Loyalty programs are initiated by businesses with two main goals. The primary goal for most loyalty programs is the acquisition of information relating to their customers' spending habits, while the secondary goal is to actively cultivate loyalty amongst customers to ensure they continue patronizing the business. While some companies do reverse these priorities, the above hierarchy holds true for most.
Loyalty programs may offer benefits in a number of different ways. Many loyalty programs offer a sustained discount (such as 10%) for a period of time - perhaps a year, perhaps for the life of the business. Others offer a discount once certain criteria have been met — for example, a 20% discount on a single purchase once a customer has spent $200 at the business. Still others offer points which may then be redeemed for products which may or may not be directly related to the business.
Loyalty cards are the most common form of loyalty programs found throughout the world today. In the United States, almost seventy-five percent of consumers own at least one loyalty card, with over a third of all shoppers owning two or more. Major supermarket chains, such as Safeway and Albertsons, nearly all have loyalty cards, also known as rewards cards or benefit cards. These supermarket loyalty programs usually operate by offering a discount on certain products, usually marked throughout the store, to those who have a loyalty card. In exchange for this discount, customers are giving the store access to itemized receipts of their buying habits in the store, allowing the business to better cater to their needs and build product purchasing and discounting to help retain their most profitable customers.
Some of the first loyalty programs were instituted by airlines in the 1970s in the form of frequent flyer miles. In these loyalty programs, one accrues points by flying on the airline and then 'cash in' the points in exchange for tickets, upgrades, or even third-party benefits. In the past decade, many non-airline businesses have combined their own loyalty programs with those of the airlines, offering frequent flyer miles in exchange for everything from telephone usage to purchasing gasoline.
Loyalty programs have gained in popularity immensely in the past fifteen years, in no small part due to the development of a culture of entitlement, in which consumers feel that they deserve special treatment. Businesses have capitalized on this when designing their loyalty programs, often offering benefits that cost little, but carry with them an assumed prestige, such as access to faster-moving lines or special parking spaces.
Ultimately, the success of loyalty programs depends on how well the business uses the data it gathers to further refine its policies and loyalty programs. Many businesses find little profit in the use of loyalty programs, while others, such as eBay, attribute much of their financial success to a well-executed use of such programs.
Source: http://www.wisegeek.com/what-are-loyalty-programs.htm
woensdag 28 november 2007
maandag 19 november 2007
Supermarket “loyalty” programs
Rewards for the wealthyKatherine Albrecht and John Vanderlippe, CASPIANGuest column written for the Beacon Hill News and Capitol Hill News (Seattle, WA) For publication on June 12, 2002
First Safeway introduced the Club Card, then QFC came out with the Advantage Card. Now rumor has it that Fred Meyer and Albertsons may follow suit with card programs of their own. With so many card programs planned, South Seattle shoppers may soon have a hard time finding a grocery store that doesn’t require customers to register for a card to receive advertised sale prices.
If you ask the stores, they will tell you that the card programs are designed to help them “reward our valuable customers with better prices.” Though this sounds nice on the surface, what the stores won’t tell you is that the phrase “valuable customers” is an industry code word meaning “shoppers who spend the most money in our stores.” The truth is that cards are designed to identify and reward the wealthiest shoppers the ones who spend a lot of money on food while the rest of shoppers particularly those at the lower end of the income scale may soon find their access to affordable food dwindling.
Although expensive advertising and in-store promotion convince shoppers that the cards are there to save them large amounts of money, the stores see the cards as data collection devices designed to help them keep track of who buys what. This information is then used strategically to raise prices and increase profits. Here’s how it works:
Each time you scan a card, every item you purchase is recorded into a computer file linked with data from your card application. Eventually, based on many shopping trips over time, a picture begins to emerge of your shopping habits and household characteristics. This is then linked to broader “market segments” based on age, race, income level, family size and neighborhood. The real goal is to determine how profitable each market segment is to the store, and to treat customers in those segments accordingly.
Though we all have to eat, supermarkets have been scrambling to cater to the wealthiest shoppers ever since researchers discovered that 75% of a store’s profits come from the top 30% of its customers. Cards help the supermarket identify those big spenders and keep the stores well stocked with the products they like to buy. The result is that items preferred by “top” customers begin appearing in greater numbers on the store shelves, while low-cost items that are the staples of poor get squeezed off the shelf to make room for the food of the elite.
The loyalty marketing experts who sell card programs to the supermarkets encourage this phenomenon. In fact, they have even suggested that supermarkets use card data to identify and “discard” low income customers altogether. Michael Lowenstein, Managing Director of Customer Retention Associates, a supermarket consulting firm, recently wrote, “[The] bottom tiers of customers should receive less, or no, investment [by the supermarket]. Some might even have to be discarded if the company is to concentrate its resources on retaining profitable customers.” [1]
If the idea that grocers would want to discard customers seems shocking to you, it did to us, too. Could seemingly innocent grocery cards the ones that seem to save us so much money every week actually be used to discriminate against the poor in such an ugly way?
It turns out to be true. In just one example, a US store drastically reduced the shelf space for candy (even though it sold well) because card data showed that it was purchased primarily by low profit customers. Card information is also used to set prices, with big spenders setting the standard for what everyone else must pay. An item that once sold for .99 cents may be raised to $1.99 if card data shows that the high profit customers will still buy it at that price. As new technology allows card programs to grow more sophisticated, such customer segmentation will grow deeper.
But what about savings, don’t they make it all worthwhile? Disturbingly, our research found that not only do shoppers not save money, they actually wind up paying more with card discounts than they had with regular sales before. Think about it. Is the Velveeta cheese with a manufacturers suggested retail price of $3.99 printed right on the label really a bargain when the store raises the non-card price to $5.99 and offers a card “discount” price of $3.99? (This actually happened last year when Albertson’s introduced a card program in Texas [2]) Though the card stores are playing customers for fools with inflated prices and artificial savings, shoppers know when they’re being had.
