Brigantine Media

In a recent visit to Katz Foodtown, I discovered four outstanding characteristics:

1. Beeper Greeter
2. Customer Relationship Manager
3. Culture of the Well
4. Goal Congruence

Beeper Greeter

Picture all checkout lanes busy at your local supermarket. Among those checking out are some of its highest spending Best Customers. Now, how can your supermarket give additional personal recognition to these customers who provide the majority of its sales and profits?

Katz Foodtown, in conjunction with its loyalty partner, S&H Solutions, devised an elegantly simple solution. They introduced a new role, the Beeper Greeter. Every time the loyalty card of one of Foodtown’s Best Customers is scanned, it automatically activates the beeper on the Front End Manager’s belt. Glancing at her beeper’s screen, she sees three things: which checkout she should move to immediately; the name of this extra-special customer; and the customer’s recent spending level. Arriving at the checkout, the Front End Manager begins by helping bag the order and then eases into a conversation with the customer, making her feel especially welcome. Included in the conversation is usually one question: Is there any item we don’t carry that you have to go another store to buy? If there is, the Front End Manger immediately writes it down on her Top Shopper (ie, Best Customer) log sheet along with the customer’s card number. With a warm smile, she tells the customer she’ll check to see whether they can stock it and that she’ll let her know the following week.

And she does! At the end of each day, each store has a procedure to check warehouse availability of all such items mentioned by Top Shoppers. If available, a shelf label is created for it (for space allocation and re-ordering purposes), and it is ordered. After it is placed on the shelf, the soon-to-be-delighted customer receives a phone call or postcard from the store saying she can now find her missing item on shelf X on aisle Y.

Why go to all this trouble when no other food retailer does? I asked brothers Noah and Dan Katz, who operate the chain. Their answer was stunningly simple. “Six years ago,” they said, “we made a serious commitment to grow our business. What, we asked ourselves, could we do that couldn’t be duplicated by our competitors? One key idea emerged: the relationship we build with our customers. Our Beeper Greeter is an example of this. By offering the items that our regular customers want and giving warm friendly service we remove major reasons for our customers to shop elsewhere. And it’s working! We have had nice comp-store sales gains every year since we introduced our loyalty program in 1999.”

Customer Relationship Manager

The Beeper Greeter program reflects the Katz brothers’ realization that the most profitable way to build sales is to focus on increasing the number of their Top Shoppers. Every retailer acknowledges this, but few do anything about it. A few years ago, they added a Customer Relationship Manager to each store’s management team, and charged her with just three goals: New Customer Acquisition; Customer Retention (especially Top Shoppers); and Customer Outreach.

Earlier, when analyzing their customer data, they had seen that many of their new customers weren’t returning after their first visit and that a majority of new customers were off their radar screen 12 months later. So the Customer Relationship Managers were challenged to reduce new and existing customer defections by designing, implementing, and monitoring appropriate programs. One such program I admire is that, every day, each Customer Relationship Manager sends a hand-written note of welcome to all of her store’s previous day’s first-time customers (who spent over a certain amount).

In addition to their Beeper Greeter program, aimed at retaining their Top Shoppers, the Customer Relationship Manager sends them surprise offers during the year as well as a card on their birthdays.

Foodtown’s Customer Outreach program is novel. Each Customer Relationship Manager has increased her store sales by going into the surrounding marketplace and seeking incremental business, (eg, regular lunch orders from the mechanics in a nearby Jiffy Lube and general grocery store needs from a local daycare center).

Culture of the Well

One of the most difficult elements in effecting change in any organization is instilling new ideas and behaviors into its culture. Foodtown chose the “Well” method. This is named after the African village well where, each day, the women come for their water. While there, they chat, exchange views, and learn about the other families in the community. Unconsciously, this reinforces and solidifies the tribe’s culture.

The most successful business practitioner of the Well method of cultural clarification and reinforcement is Wal-Mart, with their 30-year old practice of Saturday morning meetings. Every Saturday, all salaried associates, together with top field managers, gather for 3 hours in Bentonville, AR, to discuss the past week’s business, lessons learned, and plans for the coming week and beyond. This weekly repetition of attitudes and values, combined with how to approach opportunities and problems, seeps into the attendees’ subconscious and become part of the company’s strong cultural norms.

