What you should get out of your loyalty program.
In the article linked below, two Professors from the Harvard Business School make a great case for retailers employing a rewards program while making note of the possible challenges and drawbacks associated.
I highlighted some of the best quotes from the piece below and added some commentary you may find relevant.
For local retailers, the solution we developed with Pass is the only one (that I’m aware of) that definitively incentivizes customer loyalty from day one to a particular merchant.
http://www.forbes.com/sites/hbsworkingknowledge/2014/02/24/six-myths-about-customer-loyalty-programs/
“For retailers lacking the capability of using information about their card-holding customers and turning these data into tailor-made individual shopper-specific propositions, loyalty systems are no more than an expensive gadget.”
- There are companies today that try to let customers choose their own rewards, but without being connected to purchase data one can never really be sure they are worth the cost. Make sure you understand and quantify all the costs of your loyalty program (I’d even go as far as to quantify the costs affecting all payment types as well — you might be surprised how much making change, counting and depositing cash costs you.) Cut out what wastes money and push those that make you more.
“If competing retailers copy these substantial rewards, shoppers will not be incentivized to stay loyal to only one retailer — promiscuous shoppers would not be worse off than extremely loyal shoppers if rewards were linear and uniform across retailers.”
This is a big problem in the coffee shop and quick service industry. When customers can buy 10 and get 1 free or spend $100 and get $10 free everywhere they go, it doesn’t matter where they go…eventually they will be rewarded. This results in giving away rewards to customers who don’t actually change their buying behavior. Your loyalty program should work for you, not against you.
If you want your customers to truly commit to your business check out Pass: www.ChooseYourPass.com/merchants
“It is not that loyalty systems increase the amount of promotional activities in the retail industries; it is redirecting these promotions (coupons, vouchers, etc.) toward more effective and efficient uses.”
- The increased prevalence of smartphones opens the door to dramatically more effective and efficient uses of promotions. Don’t waste money on paper or plastic cards. What if rather than rewarding customers for making 10 purchases over time, you incentivize them to make those 10 purchases now? They pay for their next 10 drinks right now in order to get 1 free and they simply redeem them day-by-day all within an app on their phone.
If you would like to trial run a program like this today, visit: ChooseYourPass.com/merchants
“loyalty programs can negatively influence the consumer’s price perception of retailers.”
- One of the big downsides for many retailers that have tried daily deals is that they attracted bargain hunters who then weren’t willing to pay full price. There are others who resist any type of giveaways. If you sell (for example) a “Buy 20 get 3 free” package of coffees for $50, customers are getting more for their money and a discount per cup, but they have to spend $50 today in order to get that. That is a premium price, but it gets them premium advantages — more coffee, plus faster checkout*.
Raise your average ticket size by getting customers to pay today for what they will get over time. *Customers universally praised Pass transactions for being even be faster/simpler than paying by card or cash. Trial Pass for free — www.ChooseYourPass.com/merchants
“Shoppers simultaneously hold loyalty cards from competing retailers and often shop regularly at more than one competing store.”
- If there’s a long line at your shop, do you take note of where customers who don’t want to wait go to? How sure are you that you won’t lose your customer when a competitor (which may be a large chain) moves in next door? Large chains can afford to beat local merchants on price and speed of checkout times (notice how most Starbucks have 2 registers while many independents only have one.) So what can you do to combat them? Get your customers to commit to returning by prepaying for their next 20 or 30 visits. You will be sure they will return to get what they pre-paid for.
Sell a Pass and customers will be paying you today for what they will get on their next 10, 20 or 30 visits. This incentivizes them to patronize your businesses even if that means waiting 20 minutes. Because Pass is designed to be the fastest type of transaction, the more Pass holders you have, the shorter lines will be. Even if a Pass holder doesn’t return for a month, you still collected the cash flow from their next 30 planned visits, up front on day 1 — so your finances aren’t affected as much. Start you free Pass trial at www.chooseyourpass.com/merchants
“Retailers seem to have an uneasy relationship with loyalty rewards programs. Many believe the programs are unsustainable in low-margin businesses or industries.”
This is quite often true due to the efficient market hypothesis. As competition increases, margins are driven lower and lower, which means introducing a loyalty program may destroy them completely. A proper loyalty program should raise your margins through. The best loyalty program could even increase customer evangelism. If your customers pre-buy their next 20+ coffees (for example) you can focus on up-selling them on a pastry or sandwich when they visit (or simply give them 10% other purchases when they redeem their Pass) — these goods are higher margin after all and sell in much less volume. What’s more, if your customers are pre-paying for what they will get throughout future visits, you can bet they are going to be bringing their friends/coworkers to your shop on their next coffee or lunch break (they don’t want their purchases to go unused after all.)
Increase upselling and evangelism at your businesses by establishing a solid base of prepaying recurring customers with ChooseYourPass.com/merchants
“There are three ways to differentiate in retailing: location, location, and location. The problem is that as markets mature, location becomes less potent as a competitive advantage because the consumer has a growing abundance of convenient choices…When location, location, location is no longer enough to attract customers, a program that rewards their loyalty certainly will be.”
- This quote is pretty clear to the point, so all I will say is if you want to retain customers for the future with the utmost certainty, you need them to invest in their future patronage. Pass is the only program I know of that enables this.