The only escape from price manipulation and planned discrimination at the hands of the corporate giants is to take our shopping dollars away from these stores until they get the message. Fortunately for Southeast Seattle shoppers, you still have several locally-owned, card-free shopping alternatives right in your backyard. Such gems as independently owned Red Apple, PCC, and Thriftway stores have all taken a stand against privacy-invading gimmicks cards and promised to serve all of their customers with dignity. Lenny Rose, owner of three Red Apple Markets in Central Seattle, explains, “We welcome all customers and don’t want to exclude anybody. Everybody has value to us.” Thanks, Lenny, that pretty much says it all.
Sources:
[1] Michael Lowenstein, Managing Director, Customer Retention Associates, Balancing Customer Loyalty Programs With Customer Advocacy. (Sept. 26, 2001), available at SearchCRM.techtarget.com
[2] Cindy Van Auken, Consumers' group blasts loyalty cards; grocery stores defend programs. (Feb. 9, 2002), available at The Waco Tribune.
donderdag 15 november 2007
Trends: Loyalty Programs
By Margaret L. Young and Marcia Stepanek
Nearly 75 percent of shoppers in the U.S. now belong to at least one loyalty program—but how well do they work? The short answer: not as well as they might. We look at why, and analyze how advances in customer data collection are helping three companies—Dorothy Lane Market Inc., Harrah's Entertainment Inc. and eBay Inc.—to revise their business strategies in different ways.
There are frequent-buyer programs, frequent-flier programs, frequent-player cards and frequent-dining coupons. There are points-at-the-pump schemes, turkey giveaways at Christmas (along with $100 copper roasters in which to cook them) and, as of November 2003, donations to charities for people who use their Starbucks loyalty card to buy coffee.There are plastic cards, smart cards, thermal cards and magnetic strips. Virgin Mobile Australia, a wireless arm of U.K.-based Virgin Group, is using 802.11: Flash your mobile device at a reader as you whiz through checkout at a Virgin music store, and you'll get a couple of dollars knocked off your bill.
Call it the loyalty craze. According to Jupiter Research, more than 75 percent of consumers now have at least one loyalty card, and the number of people with two or more is estimated to be one-third of the shopping population. Cap Gemini Ernst & Young CTO John Parkinson says his family has 37 loyalty cards, and surveys by information technology analysts Gartner Inc., Forrester Research Inc. and META Group Inc. suggest the data-for-dollars explosion is showing no signs of letting up anytime soon. According to Gartner analyst Adam Sarner, U.S. companies spent more than $1.2 billion on customer loyalty programs in 2003, and he expects that to increase next year.
What's up? While loyalty cards and prizes have always been, first and foremost, a cheap way for businesses large and small to start tracking their customers' shopping habits, more customers than ever now consider themselves entitled to special treatment, a marketplace psychology spawned in the 1970s by the airline industry's invention of frequent-flier miles, one of the first modern-day loyalty programs. Originally devised to generate better data on the most popular routes, the airlines broke what was a one-price-fits-all standard and introduced a some-people-are-more-special-than-others psyche that has changed the American, and global, marketplace forever. Says Brian Woolf, president of the Retail Strategy Center in Greenville, S.C., and author of Loyalty Marketing: The Second Act, "Loyalty programs are now a price of doing business."
But do they really work?
The short answer: not as well as they might. To be sure, it's all in the execution. Ohio grocer Dorothy Lane Market Inc., Harrah's Entertainment Inc., eBay Inc. and a handful of others say their loyalty programs are key to new revenue growth. Thanks chiefly to the kind of data they've reaped, these companies boast retention rates and profit-per-customer numbers among the highest in their respective industries—despite tough economic times and cutthroat markets. But the majority of companies are still struggling to get it right.
Satisfaction versus Loyalty
Consider the survey data. Shoppers polled over the past 12 months by Walker Information Inc., the Indianapolis-based customer research firm, indicate there's still a yawning gap between the percentage of people who say they're satisfied with a business and those who consider themselves "loyal" to that business—intent on maintaining the relationship and continuing it into the future. "Many companies have figured out how to deliver satisfaction, but they've not yet figured out how to earn loyalty anywhere near those levels," says Jeff Marr, group vice president for Walker.
This so-called loyalty gap can be particularly pronounced in industries where competition is harshest and growing. For example, while 75 percent of customers in the financial services industry said they're satisfied with the business they most recently patronized, only 34 percent of those same customers said they're "truly loyal." In other words, they want to maintain their relationship with the company. Telecom carriers fared even worse: While 75 percent of those surveyed said they were satisfied, only 28 percent said they don't want to switch carriers. Retailing is almost as dicey. "Some 43 percent of Americans say they feel 'trapped'—likely to continue doing business with the top retailers, but less than pleased with the relationship they now have with them," Marr says. That means retailers can count on less than half of their customers being loyal.
Where do most companies go wrong?
Frederick F. Reichheld, a vice president at consultants Bain & Co. in Boston and author of The Loyalty Effect, a 1996 analysis of loyalty programs, says most company loyalty programs don't slice data finely enough to distinguish between customers who would recommend a particular business to friends and those who would not. Knowing this, he says, could mean millions of additional dollars in revenue for companies. "The tendency of loyal customers to bring in new customers—at no charge to the company—is particularly beneficial," Reichheld says.
Many companies also tend not to do enough with their loyalty program data to make Joe Sixpack feel special, too, says Woolf of the Retail Strategy Center. According to Carlson Marketing Group, a Minneapolis-based customer research firm, rewards programs cost companies, on average, between 2 percent and 10 percent of a customer's total spending at a given store. "Once they've identified the top 20 or 30 percent of their customers, many companies tend not to market to the bottom tier because it's not economical," Woolf says—and end up leaving a majority of their customers frustrated or unable to accrue enough points to make participation in these programs seem like a real advantage.
But don't underestimate the value of trying. Woolf says food retailers, for example, lose up to 40 percent of their new customers within three months. One of the big benefits of a successful loyalty card program, he says, is that stores can quantify new-customer losses and introduce programs designed to retain or woo back the most profitable. "Without a loyalty card, one has no clue about the size of the inflow and outflow of new customers," Woolf says. What does this mean for the bottom line? According to Marr, learning to play the loyalty card game better can help companies reap big cash rewards. Walker's surveys show that "truly loyal" consumers are 15 times more likely than high-risk customers to increase spending with a particular store.
