So far, I’ve been less than enthusiastic. Not about the concept, you understand, but about most of the programs in use as we commonly see them implemented. There are two customer loyalty programs, however, that I believe work well.
One is transactional in nature, and one is relational. They each take a major commitment to massive amounts of work. They each must be customized for your company, and once done will never fit any other company.
As you design your loyalty program. . .
The most important metric you need to track is customer retention. How many customers are defecting? How many keep coming back?
The second most important metric is profitability. Your program should never allow unprofitable customers to become eligible for rewards.
Remember the advice of Michael Leboeuf in The Greatest Management Principle in the World: behavior that gets rewarded, gets repeated.
If you want to retain customers, let them feel rewarded for doing business with you. If you want to retain customers, don’t merely talk retention while rewarding your salespeople for “prospecting.”
The Club Card – The Transactional Solution
Points systems worked well when one company had them and the others didn’t. When everyone has them, they’re just an expensive cost of doing business. But let’s take a second look at those magnetic club cards offered by many of the nation’s grocery chains.
The club member swipes the card through the stores’ credit card reader. This simple act not only identifies the bearer of the card, but also gives the store valuable information about the member’s purchase choices.
Consider the possibilities. The MegaLoMart discovers through data mining that Chuck has no particular preferences when choosing paper towels, or charcoal briquettes, or soft drinks, but he always buys Campbell’s Cream of Chicken soup. Do you suppose that a customized offer of Campbell’s Cream of Chicken at a savings of 30 cents a can might get Chuck back into the store? If I bought six cans under this offer, the store would have given up the profit on six cans of soup in order to get me to spend another $150 on other grocery items.
Would the soup offer work for everyone? No. Only those people who were brand loyal to this specific company are likely to respond. But a well programmed computer system, looking for such predictable choices could find, and customize, different offers for each of the store’s best customers.
And since a program such as this is fully customized, no competitor could offer it – at least, not in the same way.
How much would it cost to individualize offers to your best customers? Perhaps more importantly, how much will it cost to let your competitor do this if you don’t?
The Small Business Model – the Relational Solution.