The Art of Loyalty Programs

Discount art supply chain Jerry’s Artarama’s loyalty program is brimming with customer data, lush with complex algorithms, and bursting with detailed recency, frequency, and monetary-value (RFM) performance metrics. Yet, one of the program’s most important features defies measurement altogether.

Online customers in the retailer’s most valuable segment (a “VIP Super Group”) discover handwritten thank-you notes and gift cards for meals and other surprise goodies when they unbox the art supplies they ordered. A handful of VIP orders are tagged to receive these unexpected treats via a randomizer application each week. The customer loyalty impact of this activity is not formally tracked, notes Jerry’s Artarama Director of Marketing Michael Marchetta. “Certain things cannot be quantified, and certain things shouldn’t be quantified,” he explains. “For this, we’re operating from our personal feelings more than anything else—we’re grateful to our customers.” Besides, Marchetta adds with a laugh, “nobody’s told us they don’t like these notes and gifts, so I’m assuming it’s OK.”

This personal form of customer engagement complements the highly structured loyalty program management processes and technology the company has developed in recent years.

Greater strength through higher value
Founded in 1968 by Jerry Goldstein, the company currently operates 15 retail stores and serves a total of more than 200,000 customers worldwide through its ecommerce capabilities. The company’s founding mission, a pledge to bring down the cost of art supplies via discount, remains intact, as does Goldstein’s belief in treating customers like family.

Customers, many of whom are artists and art educators, possess several fairly unique characteristics. They’re extremely passionate about their craft, express a strong desire to connect with other artists and to participate in artistic communities, and are loyal to their preferred brands. Those qualities explain why Marchetta’s team engages with customers through numerous social media channels—including the company’s own blog, Facebook, Google+, Pinterest, Twitter, and YouTube—and in-person events, such as training sessions, workshops, and artist showcases.

Marchetta’s team tracks how customers engage in these channels and then combines that data with RFM metrics (e.g., order value, repeat order, number of orders) to establish customer segments based on projected lifetime value and to propel its loyalty program. “The goal is to move customers to higher-value segments,” Marchetta notes. “What’s most important is that we communicate with them in a relevant manner regardless of which segment they’re currently in.”

Jerry’s VIP program operates via three enabling components:

  1. Data: The crucial technological step is the pushing of Jerry’s order data into the Bronto’s marketing platform it uses via the technology’s conversion-tracking functionality and its application programming interface (API). This data is highly detailed (i.e., it includes the product names purchased by customers).
  2. Measurement: Using Bronto’s RFM metrics and segmentation tools, Jerry’s creates customer segments, including two VIP segments. Jerry’s monitors metrics within these segments, such as total number of orders and total revenue of orders, and uses them to determine which segments to target and which content to send.
  3. Offers: Jerry’s Artarama targets its most loyal customers with relevant content and special offers to keep them coming back for more.

Through one loyalty program offer, VIP1 customers receive different emailed discount offers (a 20% discount on orders over $99, and 25% off orders over $149) than regular customers (20% off orders over $119 and 15% off orders over $79). Customers in the VIP2 segment received a slightly different offer: 30% off orders over $299 and 25% off orders over $149.

The tailored offers paid off. While regular customers posted an open rate of 14%, VIP1 customers had an 18% open rate and VIP2 customers had a 29% open rate. What’s more, the conversion rate and revenue these offers generated were roughly twice as high for VIP1 customers and four times as high, respectively, for VIP2 customers as compared to the same measures for regular customers.

“The larger our high-value customer segment is,” Marchetta says, “the stronger we are as a company.” During each of the past three years, then, the company has grown 15 to 20% stronger—the annual growth rate of the size of the VIP segments, according to Marchetta.

“Thank you” does double duty
Jerry’s loyalty program succeeds, Marchetta believes, in large part because the company strives to listen carefully to its customers. Doing so requires data. The type of relevant, lifecycle messaging the company creates “is not possible without detailed data,” notes Emily Keye, Bronto’s senior marketing strategist and deliverability consultant. Jerry’s “has found that offering [its VIP tiers] special incentives that only they are privy to has helped boost repeat purchases,” Keye adds. “These messages are presented in an ‘only for our VIPs’ manner.” For example, VIP customers who have purchased specific brands receive an automated VIP message (“Unadvertised Insider Offer Just for You”) that offers customers an incentive if they purchase a product from one of those specific brand again.

Jerry’s carefully tracks those offer-based repeat purchases, but another special message—the handwritten thank-you notes and surprise gift cards that VIP customers randomly receive—may be even more valuable because they essentially do double duty.

“We spend a lot of time writing notes,” Marchetta says. “Our department loves this work.” Indeed, each year the thank-you writing extends to the entire workforce: The marketing team enlists colleagues to jot notes of appreciation (while providing a bit of insight into their role) for the company’s annual anniversary sale, a roughly two-week period in which these notes are included in the orders of all customers, regardless of their segment.

“It’s a great morale booster inside our company,” he adds, “and it connects us closer to our consumers through our company’s values.”

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