Foodtown has adopted the same Well approach in their quest to become a committed, customer-centric company. The basement of one store was converted to a conference center and, every 4 weeks, all Store Managers and Customer Relationship Managers come to the center for a 3-hour session to discuss just one topic: the company’s customers. The meeting includes presentations by each Customer Relationship Manager on the successes she has had with her Outreach Program along with her other customer successes. Of course, such sharing encourages copying by the others. In addition, they have Scorecard Time: a review of each store’s customer numbers, ranging from its increase in Top Shoppers to its return rate of new customers. Over time, this approach has helped instilled a reverence for both customers and customer growth throughout the whole organization.

Goal Congruence

Of course, the Well approach works best when the values sought are not only clearly communicated but are also inspected to measure the degree of accomplishment, followed by either redirection or reinforcement (using recognition and rewards). Here, again, Foodtown excels. Each week, mystery shoppers test every major element of the customer experience: Were Top Shoppers asked if they could they find everything they needed? Did they receive a follow-up call or postcard to say the item is now in stock? And not only that, were the items actually at the spot on the shelves where they were told?

To recognize progress, Foodtown rewards equally the members of each store’s management team (Store Manager, Meat Manager, Produce Manager, Front End Manager, and Customer Service Manager, etc) with a bonus payment for each additional Top Shopper. Foodtown believes customers are not just a responsibility of the Customer Relationship Manager – it’s the responsibility of every department in the store. That’s goal congruence!

End Note

This review is just the tip of the iceberg of the ideas and practices that one sees at Katz Foodtown. But it provides a flavor of what retailers can do if they are really serious about putting customers at the center of their business and placing their Best Customers right in the bull’s-eye.

Copyright © 2005 Brian Woolf

Brian Woolf is a global leader in loyalty marketing. In addition to writing three definitive works on the subject, “Measured Marketing: A Tool to Shape Food Store Strategy,” “Customer Specific Marketing,” and “Loyalty Marketing: The Second Act,” he spends his time helping retailers develop and strengthen their loyalty programs. For more information about Brian and his books, visit www.brigantinemedia.com.

The Final Five Success Factors for Customer Loyalty
From the Third Year of Your Programme Onward

By Malcolm Fowler
EVP Products and Marketing, Ernex, Inc., Canada (July 16, 2003)
Original printed at www.brianwoolf.com

To catch up on critical factors for success in the first two years of a loyalty programme, read Malcolm Fowler’s original article, ‘Five critical success factors for planning and launching a loyalty programme’. And now Malcolm reveals the roadmap for success in year three and beyond…Loyalty programmes begin to mature in year three and beyond. Finding out when your programme is maturing will depend on a number of factors including the type of industry you are in. But it is safe to say that until you can start to look for year-on-year trends in data, it’s not possible to assess important loyalty metrics like retention, or your efforts to influence the behaviour of loyalty programme members.

Once your loyalty programme does begin to mature, there are five more critical success factors that will help you stay focused and on track to maximise your investment:

1. Maximise the use of your loyalty information – but not just for your loyalty programme.
One of the top reasons businesses report wanting to create a loyalty programme is to find out who their customers really are. Now that your loyalty programme has built a customer profile, use it well. Extend what you have learned about your best customers into your general marketing strategies.

Programme members will tell you where they live, when they shop, and even how old they are – it’s all in the data. Use that data not only to communicate with your loyalty programme members but also to plan your broader marketing initiatives.

2. Look at year-on-year performance data.
It takes time to establish a baseline of performance within your loyalty programme. Now that one is emerging, one way to stay focused on improving your programme is to start paying attention to year-on-year performance data (and to continue to do so on a regular basis).

Monitoring even simple measures like acquisition, number of active customers, and average spend data gives you valuable information for programme planning. Compare same store, same month, from year to year to get a regular picture of your programme at the store level.

3. Create differentiation within your loyalty programme.
Many loyalty programmes have ‘tiers’ which are established as the programme matures. Most frequent flier and hotel programmes have these characteristics. The loyalty rules within the different tiers of these programmes can be very complex.

This complexity is the result of many small changes within the programme over time, each designed to treat specific customer segments within the loyalty programme differently. The key is to make this complexity visible to loyalty programme members who are already familiar with the base programme.

As your programme matures, consider tiering as a way to establish more value for more loyal members, and to give them ‘performance targets’ to strive for.

