Creating Visible Customers Using 5 Steps

As seen through the eyes of a typical shopper, the current model of retail loyalty programs leaves something to be desired.

Though most every retail program offers some form of value to consumers, most of them suffer from the same fallacy: that loyalty to a store credit card equals loyalty to the store.

The two agendas are often at odds. If you don’t have a loyalty program, all of your customers are invisible to you. If you do have a program, but you insist that the customer use only your tender type in order to participate, then many of your good customers are still invisible.

To reveal them, follow these words of advice:

Resolve your credit schizophrenia. Ask yourself whether you are a retailer or a card marketer. It’s difficult to succeed simultaneously in both agendas. Card brands have become so powerful, and the big players have grown so large, that in order to win the battle for share of wallet, they’ve chosen to add significant value to their cards. This value comes mainly in the form of rewards. As a result, the card business has developed huge muscle behind a shrinking list of monster brands: American Express, Bank One, MBNA and Citibank, to name a few.

So the rules have changed. Retailers that 10 years ago could effectively position their store cards against the general-purpose cards are watching the credit sales penetration of third-party cards grow like kudzu over their customer base. The retailer that continues to fight this battle by requiring loyal consumers to use the store card is ignoring reality: Many good customers would rather be invisible than give up their miles or their GM rebates, and many other good customers still prefer to pay with cash and checks. Offer a multitender loyalty program, and previously invisible customers will magically reveal themselves, inviting you to engage them.

Offer recognition and rewards. Customers invariably respond to the right combinations of recognition and reward – soft benefits and hard benefits. Success lies in delivering compelling hard benefits and defining soft benefits.

A compelling hard benefit is a tangible reward, irresistible in perceived value and available free to the member. Don’t mistake discounts for hard benefits. Discounts are not rewards. They’re soft benefits – economic, certainly, but privileges available to members, requiring the customer to spend in order to realize them. Naturally, customers will take all the discounts you offer them. But discounts are easy to copy, lack memorable effect and only increase the customer’s focus on price.

Looking for a prototype?

Try the frequent-flier mile. Free travel is irresistible to most people. Its perceived value almost always exceeds its actual value, and nobody wants to leave any miles on the table. Customers always make sure they get their miles. But miles aren’t the only compelling reward. Free long-distance minutes, free restaurant meals and free movie rentals are tangible, effective rewards.

But rewards are only half the story. Soft benefits are equally important to your most valuable customers, whose loyalty demands legitimate evidence of their special status. Special status means special treatment, special deals, special access, special events – whatever it takes to reinforce the sense of importance of those top-tier, high-value customers. Defining soft benefits sets apart your relationship with your best customers, offering experiences unique to your product/service and unavailable to nonmembers.

Customize your communications. Most retail loyalty programs, particularly department store programs, excel in member communications.

If mass mailings were the key to loyalty, customers would beat down your door after each new quarterly mailing.

Do they?

If not, it’s time to make the move to customized communications.

Take, for example, Musicland Corp.’s Replay program in which the type of music you buy has a direct bearing on the content of the newsletter you get in the mail and the special offers you receive. If you’re a country music fan and you receive a postcard with a 2,000-bonus-point offer for buying the new Metallica CD, you’ll throw it away. If you get the same offer for the new Dixie Chicks album, you’ll probably feel recognized and rewarded. It’s a wonder why all retailers don’t customize their offers.

Deliver real-time rewards. It’s the holy grail of retail loyalty: the ability to deliver points and reward redemptions in real time, with no monthly statements, receipts or coupon clipping.

In a sense, real-time loyalty has been around as long as punch cards. If you have a Subway Club card, and you get it punched every time you buy a sub, and when the last hole is punched you can immediately redeem the card for a free sub, then isn’t that a real-time reward?

So why spend money on expensive technology that only amounts to glorified hole-punching?

Advocates of real-time loyalty have an easy answer: It’s all about increasing recency and frequency. By combining the punch-card model with state-of-the-art data mining, the sky’s the limit. Not only can you reward a customer with a $10 gift certificate printed on the receipt the moment she reaches a reward level, but you also can tailor the reward based on her spending. Or you can target rewards based on purchase history and demographics.

And you can do it all within the framework of the transaction, without the delay of points statements. In the next few years, competing technologies – some based on smart cards, others on magnetic-strip cards with point-of-sale readers – will bombard retailers with enticing real-time loyalty solutions. Do the research, compute the return on investment within an inch of its life and join the party. If you don’t do it, your competitor will.

Accomplish click-and-mortar integration. To polish any old marketing term with a spiffy new Internet-savvy image, just add the “e-” prefix to it and watch the stampede of IPO dollars. This is the case with the current rush to deliver “e-loyalty,” as seen in the loyalty models of the top two players on the Web, MyPoints and Netcentives. Both companies offer turnkey solutions built around an open-earn/open-burn coalition model to help struggling Internet retailers lure online shoppers.

If you’re a merchant without a loyalty program that participates in one of these online coalitions, ask yourself what you are getting for the deal.

Are you delivering true value to your best customers, or are you just delivering eyeballs and fattened membership roles to your online partner?

A better approach might be to build your own strong loyalty program in the “dirt map” world, then extend it to the Internet. If you’re not doing it already, you should be. Everyone talks about the click-and-mortar business model. Ask 100 retailers whether they’ve integrated their online and offline worlds and 99 of them will say yes.

But are you really integrated?

Is there a members-only section of your Web site where members check point balances and earn and redeem points online?

Can members order goods online and return them at the offline store?

Are you tracking transaction behavior online and at the POS?

Sending targeted e-mails as well as snail mail?

Customers will migrate to those programs that allow them to move seamlessly between your physical and virtual enterprises.

Rick Barlow is chairman/CEO of Frequency Marketing Inc., Cincinnati.

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