J.D. Associates Retail POS Solutions Blog

Do Customer Loyalty Programs Really Work? Part I

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“Customer Loyalty” is certainly the buzz these days in retail.  Loyalty programs extend to almost every retail vertical market with few exceptions.  So if loyalty programs are so ubiquitous, why aren’t they more successful? Interested in becoming a retail pro?

First of all, what is a customer loyalty program?  Generally speaking, a customer loyalty program is a concerted marketing effort to attract and retain customers as well as to increase customer shopping frequency and the dollar value of their purchases.  Customer loyalty programs come in all sizes and flavors with benefits ranging from immediate discounts on purchases to “point” accumulation which can be used in the future for free or discounted merchandise.  Most serious Point of Sale Systems are capable of integrating with various types of customer loyalty programs.  Unfortunately, many retailers believe that if they install a customer loyalty program at Point of Sale, they will experience immediate and dramatic success.  This is rarely the case.  A long-term customer loyalty strategy must be implemented and regularly monitored for effectiveness.  When developing a customer loyalty strategy certain considerations deserve attention.

1. Who are you trying to target?  To answer this question, you need to run a report on your best customers.   They aren’t necessarily the customers you see most frequently in your stores.   Often, customers who are perpetual bargain hunters show up at your stores on a regular basis to see what you are “giving away.”  They seldom buy at full price and, when they do buy they often have a higher-than-average return rate.  In fact, they’re probably costing you money.  A “Best Customer – Worst Customer” report will give you all the information you need and help you tailor a customer loyalty program that will be attractive to your best customers.
2. How do you make your customers aware that you offer a customer loyalty program?  Several weeks ago I visited my local card and gift shop and something dawned on me.  Every time I went to pay for my purchases, a clerk would quickly ask me if I had a Hallmark reward card.  Usually, in a rush to get out of the store, I would invariably say no, and I would be on my way without anyone asking me if I would like to sign-up for one.  Finally, the last time I made a purchase at the store and was asked if I had a card, I took the initiative and said, “No, but how do I get one?”  The clerk courteously gave me a brief form to fill out and issued me a key chain card.  She still never told me what benefits I would get by using this card, and again, because I was in a hurry and customers were waiting in line behind me, I never asked.  So I am walking around with a card that has “mystery” benefits anxiously awaiting the tchotchke I will get after my 10^th purchase.
3. Are you offering rewards that are desirable to your best customers?  Once you have a list of your best customers, study their buying habits and try to come up with some common denominators.  What types of merchandise do they buy and how often they frequent your stores?  With this information, you can segment your best customers and even customize their rewards according to their preferences.  For example, since I am a male reward card holder who frequents a local pharmacy for toiletries, I really don’t want a “bounce-back” coupon offering me a free tube of lipstick after 10 purchases.  I find these types of rewards not only annoying but insulting. 

If you'd like to find out about our Customer Loyalty Programs written for Retail Pro, then click on the Customer Loyalty for Retail Pro.