4. Cross-marketing can add even more value.
If you have established a powerhouse of a loyalty programme, your marketing power extends beyond the walls of your business. Suppose you are running a theatre chain and that there is a restaurant chain that is almost always situated near your theatres. Adding value to your loyalty members without affecting your business could be as simple as rewarding frequent movie goers with a restaurant offer (restaurant sponsored of course), or having the restaurant award and pay for loyalty points within your programme when your members dine there.

The key to any initiative like this is to protect your brand while adding value to your member at no cost – or even at a profit to you. But even if stretching your loyalty programme beyond the walls of your business doesn’t appeal, the concept of cross marketing still applies. Employ techniques to encourage loyal customers who only experience one segment of your product to try others. Use your loyalty knowledge to identify them, and use your loyalty currency to influence them.

5. You are never done.
Loyalty programmes are living, breathing things. As long as they can adapt, they never get old. Continually adjusting your programme to address changes in your business, customers, and market trends will make it always relevant and valuable. Certainly, keeping up with these adjustments requires an ongoing commitment but it is one that pays off handsomely when done well.

In conclusion…

As I have said before, loyalty programmes go through three main stages: First, programme creation. Second, programme launch and early operation (the first two years). Third, and finally, maturity (years three and beyond). While established programmes are rarely recreated from the ground up, they are often modified to meet the ongoing needs of their members and the business.

Paying the same attention to detail for each programme iteration as you did to the creation of your original programme, and following the five critical success factors for each of the three stages will help ensure a successful and profitable loyalty experience.

Copyright © Malcolm Fowler

Brian Woolf is a global leader in loyalty marketing. In addition to writing three definitive works on the subject, “Measured Marketing: A Tool to Shape Food Store Strategy,” “Customer Specific Marketing,” and “Loyalty Marketing: The Second Act,” he spends his time helping retailers develop and strengthen their loyalty programs. For more information about Brian and his books, visit www.brigantinemedia.com.

Five Success Factors for
Planning Your New Customer Loyalty Programme

…and Five More for Launching It

By Malcolm Fowler
EVP Products and Marketing, Ernex, Inc., Canada (July 17, 2003)
Original printed at www.brianwoolf.com

Getting Started

Creating a successful loyalty or electronic marketing programme that works for your organisation and your customers requires careful planning and execution. While it is difficult to dispute the benefits of attempting to do something good for customers, there are some tried and tested practices that cannot be ignored.

Without these practices even the most well-intended customer loyalty programme could fail to meet internal expectations, external expectations, or both. Before kicking off any loyalty programme, there are five critical success factors an organisation should consider:

1. Ground the programme around a core brand: your business.
Although it sounds simplistic, any loyalty programme should reflect the same values, beliefs, and core business benefits on which the company prides itself. Most companies have a mission statement. Take it out, dust it off, and be certain the mission is met in the programme’s positioning.

Are there corporate beliefs you expect your employees to live by, or specific key differentiators that you offer your customers? If so, let them guide the loyalty programme too.

If the challenge lies in determining some simple rewards to provide for customers, look to your top selling items and provide a reward that is similar in meaning and value.

The beauty of a loyalty programme is that it allows you to be creative and dream a little – provided you keep it grounded in the reality of what customers want and expect from you. After all, customers are the ones who decide which stores they will frequent (whether that is your store or the merchant down the street), based on both product offerings and the way they are recognised and treated once there.

2. Rally management and organizational support, then make it happen, both in the stores and behind the scenes.
As important as the loyalty programme is for customers, it is also critical to take into account the back-end support of your management and staff. If the store managers and/or the company president don’t care about how it works, or if they have no idea how to make the programme into a company-wide practice, it will fail.

Without broad organizational support from the start, and without creating internal excitement and buzz around the up-coming launch of a loyalty programme, a merchant runs the risk that shop staff will not understand the programme’s benefits, how it works, and how to sign up members.

It’s important to remember that loyalty programmes have the power to generate interest right at the point of sale, giving store staff a way to immediately interact with customers, demonstrating that they are indeed valued.

A well thought-out and executed loyalty programme has the ability to provide information about a store’s best customers – something you can take advantage of and use throughout the organisation, and at every customer interaction.

3. Adapt messages and offers to keep customers coming back for more.
Once the loyalty programme has identified the company’s best customers, those that are up-and-coming ‘best customers’, and those that are ‘laggards’, it’s time to get down to the real nuts and bolts of the programme: Motivation – learning what motivates customers, whether it’s a spring promotion for your best customers, or a special incentive geared toward those who haven’t visited for a while. It’s an unparalleled opportunity provided by a loyalty programme.

