurine or ornament), Abel says.

“If you have a great store and good products, a loyalty program is a great tool to use to grow your business,” says Abel. But having a program doesn’t mean you can set your business on cruise control. “A loyalty program won’t produce revenue itself. It must be managed,” Abel adds.

Donna Lambrecht, owner of Lambrecht’s and The Christmas Haus, in New Ulm, MN, credits her friendly and knowledgeable sales staff for encouraging 9,000 of her best shoppers to become active members in her loyalty program. She rewards her members with $5 certificates when they spend $75. These are good toward a $20 minimum future purchase, excluding sale items.

“The program is well known and liked by my customers,” says Lambrecht.

Abel and Lambrecht agree that one of the greatest benefits to customer-loyalty programs is the marketing information compiled in their member databases, information that is compiled and maintained by their loyalty program service providers.

“I don’t have the time or technology to manage that myself,” says Lambrecht.

Abel uses the database to select names for an annual holiday mailing that offers a 20 percent discount. He generates an impressive 40 to 45 percent response rate, which translates into a great deal of additional income.

Mollie Neal

Neal writes about market trends, demographics and advertising issues for a variety of business and consumer publications. She can be reached at mneal@optonline.net.




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