Chapter Twenty Seven

Do you have a Rewards Card?

More than great drinks. Great rewards.

 

“The idea is by integrating its loyalty program with other kinds of businesses, Starbucks loyalty members can earn 'stars' for free coffee in all kinds of ways when they use their phones, not just when they use the Starbucks app. We are in the process of building capability to offer stars everywhere, Ryan says. That is, the opportunity for customers to essentially earn stars at a lot of different places and take them back to Starbucks.” Retrieved from WIRED
“Customer rewards have been reviled in the business press as cheap promotional devices, short-term fads, giving something for nothing. Yet they’ve been around for more than a decade, and more companies, not fewer, are jumping on the bandwagon. From airlines offering frequent flier deals to telecommunications companies lowering their fees to get more volume, organizations are spending millions of dollars developing and implementing rewards programs. Company interest is justified and the theory is sound. Rewards can and do build customers’ loyalty, and most companies now appreciate how valuable that loyalty can be. As Frederick F. Reichheld and W. Earl Sasser, Jr., documented in 'Quality Comes to Services' (HBR September-October 1990), a company’s most loyal customers are also its' most profitable. With each additional year of a relationship, customers become less costly to serve. Over time, as the loyalty life cycle plays out, loyal customers even become business builders: buying more, paying premium prices, and bringing in new customers through referrals.” Retrieved from: Do Rewards Really Create Loyalty? – HBR; by Louise O’Brien & Charles Jones
Harrahs, the casino chain in the United States, and Tesco, a retail grocery chain in the United Kingdom, are two diverse companies operating on two different continents yet have similar stories. Both have used information technology and specific data about their customers for their benefit. Studying the data enabled them to develop business models that are quite distinct from product-centricity companies. Because both companies were smaller than most of their competitors and lacked the resources to compete head-to-head in a traditional, product-centric manner, both Harrahs and Tesco were losing out to their competitors. Reviewing customer data enabled them to acquire a deeper understanding of their customers. The insight they acquired facilitated a change in their business model that solidified the rise to the top of their industry.
Harrahs was having a hard time competing against other chains that had deeper pockets and greater resources. It was hard for them to develop products and services to compete on a head to head basis. Harrahs turned to its data and developed an amazing loyalty program. Many companies develop loyalty programs, but few of them were able to draw the actionable insights that Harrahs was to truly understand at a granular level what each customer was doing. Not only which games they were playing, but what meals they were eating, what room preferences they had and what entertainment options they sought. By studying the data, Harrahs was able to understand when the customer was likely to change his behavior and walk away from the table. To create and extract more value from the customer, Harrahs was able to change their behavior for the better by providing messages and offers at the right time, and through the right channel. Harrahs was brilliant in drawing insights and understanding to a customers threshold. If a customer went down about $150, it was time to intervene. It was time to offer them a meal or some kind of other activity which would make them feel great. But equally important, it was going to reset their customers mental account. And so when the customer sat back down, their threshold was back to zero. Harrahs was very smart about understanding that kind of message.
It's a very similar story for TESCO. Competing with other big grocery chains in the UK like Sansbury and Morrisons, TESCO turned to data and developed the OLC program. They understood which households were buying a lot of their meals and products from TESCO and they also understood which households were buying very little meals and products. TESCO knew which kind of coupons to send to which kind of households, at which time, in order to get them to buy more. This helped them not only grow the business with their customers, but also helped them to compete more effectively.
When Walmart bought a small chain and entered the UK, TESCO knew which customers were most vulnerable to switch to Walmart, and which products they'd likely buy from Walmart. TESCO knew again which coupons to send to which households, at which time, in order to really hold on to those customers and bolster their business. By understanding its customers, TESCO is able to do a great job defending itself against Walmart and staying at the top of the grocery business in the UK. These are only two examples of companies that have turned to data. These companies leaned heavily on the data and a rich deep understanding of their customers, in order to pivot their business model in a way that they could never achieve, through products and services alone.
Quote Icon Clubcard was one of the most important retail innovations of the 20th century. Its nationwide launch in 1995 was the foundation of Tesco’s rise to becoming the dominant retailer in the UK and one of the biggest in the world. The loyalty card, and particularly the Dunnhumby database behind it, provided Tesco with an unprecedented level of detail into who its shoppers were and how they shopped. Using the data from Clubcard, Tesco was able to predict consumer trends and react to them. For the past two years, sales have been consistently falling in the UK. With internet shopping becoming increasingly influential and more families turning to the two German chains, Aldi and Lidl, Tesco was losing market share. It could be time for the supermarket to be radical again. It could be time to axe Clubcard. It is almost heresy in the retail world to question Clubcard, or similar loyalty cards such as Sainsbury’s Nectar, given the vast amounts of data that they provide retailers. However, judging by correspondence from Telegraph readers and disillusioned shoppers, one of the reasons that consumers are turning to Aldi and Lidl is that they feel they are simple and free of gimmicks.Quote Icon Retrieved from http://www.telegraph.co.uk Jan 16 2014

 