Reichheld takes it one step further. He says profits rise as a customer's relationship with a company lengthens. "Customer defections have a surprisingly powerful impact on the bottom line," he says. "When defections are cut in half, the average growth rate more than doubles. A 5 percent change in the rate of customer retention swings profit increases from 25 percent all the way to 100 percent."
The clear message, says Marr: "It's not enough to have CRM. You need the hearts and minds of the customers to close the loyalty gap." And CIOs, he says, are in the best position to help companies figure out new ways to do that. "IT needs to take the lead in loyalty programs because it's just about the only department that can coordinate between business processes, external data-analytics vendors and the executives who can translate output into action," says Bob Chatham, an analyst at Forrester. Adds Arthur Middleton Hughes, director of database marketing strategy for DoubleClick Data Management Solutions: "What doesn't work anymore is treating all customers alike."
Source: http://www.cioinsight.com/article2/0,3959,1458960,00.asp
Nearly 75 percent of shoppers in the U.S. now belong to at least one loyalty program—but how well do they work? The short answer: not as well as they might. We look at why, and analyze how advances in customer data collection are helping three companies—Dorothy Lane Market Inc., Harrah's Entertainment Inc. and eBay Inc.—to revise their business strategies in different ways.
There are frequent-buyer programs, frequent-flier programs, frequent-player cards and frequent-dining coupons. There are points-at-the-pump schemes, turkey giveaways at Christmas (along with $100 copper roasters in which to cook them) and, as of November 2003, donations to charities for people who use their Starbucks loyalty card to buy coffee.There are plastic cards, smart cards, thermal cards and magnetic strips. Virgin Mobile Australia, a wireless arm of U.K.-based Virgin Group, is using 802.11: Flash your mobile device at a reader as you whiz through checkout at a Virgin music store, and you'll get a couple of dollars knocked off your bill.
Call it the loyalty craze. According to Jupiter Research, more than 75 percent of consumers now have at least one loyalty card, and the number of people with two or more is estimated to be one-third of the shopping population. Cap Gemini Ernst & Young CTO John Parkinson says his family has 37 loyalty cards, and surveys by information technology analysts Gartner Inc., Forrester Research Inc. and META Group Inc. suggest the data-for-dollars explosion is showing no signs of letting up anytime soon. According to Gartner analyst Adam Sarner, U.S. companies spent more than $1.2 billion on customer loyalty programs in 2003, and he expects that to increase next year.
What's up? While loyalty cards and prizes have always been, first and foremost, a cheap way for businesses large and small to start tracking their customers' shopping habits, more customers than ever now consider themselves entitled to special treatment, a marketplace psychology spawned in the 1970s by the airline industry's invention of frequent-flier miles, one of the first modern-day loyalty programs. Originally devised to generate better data on the most popular routes, the airlines broke what was a one-price-fits-all standard and introduced a some-people-are-more-special-than-others psyche that has changed the American, and global, marketplace forever. Says Brian Woolf, president of the Retail Strategy Center in Greenville, S.C., and author of Loyalty Marketing: The Second Act, "Loyalty programs are now a price of doing business."
But do they really work?
The short answer: not as well as they might. To be sure, it's all in the execution. Ohio grocer Dorothy Lane Market Inc., Harrah's Entertainment Inc., eBay Inc. and a handful of others say their loyalty programs are key to new revenue growth. Thanks chiefly to the kind of data they've reaped, these companies boast retention rates and profit-per-customer numbers among the highest in their respective industries—despite tough economic times and cutthroat markets. But the majority of companies are still struggling to get it right.
Satisfaction versus Loyalty
Consider the survey data. Shoppers polled over the past 12 months by Walker Information Inc., the Indianapolis-based customer research firm, indicate there's still a yawning gap between the percentage of people who say they're satisfied with a business and those who consider themselves "loyal" to that business—intent on maintaining the relationship and continuing it into the future. "Many companies have figured out how to deliver satisfaction, but they've not yet figured out how to earn loyalty anywhere near those levels," says Jeff Marr, group vice president for Walker.
This so-called loyalty gap can be particularly pronounced in industries where competition is harshest and growing. For example, while 75 percent of customers in the financial services industry said they're satisfied with the business they most recently patronized, only 34 percent of those same customers said they're "truly loyal." In other words, they want to maintain their relationship with the company. Telecom carriers fared even worse: While 75 percent of those surveyed said they were satisfied, only 28 percent said they don't want to switch carriers. Retailing is almost as dicey. "Some 43 percent of Americans say they feel 'trapped'—likely to continue doing business with the top retailers, but less than pleased with the relationship they now have with them," Marr says. That means retailers can count on less than half of their customers being loyal.
Where do most companies go wrong?
Frederick F. Reichheld, a vice president at consultants Bain & Co. in Boston and author of The Loyalty Effect, a 1996 analysis of loyalty programs, says most company loyalty programs don't slice data finely enough to distinguish between customers who would recommend a particular business to friends and those who would not. Knowing this, he says, could mean millions of additional dollars in revenue for companies. "The tendency of loyal customers to bring in new customers—at no charge to the company—is particularly beneficial," Reichheld says.
Many companies also tend not to do enough with their loyalty program data to make Joe Sixpack feel special, too, says Woolf of the Retail Strategy Center. According to Carlson Marketing Group, a Minneapolis-based customer research firm, rewards programs cost companies, on average, between 2 percent and 10 percent of a customer's total spending at a given store. "Once they've identified the top 20 or 30 percent of their customers, many companies tend not to market to the bottom tier because it's not economical," Woolf says—and end up leaving a majority of their customers frustrated or unable to accrue enough points to make participation in these programs seem like a real advantage.
