Until you start to segment and understand your consumer data, you'll never win the customer loyalty game.
Loyalty programs have become a common part of marketing strategies, but in the retail marketplace, fierce competition threatens the very idea of loyal shoppers. Because cards continue to fatten consumers' wallets, the deck is stacking against retailers as they attempt to secure customer loyalty. In fact, a survey conducted by Cannondale Associates, a sales and marketing consulting firm, found that as few as 24% of retailers were pleased with the performance of loyalty cards, and 20% said that cards generate incremental sales. Meanwhile, ACNielsen reported that almost 70% of U.S. households use loyalty cards and 59% that use them belong to two or more programs.
Consequently, retailers are beginning to question the very design of customer loyalty programs. The problem is that retailers aren't even sure who they should target - the person who shops frequently or the person who spends the most money each time. It also seems many retailers fail to look at what motivates customers to shop with them in the first place. Determining and applying appropriate incentives is futile without this information.
Take Some Advice From The Small Guy
Although the market may seem saturated with loyalty and reward programs, retailers can use the technology behind the cards to differentiate themselves. That's just what Green Hills Farms did when it implemented one of the first retail loyalty programs in 1993. You may not have heard of this two-store grocery store chain in Syracuse, NY, but many retailers have called upon it for advice on creating loyalty. Gary Hawkins, CEO of Green Hills, thought he knew who his best shoppers were based on the faces he saw every day. But once he started mining his customer data, he realized his most frequent shoppers were not always his biggest spenders. There was a whole other customer segment that Hawkins wasn't targeting, yet they were bringing in the most sales.
Based on the premise that no one can convert price hunters into loyal customers, Green Hills opted to focus its promotions on its top shoppers and stop mass marketing to anyone with a loyalty card. The company segmented its 15,000 customers into categories based on transaction totals and shopping frequencies. The retailer zeroed in on 1,300 customers who spent more than $50 each week (300 of whom spent more than $100 a week). When six rival supermarket chains moved into Green Hills' neighborhood over the last few years, it called upon its top shoppers with personal letters and individualized promotions. Now it boasts an 80% customer retention rate and an increase in spending among its top customers. The result was higher profits based on the same amount of shoppers.
Once Green Hills understood who its most profitable customers were, it drastically cut back on costly newspaper circulars. Now the grocer sends flyers only to the zip codes where its top customers live. In turn, the money the company saves in marketing costs pays for its loyalty program.
How To Make Loyalty A Reality
The key to maintaining customer loyalty is to identify those people who are already quality shoppers. Segment your customer population and forget about anyone who falls outside the definition of your ideal customer. They are doing nothing more than eating up your marketing budgets.
To get more out of your loyalty programs, be sure to first understand what the perceived value of your operation is among your customers. Along with this comes understanding whose loyalty it is you desire. Your program should offer incentives to those people to shop at the store more often and contain simple rules for gaining rewards and redeeming them. Chances are that most customers will not move up in shopper rank simply because you give them a plastic card. Consumers' spending habits are almost predetermined, and there is a definite distinction between price shoppers and loyal shoppers. It is possible to identify and retain loyal customers in this competitive retail world. Just be sure to gain that allegiance before your competitor does.