Shoppers are questioning whether loyalty cards, such as Clubcard, are more helpful to the supermarket than they are to the shopper. The modern family is shopping little and often across convenience stores, online and supermarkets, rather than conducting one big weekly shop. For the promiscuous shopper, the value of points built up at one retailer is diminished. Mark Price, managing director of Waitrose, said points had become “meaningless” to many shoppers. Waitrose introduced a loyalty card that offers shoppers a free cup of coffee or a newspaper. “Giving free coffee or free newspapers is disruptive to the market, but I think that is what customers want, I don’t think they want a point. I mean, what is a point? I think it’s meaningless. It doesn’t have the affinity you can gauge if you engage with your customers in a different way. It is about what consumers value today, not what they valued historically. So Green Shield Stamps, or points, were a response to what happened post-war to people having tokens and collecting things. I just don’t think that is where the world is now.” Mark Price quoted in the website thedrum 12/27/2013 Implementing across-the-board price cuts encourages families to buy what they want, rather than what the supermarket suggests they should buy through vouchers or promotions. This system has resulted in increased revenue for the retailers.
The first companies that actually built a business around their customers happened many years ago. It emerges from the sector of direct marketing. Most people don't have a real positive association when they think of direct marketing. They think about low end products. They think about infomercials and other not-great marketing activities. It's not the kind of industry that you aspire to be associated with or learn from. But when you strip away what most customers see from direct marketers, and look at the actual business practices below the surface, you realize that it is actually quite impressive. What direct marketing is really all about, is building the business around the customer. But not just the customer in the generic sense, but around each and every customer. It's about understanding the relationship with each different customer: Who has bought what from us? For how much? What kinds of products have they inquired about? What kinds of products have they returned? What interactions have they had with customer service?
Direct marketing is about having a rich relationship between the company and the customer. Direct marketing is not a new concept. It has been around since 1967 when Lester Wonderman named and defined the term. A lot of the definitions and the concepts from direct marketing migrated their way into today's everyday marketing conversation. A lot of the segmentation concepts are often associated with direct marketing. Even other expressions like customer lifetime value come directly from the direct marketers. The direct marketers were the first ones who said we can collect all this data about each and every one of our customers.
You can build a business by understanding who the valuable customers are and who the less valuable ones are. By understanding which messages you should be sending to which customers at which time. To attract more customers like them, direct marketers understand what kinds of products they can develop and deliver in order to create more value for the most valuable customers. Any company that is operating on the internet and has the capability to track a particular customer over time has the ability to learn from direct marketing.

The Best Customer Loyalty Programs

 

  • Bloomingdale’s Loyallist is a new rewards program that allows customers to earn multiple points on every dollar spent (in-store, online, and at their outlets), no matter what you buy, and no matter how you pay (cash, credit, etc.). A simple and hassle-free program, Loyallist gives you exactly what you want from a rewards program: the ability to earn points every time you shop, then turn them around and easily use them to save money no matter what you buy.
  • Walgreens - Balance Rewards With Balance Rewards and their new Steps initiative, Walgreens has gone above and beyond the standard points-per-purchase model by encouraging and rewarding customers who commit themselves to a healthier lifestyle. Their rewards points scale is rather standard: you can begin to redeem points once you accumulate 5,000 points, with 5,000 points = $5, 10,000 points = $10, 18,000 points = $20, 30,000 points = $35, and 40,000 points = $50. Upon checkout, you’ll be asked if you’d like to redeem all of your points, only some of them, or you can choose to continue rolling your points over towards a greater reward.
  • Best Buy - Reward Zone At a big box electronics store like Best Buy, it’s not very hard for your spending to add up quickly. Whether you’re spending thousands of dollars on a brand new HDTV and entertainment system or $60 on a single video game, Best Buy’s Rewards Zone program helps you rack up savings and rewards almost as rapidly as you spend. Once you sign up in-store upon checkout or enroll online you’ll start earning 1 point for each $1 spent, with every 250 points = $5 reward certificate.
  • Safeway - Rewards Points As gasoline prices seemingly increase with each successive trip to the pump, Safeway and Dominick’s have created a way for customers to turn the money they spend on groceries into savings on their next trip to the gas station with their Rewards Points program. Simply use your Safeway Club Card or Dominick’s Fresh Values Card at checkout to earn 1 point for every dollar spent on groceries and in the pharmacy, or 4 points for every dollar spent on qualifying gift cards. You can then convert your points over into discounted fill-ups, with 100 points = 10¢ off per gallon and 200 points = 20¢ off per gallon at Safeway and Dominick’s gas stations, as well as most Mobil stations.
  • Starbucks - My Starbucks Rewards If you’re someone who can’t start their day without a coffee or tea fix in the morning, My Starbucks Rewards is tailored towards you. Think about their program like it’s the punch card’s tech-savvy big brother: all you have to do is register a Starbucks Card online or download the free Starbucks mobile app to start earning 1 “star” per purchase. 1 star = 1 free drink or food on your birthday. Earn 5 stars and you garner “Green” status, meaning that on top of the free birthday reward you’ll also get free refills. The coffee chain's latest promotion as part of its partnership with ride-sharing service Lyft will dole out Starbucks loyalty program points to people who use the cars between 5 a.m. and 10 a.m. local time. Riders who connect their Starbucks Rewards account to their Lyft account can earn five rewards stars for each Lyft ride taken.
  • Retrieved from: Brad's Deals
Does it make sense for your business to offer a loyalty program? It depends on what industry you're in. For retail stores, restaurants, and travel companies, maintaining a customer rewards program is almost a necessity to stay competitive because programs are so widespread in those sectors. A business that deals with customers on an infrequent basis, such as a repair service or landscaper, might not be able to pull in enough return visits to warrant offering a discount or other loyalty bonus. For information on starting a rewards program read: How to start a Rewards Program

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