But don't underestimate the value of trying. Woolf says food retailers, for example, lose up to 40 percent of their new customers within three months. One of the big benefits of a successful loyalty card program, he says, is that stores can quantify new-customer losses and introduce programs designed to retain or woo back the most profitable. "Without a loyalty card, one has no clue about the size of the inflow and outflow of new customers," Woolf says. What does this mean for the bottom line? According to Marr, learning to play the loyalty card game better can help companies reap big cash rewards. Walker's surveys show that "truly loyal" consumers are 15 times more likely than high-risk customers to increase spending with a particular store.
Reichheld takes it one step further. He says profits rise as a customer's relationship with a company lengthens. "Customer defections have a surprisingly powerful impact on the bottom line," he says. "When defections are cut in half, the average growth rate more than doubles. A 5 percent change in the rate of customer retention swings profit increases from 25 percent all the way to 100 percent."
The clear message, says Marr: "It's not enough to have CRM. You need the hearts and minds of the customers to close the loyalty gap." And CIOs, he says, are in the best position to help companies figure out new ways to do that. "IT needs to take the lead in loyalty programs because it's just about the only department that can coordinate between business processes, external data-analytics vendors and the executives who can translate output into action," says Bob Chatham, an analyst at Forrester. Adds Arthur Middleton Hughes, director of database marketing strategy for DoubleClick Data Management Solutions: "What doesn't work anymore is treating all customers alike."
Source: http://www.cioinsight.com/article2/0,3959,1458960,00.asp
woensdag 14 november 2007
Can Customer Loyalty be Bought?
From Darrell Zahorsky
Forget about customer relationship management software, customer loyalty programs and cards. Customer loyalty can't be bought. It must be earned. Learn the 8 ways your small business can earn customer loyalty.
There is no shortage of lip service in corporate America these days about customer loyalty. The advent of the loyalty movement began in the 80's in the airline industry and expanded to cover every major industry. Research firm Gartner estimates American businesses spent more than 1 billion dollars on loyalty programs in the year 2003. Over 75% of consumers have at least one loyalty card, according to Jupiter Research. My wallet alone has 12 loyalty cards. But does it pay?
Does Customer Loyalty Pay?
A mere 5 % increase in customer retention can result in a 75% increase in customer value according to Fred Reichheld, author of "Loyalty Rules".
A great reason to pay attention to loyalty. Here are more benefits:
:: grab more sales from existing customer base
:: help spread word of mouth marketing
:: identify product/service problems earlier
:: improve profitability
:: provide a competitive advantage
Defining Customer Loyalty
Customer loyalty is the practice of finding, attracting, and retaining your customers who regularly purchase from you. Customer loyalty is not customer satisfaction. Customer satisfaction is the basic entry point of good business practices. Your small business should provide satisfaction to all your customers.
Loyalty cards and programs have their rewards and pitfalls. Rewarding customers for spending more dollars can create a vicious cycle of creating customers who want rewards and will look anywhere to obtain them. With loyalty cards and programs reaching a saturation point, how can a small business stand out?
Software, card programs, and loyalty schemes are the tools of customer loyalty programs but they aren't the essence of loyalty. To build loyalty, you must earn it. Look at these 8 ways to earn more customer loyalty for your small business:
8 Ways for Small Business to Earn Customer Loyalty
Company Loyalty First: Customer loyalty is a 2-way street. How can you expect customer loyalty if you don't practice company loyalty? Are you loyal to your best customers or are you giving discounts and extra attention to new customers? Loyalty is about being fanatical with devotion to your best customers.
Earning Customer Loyalty
Employee Loyalty Second: Any customer loyalty program must factor in the front line of the business. It's the point of contact between customer and employee that sets the foundation of repeat business. "Hire for attitude, train for skill. Hire nice people. As a customer, I'm always amazed when small businesses put unfriendly, surly people in front of their customers. Loyalty is often the direct result of the relationships your employees build and maintain," says Ben McConnell of marketing consulting firm Wabash & Lake and co-author of "Creating Customer Evangelists."
Quench the Thirst: Consumers are thirsty for trust following corporate scandals and the general distrust of corporations. If your small business is not trustworthy, your odds of establishing customer loyalty are diminished.
Establish good business ethics and practices.
Finding Loyalty: Any small business wishing to start a customer loyalty initiative needs first to identify important customers and understand their customer's behaviors. Use whatever tools, software, and data-mining techniques to locate your repeat, regular customers. Equally vital is to know your profit margins. Don't offer discounts until you know the impact on your bottom line.
Reward Customer Retention: The key metric to track in your customer loyalty program is customer retention. How many customers are defecting? How many clients are retained? Measuring customer retention is half the battle. Your staff must be rewarded for retention. Your small business doesn't have to be like big corporations who talk retention but reward sales people for bringing in new customers only.
Use Customer-centric Language: It's easy to think you put the customer first. However, take a closer look at your marketing communications. How many times does your literature refer to "we" the company versus "you" the customer? Go back and speak from the customer's perspective.
Bolster Customer Communications: Part of customer loyalty and retention are maintaining regular contact with your most profitable customers. Communication to your best customers should take the form of showing your appreciation and providing new learning experiences to add value to your customer's life. Send special thank-you notes, surprise gifts, and regular communications such as newsletters to connect with them.
Use the Small Business Advantage: Small business will always have the advantage in connecting with customers and building a solid relationship. Your passion for helping customers with your products and services is difficult for large companies to replicate. As customer evangelist guru Ben McConnell states, "Small businesses thrive on outstanding customer loyalty. It's their currency of growth and their best differentiator. Without loyalty, small businesses are destined to compete on a playing field with larger competitors where they are outnumbered and outwitted."
Win the customer service game by putting customer loyalty to work in your small business. Just remember, it's more than cards and software. It's more about earning trust and relationship building.
Source: http://sbinformation.about.com/od/advertisingpr/a/customerloyalty_2.htm
From Darrell Zahorsky
Forget about customer relationship management software, customer loyalty programs and cards. Customer loyalty can't be bought. It must be earned. Learn the 8 ways your small business can earn customer loyalty.
