Aligning Loyalty Programs

Image of iPad terminalThere’s a simplified approach to loyalty that offers a good fit for today’s convenience customer.

By David Bishop, Contributing Editor.

Retail loyalty programs take various forms, ranging from the simple paper punch card to sophisticated shopper cards linked to purchases.

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While technology has evolved over the years, customer loyalty strategies continue to focus on engaging, tracking and rewarding customers for desired behaviors. The end goal is to increase the amount of dollars a consumer spends with a business by building stronger connections with customers.

The tactics employed depend on the capabilities, complexity and costs a retailer believes it can support.

A relative newcomer to the retail loyalty space that’s drawing a lot of attention from convenience stores, coffee shops and restaurant operators is textLIVING, a digital rewards program provider. (To learn more about textLIVING click here, then select “for your business” at the top of the page.)

Their program integrates elements of a traditional punch card, leveraging text messaging to promote exclusive, limited time offers. A significant benefit of the program’s design is that the shopper doesn’t need to carry a card or download a mobile application. It leverages an iPad in a tamper-proof case placed by the checkout counter that customers use for various program activities.

This article examines the program based on a first-hand review of the application, interviews with retailers and company representatives, independent analysis of retailer data, and information compiled from various secondary sources by Balvor LLC. The objective is to put the topic into context while highlighting key issues that a convenience retailer should consider relative to loyalty programs.

Retailers invest in loyalty strategies because consumers like to receive rewards from businesses. Consumers, in fact, participate in at least 7.4 loyalty programs on average, according to the 2013 Maritz Loyalty Report and 57% of consumers may modify when and where they shop to maximize benefits.

If the program does encourage increased visit frequency that can lead to higher sales per transaction as insights from a 2013 Balvor convenience shopper analysis revealed. Shoppers visiting a retailer twice a week buy 16% more items per transaction as compared to those who only visit once, while those who visit 3-4 times and five or more times per week buy 29% and 44% more items.

Simplicity is evident throughout the textLIVING program from how the operator interfaces with it on a regular basis to how the consumer engages the program. The tablet takes up about as much space as the sign-up materials for other programs and only requires a power source and Internet connection to work.

Marty Cantwell, director of operations for Marty Mart, based in West Helena, Ark. was attracted to textLIVING because of its simplicity. “We were looking for a program that would help us connect with more of our customers on the go that’s quick and easy for everyone,” said Cantwell.

And, since the textLIVING doesn’t require integration with the point-of-sale system, Marty Mart was fully operational only a few days after making the decision to move forward.

Retailers understand that the value of many marketing strategies is a function of reach and impact, making the number of customers who use the rewards program and quantifying the results both critical success measures.

Marty Mart encourages customers to sign up by rewarding them with a free fountain drink. According to Cantwell, customers receive the drink offer via a welcome text immediately after registering on the iPad. The incentive method used to drive sign ups is similar to others; however, the registration process differs in that it only asks the customer for two inputs.

“The cell number is the customer’s unique identifier that supports the program’s main functions and the first name enables the retailer to personalize customer messages,” according to Joe Brannon, co-founder and CEO of textLIVING. Home address, email, birthday, or primary store shoppers aren’t requested as these inputs are not essential to the program.

This streamlined registration is vital, given where the tablet is located in the store.

It turns out that a short sign-up process also enhances the attractiveness of the program to customers.

Asking for too much information, according to the Maritz report, is why 29% of consumers don’t participate in loyalty programs.

Understandably, sign-up results vary by retailer due to a variety of factors like population density and site traffic counts. Convenience retailers are enlisting between 325 and 550 sign ups per store location during the first six months and reaching around 825 customers, in some instances, within 12 months of the launch date.

While those are impressive numbers, textLIVING indicates that its retail customers, on average, have approximately 1,500 customers signed up per location—some boasting more than 8,000.

Simplicity flows through to how enrolled customers earn rewards. Retailers typically offer a free hot coffee or fountain drink after every five check-ins, although retailers can adjust those elements.

To prevent abuse, the program limits customers to one check-in per day, which is done using the in-store terminal by entering the cell phone number.

Customers then view a personalized screen with their first name and a count of how many check-ins they have and need for the next reward. They also can quickly check out rewards earned or special offers received, understand when each expires and redeem an offer. If customers select to redeem an offer, a text is sent that they show the cashier to claim the reward.

If the redemption rate is an important metric for marketers to assess the effectiveness of various offers, then examining those rates related to frequency rewards reveals just how strongly customers respond. One regional convenience operator with 14 stores issued over 27,000 rewards during the first 12 months of running the program. Chain-wide redemptions averaged more than 55%.

The program utilizes a double opt-in process that allows customers to decide if they want to also receive special offers via text. Balvor found that approximately 80% of convenience customers enrolled in the rewards program also participate in receiving these exclusive text deals.

Whereas customers earn credit toward their next reward based on visit frequency, retailers usually send these texts out weekly, promoting different limited time offers that customers can claim.

Retailers push out exclusive deals via text instead of emails as “texting is simply the best way of reaching the convenience-driven customer,” Brannon said.

Data compiled from various sources support this claim. The Pew Research Center estimates that as of January 2014 over 90% of adults in the U.S. have a cell phone; whereas, only 60% have a smartphone.

The application is different from other texting programs in that it integrates with the rewards program. This feature strengthens the value of enrolling in the rewards program, makes it easier for the customer to participate, and allows the retailer to respond to changes in customer behavior.

Balvor analyzed the results of text executions across various retailers using the program. The analysis revealed that customers respond most strongly to the chance to get free products with a purchase, with redemptions averaging more than 5%, and some generating rates almost double the average.

Combo deals, which are mainly cross-promoting foodservice products, come in just ahead of discounted products. However, the depth of the price discount clearly affects the response rate as redemption rates for offers with discounts greater than 50% perform much better than the others. This is a learning point for convenience stores.

Customers become inactive in loyalty programs for a variety of reasons, which, if left unchecked, can represent a sizable lost sales opportunity for convenience store retailers. Therefore, it’s vital that c-store retailers have processes in place that not only identify these occurrences, but also trigger an appropriate response that helps re-engage lapsed customers to once again use the program.

Retailers are able to take advantage of an automated retention feature that simplifies this process. All the retailer needs to do is determine the length of the inactive period and the special incentive that is offered to deal a customer back in—then the program does the rest.

One regional convenience store chain set the parameters to automatically send a text to anyone who hasn’t checked in for 45 days, offering them a free candy bar when they check in at one of its stores. As a result of this feature, the retailer has brought back into the store between 3% and 4% of the lapsed customers, depending on the store cluster, which is a conservative estimate, as some customers received multiple alerts.

Ultimately, the rate of return that a retailer receives from a loyalty program relies largely on executing the right set of activities effectively.

Understanding what is right differs by retail channel, making it important for retailers to understand what aligns with customer wants and behaviors.

Doing it well requires having not only an effective process in place, but also the dedication and commitment to learning what works best for the customers.

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