This article appeared in the C-store Self-Service Executive Summary, Spring 2006.
CRM and loyalty programs garner a lot of attention these days, but the concept of buying a customer's loyalty isn't new. From giving away glassware with laundry soap during the Depression to offering S&H Green Stamps with grocery purchases, retailers have long sought ways to encourage customers to keep coming back.
Today's programs are a bit more complicated and sometimes downright confusing for customers. Too many cards, points and discount promos to track can leave customers frustrated. Retailers must make their programs meaningful, personalized and accessible to both potential and existing customers.
Successful loyalty programs are geared toward helping retailers build relationships with consumers and tailoring promotions based on shoppers' transaction histories, rather than blanketing them with generic offerings.
Worth the cost?
Despite the desire to build strong repeat business, some retailers don't offer a loyalty program because historically they have been too expensive. Loyalty programs have meant buying, installing and licensing software and then managing the program with a staff untrained to make the best use of the information provided — all of which could cost millions of dollars.
An alternative to building and implementing a loyalty program is using a third-party application service provider. In essence, retailers can rent the software and maintain complete control over promotions and communications without having to pay staff to maintain the database.
Retailers use the Web-based applications to set up targeted offers that can be triggered by a date or a behavior. For example, any time during the year a retailer can create a Christmas offer for customers who spend a certain amount in November. Or, customers who have visited a store's Web site but haven't made a purchase in three months can receive personalized messages that show up on the site the next time they log on.
"Great retailers should focus on product. Just as they've outsourced bill payment and real estate management to third-party providers, it makes sense for companies to outsource management of their loyalty program," said Mark Goldstein, chief executive officer of San Francisco-based Loyalty Lab. "Instead of spending millions of dollars to do these things, why not rent it and spend $5,000 to $10,000 a month?" he said.
Case in point
York, Pa.-based Pfaltzgraff Co. began its store-branded credit card point program in 2004, but the dinnerware company found that the program was not well received by its most loyal customer base. "Customer feedback was that they didn't want another credit card," said Barb Grafton-Stoner, vice president of catalog and Internet operations at Pfaltzgraff.
In mid-September, Pfaltzgraff launched a Web-based loyalty program created by Loyalty Lab that enables the company to track customer behavior so that it can deliver targeted promotions through e-mail, direct mail and eventually through text messages on cell phones to specific audiences.
When the Pfaltzgraff Orlando store is having a sidewalk sale, the company can send out a promo to area customers alerting them to the sale and offering incentives for purchases. Reports from Loyalty Lab help Pfaltzgraff to provide promotions that will be meaningful and useful to its customers.
"Relevancy is a definite driver," said Gartner Inc. analyst Adam Sarner. "Personalization doesn't always mean high touch. It means understanding what that customer wants and delivering it."
Customers' control
Web-based loyalty programs are a valuable way to build relationships with customers and allow them to direct the nature of interactions. Customers have complete access to their accounts. They can choose which types of rewards programs in which they wish to participate, opt in and out of specific buying clubs, see the progress of their points and even request not to receive promotions of any type.
"Consumers now expect rewards," said Goldstein. "CRM and loyalty programs help retailers do a better job of reaching out to customers."