There is no shortage of lip service in corporate America these days about customer loyalty. The advent of the loyalty movement began in the 80's in the airline industry and expanded to cover every major industry. Research firm Gartner estimates American businesses spent more than 1 billion dollars on loyalty programs in the year 2003. Over 75% of consumers have at least one loyalty card, according to Jupiter Research. My wallet alone has 12 loyalty cards. But does it pay?
Does Customer Loyalty Pay?
A mere 5 % increase in customer retention can result in a 75% increase in customer value according to Fred Reichheld, author of "Loyalty Rules".
A great reason to pay attention to loyalty. Here are more benefits:
:: grab more sales from existing customer base
:: help spread word of mouth marketing
:: identify product/service problems earlier
:: improve profitability
:: provide a competitive advantage
Defining Customer Loyalty
Customer loyalty is the practice of finding, attracting, and retaining your customers who regularly purchase from you. Customer loyalty is not customer satisfaction. Customer satisfaction is the basic entry point of good business practices. Your small business should provide satisfaction to all your customers.
Loyalty cards and programs have their rewards and pitfalls. Rewarding customers for spending more dollars can create a vicious cycle of creating customers who want rewards and will look anywhere to obtain them. With loyalty cards and programs reaching a saturation point, how can a small business stand out?
Software, card programs, and loyalty schemes are the tools of customer loyalty programs but they aren't the essence of loyalty. To build loyalty, you must earn it. Look at these 8 ways to earn more customer loyalty for your small business:
8 Ways for Small Business to Earn Customer Loyalty
Company Loyalty First: Customer loyalty is a 2-way street. How can you expect customer loyalty if you don't practice company loyalty? Are you loyal to your best customers or are you giving discounts and extra attention to new customers? Loyalty is about being fanatical with devotion to your best customers.
Earning Customer Loyalty
Employee Loyalty Second: Any customer loyalty program must factor in the front line of the business. It's the point of contact between customer and employee that sets the foundation of repeat business. "Hire for attitude, train for skill. Hire nice people. As a customer, I'm always amazed when small businesses put unfriendly, surly people in front of their customers. Loyalty is often the direct result of the relationships your employees build and maintain," says Ben McConnell of marketing consulting firm Wabash & Lake and co-author of "Creating Customer Evangelists."
Quench the Thirst: Consumers are thirsty for trust following corporate scandals and the general distrust of corporations. If your small business is not trustworthy, your odds of establishing customer loyalty are diminished.
Establish good business ethics and practices.
Finding Loyalty: Any small business wishing to start a customer loyalty initiative needs first to identify important customers and understand their customer's behaviors. Use whatever tools, software, and data-mining techniques to locate your repeat, regular customers. Equally vital is to know your profit margins. Don't offer discounts until you know the impact on your bottom line.
Reward Customer Retention: The key metric to track in your customer loyalty program is customer retention. How many customers are defecting? How many clients are retained? Measuring customer retention is half the battle. Your staff must be rewarded for retention. Your small business doesn't have to be like big corporations who talk retention but reward sales people for bringing in new customers only.
Use Customer-centric Language: It's easy to think you put the customer first. However, take a closer look at your marketing communications. How many times does your literature refer to "we" the company versus "you" the customer? Go back and speak from the customer's perspective.
Bolster Customer Communications: Part of customer loyalty and retention are maintaining regular contact with your most profitable customers. Communication to your best customers should take the form of showing your appreciation and providing new learning experiences to add value to your customer's life. Send special thank-you notes, surprise gifts, and regular communications such as newsletters to connect with them.
Use the Small Business Advantage: Small business will always have the advantage in connecting with customers and building a solid relationship. Your passion for helping customers with your products and services is difficult for large companies to replicate. As customer evangelist guru Ben McConnell states, "Small businesses thrive on outstanding customer loyalty. It's their currency of growth and their best differentiator. Without loyalty, small businesses are destined to compete on a playing field with larger competitors where they are outnumbered and outwitted."
Win the customer service game by putting customer loyalty to work in your small business. Just remember, it's more than cards and software. It's more about earning trust and relationship building.
Source: http://sbinformation.about.com/od/advertisingpr/a/customerloyalty_2.htm
dinsdag 13 november 2007
Customer Loyalty Cards
Loyalty Cards: Reward or Threat?
By Martin H. Bosworth
ConsumerAffairs.Com
July 11, 2005
When you're stacking up grocery items at the checkout line, you're probably not worried about whether your supermarket chain is compiling a profile of you based on what you buy, and storing that information for its own use. After all, who cares if you buy one brand of tissues over another, or favor name-brand microwave pizzas over store brands?
Supermarket chains care. So does CVS. So much so that they use discount cards (referred to as "membership" or "loyalty" cards) to offer you what seem like great bargains. They use the cards to keep tabs on what you purchase, how often you shop, and what your buying preferences are.
And, just as data brokers like ChoicePoint collect personal data and use it to build an aggregate "profile" of individual consumers, supermarket chains use their stored data to target buyers with "special" offers and "preferred" advertisements from their marketing partners.
This is not a uniquely American phenomenon. Everywhere a supermarket, pharmacy, or department store can be found, anywhere in the world, you can assume there's a "discount rewards" program in place to provide customers with benefits that go "beyond mere shopping," as one writer put it in the May 29th edition of the Hindu Business Journal.
"You need to be a compulsive shopper to make the best of the loyalty cards. If you visit the store just once a year or like to comparison shop, these cards may not have much to offer," the article noted.
The recent news that CVS ExtraCare card users' information was exposed on the company's Web site illustrates the risks that loyalty card programs entail. The question then becomes, what is more important -- saving money or protecting your privacy?
What's The Big Deal?
According to a 2004 poll conducted by Boston University's College of Communication, 86 percent of American shoppers use some form of store card or discount card, "and the majority of them say the benefits of the card are worth giving up some privacy." A Canadian Broadcasting Corporation (CBC) article in 2004 stated that 76 percent of Canadian consumers belong to at least one loyalty program. A British advertising column boasted that loyalty card programs had achieved "85% consumer penetration" in the U.K. circa March 2005.
