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 the 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. 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 more significant 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 produced a fantastic loyalty program. Many companies establish 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 other activity which would make them feel great. But equally important, it was going to reset their customer's mental account. And so when the customer sat back down, their threshold was back to zero. Harrahs was brilliant about understanding those types of messages.
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 families 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 coupons to send to which households, at which time, to get them to buy more. This strategy helped them not only grow the business with their current customers but also enabled them to compete more effectively for new customers.
Working with Dunnhumby, the customer data specialist which so impressed the UK’s Tesco that the grocer bought the firm, Kroger tracks each customer as an individual. Eighty percent of Dunnhumby’s effort is focused on what it knows about a customer and 20 percent is focused on discovery. “We see in the next six weeks [after a mailing] 71 percent of households will redeem at least one coupon in the store. The coupons have generated $10 billion in revenue for Kroger.” Nishat Mehta, executive vice president of global partnerships for Dunnhumby. “It’s a massive problem for the industry, said Stuart Aitken, CEO of Dunnhumby USA, not having exposure you are never going to know what might interest a customer. The variety of coupons is part of Dunnbumby’s discovery effort.“ In 2015 Kroger ended a 12-year joint venture with Dunnhumby and launched its own customer data subsidiary. The new subsidiary will help Kroger set prices in stores and decide which shoppers get certain coupons. The new subsidiary, called 84.51 uses information gathered from Kroger's loyalty cards to send coupons to frequent shoppers and help it decide which products to sell in stores. It will also provide data to companies that sell products at Kroger's stores. Do you have a Krogers card? If so you get a discount on gasoline at the Kroger pump!
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 eliminate 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 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 retailer.
The first companies that 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 quite impressive. What direct marketing is all about, is building the business around the customer. It's about understanding the relationship with each unique 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 vibrant 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 direct marketers. Direct marketers were the first ones who said: “we can collect data about every one of our customers.”
You can build a business by understanding who the valuable customers are and who the less valuable ones are.And by understanding which messages you should be sent to which customers at which time. To attract more valuable customers, direct marketers understand what kinds of products they can develop and deliver 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 can 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
Chipotle Mexican Grill is expanding its loyalty program nationwide as its digital platform continues to see major growth. The company began testing Chipotle Rewards, a points-based loyalty program, across several markets last fall in a move to make the brand more accessible and digitally innovative. CEO Brian Niccol told CNBC a rewards program has been the most-requested initiative among its consumer base. With digital ramping up in recent quarters — growing some 66 percent in the fourth quarter of 2018, accounting for nearly 13 percent of sales — Niccol said loyalty is another way to get users engaged online, and he expects it will have a "multiplier effect" on the company's digital business.
Does it make sense for your business to offer a loyalty program? It depends on your industry. For retail stores, restaurants, and travel companies, maintaining a customer rewards program is almost a necessity to stay competitive. 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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