Marketers Eye Growth in Frequent-Buyer Programs

A recent study has prompted industry watchers to suggest that 1998 will be the year in which retailers finally embrace frequent-buyer programs, leading to an expansion in the market for companies that can construct databases to help retailers target their best customers.

The study, commissioned by Retail Marketing & Advertising International (RAMA), found that nearly half of Americans belong to at least one frequent-buyer or loyalty program. Among participating consumers, 43 percent said they think that this type of program causes them to make more purchases, and 16 percent said it makes them stick with one store.

About 75 retailers and department stores now operate these programs, and Rick Barlow, president of Frequency Marketing Inc., Cincinnati, which launches frequent-buyer programs, expects that number to grow exponentially in the next 18 to 24 months.

“Retailers are embracing this. They have awakened to the necessity of using this approach,'' said Barlow, citing frequent-buyer programs as the single most important issue in the future for RAMA members. “Retailers know they have to, but they don't know how.''

Most retailers polled at the recent RAMA Conference did not have a tracking system to monitor individual customer activity. Kristen Marshall Napoleon of Marshall Marketing and Communications, Pittsburgh, which conducted the study, said that most of the companies that do have databases track only transactions using store-issued credit cards, which account for fewer than one-third of all card purchases.

Some stores, including Nordstrom, The Limited, Pier One, Toys “R” Us and Federated Department Stores, have issued co-branded cards to capture more transactions, but the databases still are limited.

Sandra Gudat, senior vice president of relationship marketing at Customer Communications Group, Denver, said retailers that already maintain a database will make a much easier transition to frequent-buyer programs than ones that start from scratch.

Database marketers can be a help to the latter group, but Gudat, who has launched 20 programs for such retailers as the Bombay Company and Macy's, said the practices of a successful database campaign don't apply to retail programs. Instead of viewing customers as prospects, relationship marketers take a more personal approach, Gudat said. Database marketers, however, could provide the technical part of the solution.

Luxury retailers Neiman Marcus and Saks Fifth Avenue have had reward and recognition programs in place for 14 years and eight years respectively, and Sears' Best Customer program has been in effect for four years. Barlow said at least three more major retailers are expected to unveil programs this year, one of which will base rewards on all forms of card payment.

“The upscale tier will respond with programs,'' he said. “It's like what happened in the airline industry — the longer you wait, the more market share you lose.''

American Airlines created its frequent-flier program in 1981, and within 18 months its rivals had initiated similar programs.

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