Loyalty card users enjoy discounted prices, special coupon offers, and rebates or "points" towards airline tickets or shopping sprees, much like credit cards. In addition, many loyalty card programs offer tangible benefits such as CVS's plan to designate pharmaceuticals purchased with their card as qualifying for medical Flexible Spending Accounts (FSA's), or the Upromise plan, which allocates portions of money spent using participating stores' loyalty cards to your children's 529 college savings account.
Many users consider the idea of targeted marketing a boon -- if they like one kind of product, why wouldn't they want to get offers for similar products?
Most shoppers approach loyalty cards with a mixture of weariness, indifference, and amusement. Technology writer Declan McCullagh succinctly stated that "nobody's forcing shoppers to sign up for such cards. If you don't like stores that offer them, take your business elsewhere." Or as blogger Jane Hauntanen put it, "Now people will know [I] bought a roll of dental floss at 7:49 PM at CVS and paid two dollars for it. That is an invasion of my privacy. Of course if it bothered me that much, I could just pay cash and forget about the savings."
However, many shoppers are increasingly aware that loyalty cards are being used to compile profiles of their shopping habits for later use, and that this data can be farmed out to business partners, telemarketers, and direct-mail solicitors. What isn't public knowledge, however, is how often discount card programs themselves are outsourced to other companies.
Outsourcing for Discounts
Running a loyalty card program is big business, and often incurs heavy administrative costs. CVS' ExtraCare program netted it an extra 30 million shoppers and $12 billion a year in revenue across its 4,000 stores, but the extensive hardware and software implementation necessary to run such a program has kept other major drug store chains from introducing similar programs.
Many retailers turn to third-party merchants and marketers like Arthur Blank and Alpha Cards to design and develop their discount card programs. Alpha Cards' customer loyalty program boasts of using magnetic strip and "smart card" technology to "[o]ffer your customers product discounts and points toward merchandise, and record valuable data about their buying preferences at the same time." The CardWerk company advocates using smart card technology at point-of-sale transactions to reduce fraud, improve usability, and "maintain customer loyalty."
Details of loyalty points and the point-gaining transactions are being captured by a stand-alone card terminal and transferred to a PC or a back-end server for further analysis. The loyalty software maintains a complete database of all customer rewards and reward suppliers.
It's not an unreasonable concern that customers' buying profiles will be as vulnerable to fraud and misuse as their credit card numbers, particularly if the third-party companies practice lax security measures. Technology newspaper Information Week reported in May of 2004 that "Unisys chief security adviser Sunil Misra [discussed a] case where a member of the senior IT staff at a large supermarket chain created a secret back door so he could access and sell protected information."
Valuetec, a leading provider of gift and loyalty cards to businesses and retail store chains, recently partnered with credit card payment processor CardSystems to provide "comprehensive gift card and loyalty card products", as well as implementing "stored value systems", where a customer gets a set point balance on their card, which replenishes when they make purchases at the sponsoring store. CardSystems was the vendor responsible for 40 million Visa and MasterCard users' data being exposed to potential theft in June 2005.
So what kind of things can happen if stores know your buying habits? What are the ultimate goals of all this data collecting?
Inside the Shopping Cart
Supermarkets and retailers who have profiles on their customers via loyalty cards often outright admit to trading or sharing data with "preferred partners." Safeway's privacy policy, for instance, states the following:
We may share information with affiliated companies or third parties as necessary to fulfill your on-line grocery order or other requests for service, and as necessary to obtain payment for products and services we may offer. (Third parties with whom we share information to assist in completing orders do not have the right to use personal information provided to them beyond what is necessary to complete the order.) We also use this information to contact you if you have won a contest or sweepstakes. Safeway may use this information to give you personally-tailored coupons, offers or other information which may be provided to Safeway by other companies.
Safeway's policy also states that an incredible amount of information is collected when you apply for a card and use it regularly, such as the following:
Safeway only collects personally-identifying information from customers when customers apply for a Safeway Club Card; enter sweepstakes or other contests when using your Club Card or other means of entry; visit our web site -- www.safeway.com; and purchase groceries or other items with a method of payment that contains personally-identifying information. "Personally-identifying information" means your name, address, bank account, credit card number, telephone number or other information by which you can be personally identified?Safeway does collect additional information from Safeway Club Card members. The information we receive depends on what you do when you visit our stores and use your card. We collect and store your name, address, home telephone number, and birth date if provided by you. If you are in an area where we offer electronic checking and apply for this service, we also ask for information such as your driver's license number and bank and credit card account numbers. When you make purchases, we record data about the transaction, including the amount and content of your purchases and the time and place these purchases are made.
All of that just for buying some Hot Pockets and Mountain Dew. The amount of data collected via loyalty card programs would be the envy of any information broker, and supermarket chains do not hesitate to share it when they wish.
In a headline-making case from August of 2004, Philip Scott Lyons, a firefighter from Everett, Washington, was arrested and accused of arson after a police canine unit sniffed out a fire starter unit hidden in his home with a Safeway label attached. Safeway provided the Lyons' purchasing history to the police, revealing that they did buy the fire starter a month earlier.
The charges were later dropped when another person came forward and confessed to the crime. The fact remains, however, that Safeway provided a customer's personal information to law enforcement, thus skirting the Constitutional and Federal laws that prohibit government and police agencies from collecting personal information and creating databases.
Prior to CVS' Extra Care debacle, General Nutrition Centers' Gold Card users had their personal information posted on a Web site by one of the company executives in 2003. The executive was selling the information to a partner company via a "loophole" in its privacy policy.
On a more basic level, the data collected about your buying habits can be used for everything from custody hearings to psychological profiles to decisions regarding employment. Buying condoms? Must mean you're sexually active, and possibly an unfit parent or health risk. Buying weight-loss diet pills? You might end up with a higher health insurance premium or unexpected physical evaluation at your job.
Moreover, studies have found that loyalty cards' primary purpose -- to offer savings to members -- do no such thing. In fact, stores that use loyalty card programs actually increase the regular prices of items for non-club members, making purchases more expensive for all buyers and reducing the margin of card members' saving to almost nothing. "Everyday" items can be marked up from 28-71% after card programs are introduced.
