Loyalty Programs on Fast Evolutionary Track
By Faye Brookman, special to GMDC
Loyalty programs can do more than just give shoppers rewards for spending a lot of money in a retailer’s stores.
Indeed, as loyalty programs roll on, they are being more carefully crafted and targeted, are providing a broader array of consumer perks, and are becoming much more sensitive to market demographics and customer needs than ever before.
The next trend in frequent shopping programs appears to be to better target the “best of breed” shoppers. Although at first blush loyalty programs might seem best aimed at getting new customers or under spending shoppers to spend more, experts actually advise a different tack.
For example, Larry Aronson, a former executive with Revlon who co-founded a loyalty marketing program called Cartwheel LLC actually thinks zeroing in on best shoppers is the best bet. It is easier to convert your existing shoppers to those who’ll come to your stores more often than to change other consumer habits, he believes.
His reasoning is that it can be more lucrative to go after 10 percent of shoppers who do 51 percent of your business and spend $750 a month versus a 60 percent base that only produces 12 percent of sales and spends $30 a month.
The best initial programs are instant coupons that are issued when a customer hits a certain spending level. But the next step is to offer coupons that are more specialized to life cycles or even disease states, such as diabetes.
However, chains do have to dig deeply into the data to make sure future frequent shopper deals are aimed at the perfect audience, and more and more suppliers are playing a role. In fact, manufacturers now see a benefit in using retail programs to also help target more of their “best” customers, too. That was the evolutionary point in loyalty programs brought out by Tim LaBeau, chief executive officer of regional drug chain Drug Fair, based in Somerset, NJ, who said his firm’s new loyalty program, called We Care, would give the chain the “opportunity to work closely with our suppliers in the development of new ways to communicate with our shared customers.” The hair care category has been especially responsive to loyalty programs since so few customers buy across hair care brand lines, especially color.
More evolution is likely on the way. Aronson pointed to the success of Tesco in building its frequent shopper program in the U.K, and their entry into the U.S. will probably reinforce the growth of loyalty programs. In the U.S., food chains have been way ahead of other channels, but drugstores are quickly catching up. Down the road, Aronson thinks loyalty programs can be one of the most important factors separating one chain from another.
Discussion Questions: Is focusing heavily on the top spending consumers the right strategy to pursue? Is it wise to ignore the great bulk of customers who could be a gold mine if innovatively approached? What role can suppliers play in either of these two tactics?