Loyalty Optimization

The opening lines of a recent newspaper article were: “One big-box book retailer, Borders, has toppled into bankruptcy protection.  E-books and Amazon.com are changing the fundamentals of how people read and buy books.” The gist of the story was how independent bookstores are surviving by being creative with how they attract, retain, and build customer loyalty. 

Their creativity didn’t involve cards or points or the traditional loyalty program approach. It was all about customers and knowing what they want and the environment in which they like to shop.  They got creative by paying attention to the entire customer experience.

 Let’s face it. The fundamentals of how customers shop and interact across all industries are changing.  Businesses need to take a cue from the independent bookstores and start paying attention to the entire customer experience – all 360 degrees of it.  To be truly effective, loyalty programs need to expand to encompass all customer interactions not just the rewards-for-shopping portion.

The article offered some examples of what these bookstores are doing to survive.  It was some really good stuff – stuff that can be applied to all industries. 

Being Recognized in a Crowd

Personal connection is the cornerstone of creating customer loyalty, and these independent bookshops create it by knowing their customers well enough to know what they’ll like as soon as they come in the door.  They can walk them right over to the “staff recommendations” section, point them to a book they will like, and be correct about it!  Larger companies can’t necessarily recognize customers within the crowd of individuals who pass through their doors daily, but they can leverage technology to know those customers. 

Individualized offers and recommendations right at POS are the equivalent of walking a customer to the “staff recommendations” section and pointing to a relevant book.  What would happen if the cashier at Macy’s hands my card back to me along with a coupon linked to it for shoes that match the outfit I’ve just purchased?  It’s actually easier than you think.  It’s all about using technology to a) identify your customers, b) make a suggestion of what they might like (based on that purchase or their purchase history), and c) communicate that merchandise recommendation in a convenient manner — right at POS.

 Staying Longer and Spending More

I’ll tell you what would happen, I would end up staying in the store longer and probably spending more money than I ordinarily would have.  Why – because I would have had no idea there was a gorgeous pair of shoes that would match my new outfit perfectly had it not been “recommended” to me at point of sale.  At a minimum, I would walk over to the footwear department to check it out.  (I am only human, after all and not impervious to a great looking pair of shoes!)  Create a meaningful shopping experience for me, and I will respond – with my wallet and with my loyalty.

But wait, there’s more

This is just one example of a learning we can glean from the survival of the independent bookstore.  There were more great ideas in the article than a single blog post can handle, so we’ll cover a few more of them over the next couple of posts.  Stand by – it’s really great stuff.

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I am a loyal Starbucks customer – have been for years.  Why – because according to my taste buds, a Starbucks non-fat latte is like nectar of the gods.  Every time; without fail, I receive a quality beverage.  Some people call my passion for a $4 cup of coffee crazy.  I call it an indulgence that I deserve, at least once a week.

I estimate that Starbuck’s receives around $200 a year from me.  So what now?  Should Starbuck’s be satisfied with the fact that I purchase my lattes only from them?  Should they be content with my $200 annual contribution?  I think not.  Sure, they want to retain me as a customer, and they will – unless they start serving “sucky” lattes.  But, Starbuck’s is missing an opportunity to grow my business – leverage my passion for non-fat lattes to increase my annual spend to $300 or even more.  So how might they do it?

1. Don’t reward me for buying weekly lattes

In the current program, rewards kick-in after 15 purchases.  So, in my case, I can start getting rewarded after about four months or even longer since I don’t think there’s a time requirement or expiration date.  Here’s the problem, I will receive rewards for doing the same thing I have done for years.  If Starbuck’s wanted to motivate incremental purchase activity, they might consider layering in a time frame.  So, for example, I might get an incentive if I make eight purchases in one month.  By doing this, Starbuck’s lowers the reward threshold but rewards me for my incremental behavior only – in this case, I’d be doubling my purchase visits.  Those incremental visits could actually fund my reward (You’re welcome, Starbuck’s).

2. Don’t reward me with lattes

I typically buy a latte regardless, so why not reward me with something I don’t purchase today but might be interested in purchasing (perhaps based on the behavior of other customers who drink non-fat lattes)?  If it’s free, I might try a menu item I’ve never tried before.  If I like it, who knows, I might just order it along with my latte on my next visit.  It’s called up-sell, and loyalty programs are tailor-made vehicles to up-sell customers and grow their value.

3. Recognize that my lattes are non-fat

Because all of my purchases are non-fat or light beverages, Starbuck’s can make some inferences about my preferences then use that information to determine my “up-sell” reward.  So, for example, when I am ordering my morning latte, perhaps my reward could be a cup of oatmeal.  I’ve not tried their oatmeal, but it is a healthier selection, and perhaps I might actually start ordering it on a regular basis.  It’s important to look at your customers’ purchase history to make sure your rewards and offers are meaningful.

What is one more purchase worth to you?

What if you could get your customers to purchase one additional item when they are shopping with you?  I’ve done that calculation for clients before, and the potential impact to their sales is tremendous.  Remember, good loyalty programs build loyalty.  Great loyalty programs build loyalty and steadily increase the value of their members over time.

What is your loyalty program doing for you?

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