The most subtle and insidious side effect of loyalty programs appears to be a growing "class" strategy of marketing, focusing on the richest and most frequent shoppers and excluding "negative return" or "undesirable" customers.
Dr. Martha Rogers, a "customer loyalty consultant," performed studies that identified several classes of customer from "Most Valuable Customer" to "Below Zero," those that provided little or no profit in terms of shopping. In the words of a Customer Retention Association article discussing the study:
For every household spending additional money with a retailer as the result of a loyalty promotion or program, there are several times more for whom the same retailer invests marketing and/or communication funds with non-commensurate, even negative, return. Companies involved in loyalty and continuity programs seem much more concerned, and impressed, with top tier results than in looking at the overall picture. Companies really interested in making frequency schemes part of the overall customer relationship management, or strategic loyalty, program should first look at their customer base with fresh eyes. These fickle and bottom tiers of customers should receive less, or no, investment. Some might even have to be discarded if the company is to concentrate its resources on retaining profitable customers.
Later, the author states that "What works is the company-wide commitment to customers, the ongoing creation of customer-perceived value and 'barriers to exit' which leads to loyalty and advocacy." So it doesn't matter if these programs actually work or not, just if the customer believes they do.
What You Can Do
If the concept of loyalty cards being used as tools to gather personal information troubles you, there are many options to take, including the following:
• Get access to your info. Find out how your store controls your information, how it's maintained, and how you can get access to it. Contact their press office and customer service representatives and demand to have your personal profile provided to you. If you want it removed, find out what it will take, if they charge fees, if employees get bonuses for recruiting for loyalty programs, etc.
• Opt out. You can always refuse to sign up for a card, and as with any direct-mail service, you can choose to opt out of their "partnership services" or "special offers."
• Shop elsewhere. The best way to ensure businesses don't abuse loyalty programs is to vote with your wallet. Support stores that don't use loyalty cards or ask for extensive personal information. Who knows? You might even find more bargains.
Source: http://www.consumeraffairs.com/news04/2005/loyalty_cards.html
By Martin H. Bosworth
ConsumerAffairs.Com
July 11, 2005
When you're stacking up grocery items at the checkout line, you're probably not worried about whether your supermarket chain is compiling a profile of you based on what you buy, and storing that information for its own use. After all, who cares if you buy one brand of tissues over another, or favor name-brand microwave pizzas over store brands?
Supermarket chains care. So does CVS. So much so that they use discount cards (referred to as "membership" or "loyalty" cards) to offer you what seem like great bargains. They use the cards to keep tabs on what you purchase, how often you shop, and what your buying preferences are.
And, just as data brokers like ChoicePoint collect personal data and use it to build an aggregate "profile" of individual consumers, supermarket chains use their stored data to target buyers with "special" offers and "preferred" advertisements from their marketing partners.
This is not a uniquely American phenomenon. Everywhere a supermarket, pharmacy, or department store can be found, anywhere in the world, you can assume there's a "discount rewards" program in place to provide customers with benefits that go "beyond mere shopping," as one writer put it in the May 29th edition of the Hindu Business Journal.
"You need to be a compulsive shopper to make the best of the loyalty cards. If you visit the store just once a year or like to comparison shop, these cards may not have much to offer," the article noted.
The recent news that CVS ExtraCare card users' information was exposed on the company's Web site illustrates the risks that loyalty card programs entail. The question then becomes, what is more important -- saving money or protecting your privacy?
What's The Big Deal?
According to a 2004 poll conducted by Boston University's College of Communication, 86 percent of American shoppers use some form of store card or discount card, "and the majority of them say the benefits of the card are worth giving up some privacy." A Canadian Broadcasting Corporation (CBC) article in 2004 stated that 76 percent of Canadian consumers belong to at least one loyalty program. A British advertising column boasted that loyalty card programs had achieved "85% consumer penetration" in the U.K. circa March 2005.
Loyalty card users enjoy discounted prices, special coupon offers, and rebates or "points" towards airline tickets or shopping sprees, much like credit cards. In addition, many loyalty card programs offer tangible benefits such as CVS's plan to designate pharmaceuticals purchased with their card as qualifying for medical Flexible Spending Accounts (FSA's), or the Upromise plan, which allocates portions of money spent using participating stores' loyalty cards to your children's 529 college savings account.
Many users consider the idea of targeted marketing a boon -- if they like one kind of product, why wouldn't they want to get offers for similar products?
Most shoppers approach loyalty cards with a mixture of weariness, indifference, and amusement. Technology writer Declan McCullagh succinctly stated that "nobody's forcing shoppers to sign up for such cards. If you don't like stores that offer them, take your business elsewhere." Or as blogger Jane Hauntanen put it, "Now people will know [I] bought a roll of dental floss at 7:49 PM at CVS and paid two dollars for it. That is an invasion of my privacy. Of course if it bothered me that much, I could just pay cash and forget about the savings."
However, many shoppers are increasingly aware that loyalty cards are being used to compile profiles of their shopping habits for later use, and that this data can be farmed out to business partners, telemarketers, and direct-mail solicitors. What isn't public knowledge, however, is how often discount card programs themselves are outsourced to other companies.
Outsourcing for Discounts
Running a loyalty card program is big business, and often incurs heavy administrative costs. CVS' ExtraCare program netted it an extra 30 million shoppers and $12 billion a year in revenue across its 4,000 stores, but the extensive hardware and software implementation necessary to run such a program has kept other major drug store chains from introducing similar programs.
Many retailers turn to third-party merchants and marketers like Arthur Blank and Alpha Cards to design and develop their discount card programs. Alpha Cards' customer loyalty program boasts of using magnetic strip and "smart card" technology to "[o]ffer your customers product discounts and points toward merchandise, and record valuable data about their buying preferences at the same time." The CardWerk company advocates using smart card technology at point-of-sale transactions to reduce fraud, improve usability, and "maintain customer loyalty."
