Cultivating Loyal Customers

Savvy c-store operators are using loyalty programs to improve merchandise planning and forecasting to spur long-term growth.

By Howard Riell, Associate Editor.

Loyalty programs, when administered well, offer c-store retailers solid benefits—the ability to react to trends quickly, make more informed decisions, improve cost effectiveness and aid in merchandise planning and sales forecasting.

“Loyalty programs can take c-store marketing one step further than can traditional methods—stocking the shelves and watching what moves, and when you notice certain things selling you move those to the right areas of the shelves and counter displays, and those are the ones you reorder, and the ones that don’t sell you stop ordering,” said Carlos Dunlap, director of business development and strategy for Kobie Marketing, a customer loyalty marketing and customer retention agency based in St. Petersburg, Fla.

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While a loyalty program allows retailers to track individual product usage, Dunlap believes storeowners are selling loyalty programs short if that’s all they use them for. Instead, he urged c-store operators to take the offering a step further—to actually reach out to shoppers and find out what their needs are.

“An effective loyalty program allows you the opportunity to communicate more directly with your customers and ask them direct questions—to not only see what they purchased, but to see why they purchased it and learn what else they would like to purchase,” Dunlap said. “From this, you can learn what is driving each particular transaction from a customer’s perspective.”

For instance, a customer might buy Dentyne one time and Wrigley’s another time. Why? “It all depends on the customer—that’s why it’s important to be able to communicate with your customers,” Dunlap said. “So the goal of any loyalty program should be to provide convenience stores with the information they need to in order to better anticipate the buying habits and the intentions of program members.”

Used properly, such loyalty solutions provide c-stores with a conduit to the customer that they haven’t traditionally had. “The majority of individuals who come to buy gas never even go inside the c-store,” Dunlap said. “The loyalty program can give them the incentive to go into the c-store and make a transaction by bonusing the store transactions. It can get their customers to raise their hands and say, ‘Hey, I’m willing to let you track my behavior in exchange for some kind perks along the way.’”

Going at loyalty marketing in this way, Dunlap underscored, allows convenience stores to begin asking the pertinent questions around customer behavior, attitudes and future intentions.

A Passion for Data
“Loyalty and rewards are always my passion,” said Bob O’Connor, president of O’Connor Petroleum, operator of three Jetz Convenience Centers in Hales Corners, Wis. That explains why the Jetz loyalty program stands out in a number of ways. “First and foremost, we tie it directly to our c-store brand so people know whose rewards they are,” O’Connor explained.

Another hallmark of Jetz’ loyalty program is its ties to local communities. “We like to work with our community on rewards so we can cross-market each other,” O’Connor said. “We also work with our vendors, to cross-promote each other. I would say there is more coming in that, but I can’t discuss it yet.”

From a planning and forecasting perspective, once a customer can be connected with specific buying behaviors, the job of selling becomes exponentially easier. “As long as you can work a database, you have access to an awful lot of information, both individually and as a group,” O’Connor said. “You can always sift the databases by zip codes, by region of the country; you can sift data however you want, and based on whatever information you’re looking for. You’ve got all the data right there.”

What’s more, consumers’ responses are largely predictable.

“Customers are creatures of habit. If we reward them for a certain type of behavior, they tend to repeat that behavior more often than when they’re not rewarded,” O’Connor said. “So in general, reward programs definitely lead to a lift of whatever you’re promoting.”

Loyalty aids mightily in forecasting and buying, for obvious reasons.

 “It’s because you know what throughput you have,” O’Connor said. “Loyalty allows you to build models based on certain algorithms, which enable you to make certain predictions that help with your buying decisions.”

Best Customers, Retailers
Customers who participate in loyalty programs are, generally speaking, a store’s biggest spenders. But that doesn’t mean the rest should be discounted or minimized.

“There are some best customers who don’t want to raise their hands, who don’t want to be identified, and who don’t want to sign up for the program,” Dunlap warned. “You can’t say that only loyalty program customers are best customers, though traditionally that is true, because they recognize the value of their transactions and the value that they represent to the retailer. Therefore they’re willing to provide a greater share of their spend in exchange for, again, some ongoing benefits and privileges.”

Operators who are not involved in loyalty marketing, Dunlap is convinced, are selling themselves short and not doing everything they could to build their businesses. “They absolutely are losing an opportunity because they will continue to do things the way they’ve always done them,” he said. While many c-store retailers are content to do business that way, the changing times call for more.

“The world is getting a bit more savvy,” Dunlap said. “Inventory and shelf space are at a premium, and you’ve got manufacturers fighting for space—and customers who have the ability to pretty much go anywhere to buy stuff. Competition is so fierce so retailers need to use all the tools at their disposal to stay ahead of the game.”

Loyalty is Labor Intensive

The biggest problem when it comes to administering a loyalty program—and where more than a few c-store operators have faltered—is the fact that it can prove to be labor intensive.

“It also takes a lot of creativity,” Jetz’ O’Connor pointed out. “When you put out a reward someone always wants to piggyback on it right away, so you constantly have to stay ahead of the curve. That can be very time consuming, and you have to have the right kind of vision for that.”

Matt Heinz, president Heinz Marketing Inc. in Redmond, Wash., noted that loyalty programs sometimes fail to ignite simply because retailers find them to be overly labor intensive. Newly implemented programs often require new tools, additional bandwidth, and a dedicated set of employees for success. “If this work is required of existing people, existing systems and existing budgets without adding additional time or resources to execute, you’re doomed to failure.”

Effective loyalty marketing needn’t be complex or overly labor intensive, Heinz insisted. “They don’t need to require significant new infrastructure, policies or procedures to make them work. And if they do need new resources, the program had better be important enough and cross-functionally supported well enough to get the support it needs to succeed.”