Details of loyalty points and the point-gaining transactions are being captured by a stand-alone card terminal and transferred to a PC or a back-end server for further analysis. The loyalty software maintains a complete database of all customer rewards and reward suppliers.
It's not an unreasonable concern that customers' buying profiles will be as vulnerable to fraud and misuse as their credit card numbers, particularly if the third-party companies practice lax security measures. Technology newspaper Information Week reported in May of 2004 that "Unisys chief security adviser Sunil Misra [discussed a] case where a member of the senior IT staff at a large supermarket chain created a secret back door so he could access and sell protected information."
Valuetec, a leading provider of gift and loyalty cards to businesses and retail store chains, recently partnered with credit card payment processor CardSystems to provide "comprehensive gift card and loyalty card products", as well as implementing "stored value systems", where a customer gets a set point balance on their card, which replenishes when they make purchases at the sponsoring store. CardSystems was the vendor responsible for 40 million Visa and MasterCard users' data being exposed to potential theft in June 2005.
So what kind of things can happen if stores know your buying habits? What are the ultimate goals of all this data collecting?
Inside the Shopping Cart
Supermarkets and retailers who have profiles on their customers via loyalty cards often outright admit to trading or sharing data with "preferred partners." Safeway's privacy policy, for instance, states the following:
We may share information with affiliated companies or third parties as necessary to fulfill your on-line grocery order or other requests for service, and as necessary to obtain payment for products and services we may offer. (Third parties with whom we share information to assist in completing orders do not have the right to use personal information provided to them beyond what is necessary to complete the order.) We also use this information to contact you if you have won a contest or sweepstakes. Safeway may use this information to give you personally-tailored coupons, offers or other information which may be provided to Safeway by other companies.
Safeway's policy also states that an incredible amount of information is collected when you apply for a card and use it regularly, such as the following:
Safeway only collects personally-identifying information from customers when customers apply for a Safeway Club Card; enter sweepstakes or other contests when using your Club Card or other means of entry; visit our web site -- www.safeway.com; and purchase groceries or other items with a method of payment that contains personally-identifying information. "Personally-identifying information" means your name, address, bank account, credit card number, telephone number or other information by which you can be personally identified?Safeway does collect additional information from Safeway Club Card members. The information we receive depends on what you do when you visit our stores and use your card. We collect and store your name, address, home telephone number, and birth date if provided by you. If you are in an area where we offer electronic checking and apply for this service, we also ask for information such as your driver's license number and bank and credit card account numbers. When you make purchases, we record data about the transaction, including the amount and content of your purchases and the time and place these purchases are made.
All of that just for buying some Hot Pockets and Mountain Dew. The amount of data collected via loyalty card programs would be the envy of any information broker, and supermarket chains do not hesitate to share it when they wish.
In a headline-making case from August of 2004, Philip Scott Lyons, a firefighter from Everett, Washington, was arrested and accused of arson after a police canine unit sniffed out a fire starter unit hidden in his home with a Safeway label attached. Safeway provided the Lyons' purchasing history to the police, revealing that they did buy the fire starter a month earlier.
The charges were later dropped when another person came forward and confessed to the crime. The fact remains, however, that Safeway provided a customer's personal information to law enforcement, thus skirting the Constitutional and Federal laws that prohibit government and police agencies from collecting personal information and creating databases.
Prior to CVS' Extra Care debacle, General Nutrition Centers' Gold Card users had their personal information posted on a Web site by one of the company executives in 2003. The executive was selling the information to a partner company via a "loophole" in its privacy policy.
On a more basic level, the data collected about your buying habits can be used for everything from custody hearings to psychological profiles to decisions regarding employment. Buying condoms? Must mean you're sexually active, and possibly an unfit parent or health risk. Buying weight-loss diet pills? You might end up with a higher health insurance premium or unexpected physical evaluation at your job.
Moreover, studies have found that loyalty cards' primary purpose -- to offer savings to members -- do no such thing. In fact, stores that use loyalty card programs actually increase the regular prices of items for non-club members, making purchases more expensive for all buyers and reducing the margin of card members' saving to almost nothing. "Everyday" items can be marked up from 28-71% after card programs are introduced.
The most subtle and insidious side effect of loyalty programs appears to be a growing "class" strategy of marketing, focusing on the richest and most frequent shoppers and excluding "negative return" or "undesirable" customers.
Dr. Martha Rogers, a "customer loyalty consultant," performed studies that identified several classes of customer from "Most Valuable Customer" to "Below Zero," those that provided little or no profit in terms of shopping. In the words of a Customer Retention Association article discussing the study:
For every household spending additional money with a retailer as the result of a loyalty promotion or program, there are several times more for whom the same retailer invests marketing and/or communication funds with non-commensurate, even negative, return. Companies involved in loyalty and continuity programs seem much more concerned, and impressed, with top tier results than in looking at the overall picture. Companies really interested in making frequency schemes part of the overall customer relationship management, or strategic loyalty, program should first look at their customer base with fresh eyes. These fickle and bottom tiers of customers should receive less, or no, investment. Some might even have to be discarded if the company is to concentrate its resources on retaining profitable customers.
Later, the author states that "What works is the company-wide commitment to customers, the ongoing creation of customer-perceived value and 'barriers to exit' which leads to loyalty and advocacy." So it doesn't matter if these programs actually work or not, just if the customer believes they do.
What You Can Do
If the concept of loyalty cards being used as tools to gather personal information troubles you, there are many options to take, including the following:
• Get access to your info. Find out how your store controls your information, how it's maintained, and how you can get access to it. Contact their press office and customer service representatives and demand to have your personal profile provided to you. If you want it removed, find out what it will take, if they charge fees, if employees get bonuses for recruiting for loyalty programs, etc.
• Opt out. You can always refuse to sign up for a card, and as with any direct-mail service, you can choose to opt out of their "partnership services" or "special offers."
• Shop elsewhere. The best way to ensure businesses don't abuse loyalty programs is to vote with your wallet. Support stores that don't use loyalty cards or ask for extensive personal information. Who knows? You might even find more bargains.
Source: http://www.consumeraffairs.com/news04/2005/loyalty_cards.html
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