More importantly, the results can be measured to determine what worked and what did not. The bottom line is this: don’t be afraid to learn. While sticking with tried and tested practices, carry on testing (and then test some more). The results may be surprising!

With loyalty programmes, ongoing testing and adjustments are cost-effective, immediate and almost completely pain-free. With a few minor tweaks, today’s test just might be tomorrow’s standard practice.

4. By all means, keep it simple!
In loyalty programmes, complexity is not an asset. If your customers or staff struggle to understand the benefits of it, the programme has already failed. By designing a programme with easily communicated benefits and with realistic, identifiable, and attainable rewards, customers will be more likely to sign up – and your staff will be more likely to promote it both internally and externally.

But don’t stop there. Once everyone has caught on to the programme’s basics, be sure to provide continuous support for ongoing awareness efforts, adding promotions that can become progressively more targeted at specific members within your programme over time.

5. Use ‘face time’ and implement a strong point of sale strategy.
When rolling out a your programme, it is important to take advantage of the point of sale location – where interactions take place with your top customers and others. According to a recent Point of Purchase Advertising Institute (POPAI) consumer buying habits study, over 70% of purchasing decisions in mass merchandisers and supermarkets are made in the store. Perhaps as much as 70% of your opportunity to have effective communication with your loyal customer base occurs there as well.

Adopt a strong strategy that expedites the introduction, and promotes the over-all customer benefits and ongoing programme enhancements, right in the store. Customers will take notice.

But the benefits don’t stop there. By extending the same promotional practices to non-loyalty shoppers, you can take advantage of the in-person ‘face time’ to help encourage additional programme memberships and to press home those company differentiators.

Now you’ve started

Those five steps represent a good way to plan a loyalty or electronic marketing programme strategy. Brainstorm the programme components, be creative in your delivery, and be flexible enough to make adjustments to implement a loyalty programme that works for both you and your customers.

When implemented properly, a loyalty programme can be the single most successful way for you to differentiate yourself from your competition. By focusing on these five critical success factors, you can optimise your customer loyalty programme and increase your return on investment – all while improving customer communication, brand loyalty and over-all customer satisfaction.

The first two years… and the next five steps

One of the greatest challenges to a loyalty programme usually occurs between the 6th month and the 24th month of its operation. It is during this period that the excitement and anticipation created by the programme’s launch starts to decline. The customers – and the company’s CFO – start to measure the programme and its results. There are five more critical success factors that you must consider during the first two years of operating a loyalty programme:

1. Communicate, Communicate, Communicate.
It takes a great deal of planning to create a loyalty programme, including thinking of ways to educate staff about the programme, and ways to garner customer participation. Once the planning is over, the key messages of keeping staff informed and customer participation need to be continually reinforced.

Create a ‘presence’ for the loyalty programme by thinking of it as an asset. When advertising, include information about the programme. Create an area on the company’s web site devoted exclusively to it. Continue its in-store presence and point-of-sale promotion, and reinforce its message to customers. If e-mail addresses are collected as part of the programme’s enrolment, they should be used to communicate with members (but only for those that have opted-in for this type of communication).

Let your employees know some very simple information about loyal customers. Facts such as “40% of in-store purchases are made by loyalty programme customers” and “The top 10% of loyalty customers have spent more than US$500 and made an average of 7 purchases” will demonstrate the value of the programme. That goes a long way toward fostering good employee attitudes to the programme.

2. Time is your friend – for a change.
There’s a reason why the first two years of a loyalty programme are critical. When a programme is launched, better customer retention is almost always at the top of the list of objectives. Better retention of customers has a direct tie to profits.

Bain and Company reports that, with respect to increasing retention, “The impact of retaining 5% of your customers can result in a 25% – 85% increase in profit over time.” The two key words in that quotation are “over time”. Seeing the results of improved retention requires time: Time to establish a baseline performance, and time to be able to measure year-over-year performance.

Be very careful of using the first six months of programme data to start formulating year-over-year activity. Because most loyalty programmes sign up new members when they make a purchase, the first few months of a programme show high levels of enrolment and high levels of spending.

The critical success factor here is for organisations to continue to believe in the reasons that dictated the creation of the loyalty programme, and allow the programme to perform. There are lots of opportunities to meet short-term objectives: Knowing who your customers are, beginning to communicate with them more often, and planning special promotions. To measure the longer-term objectives takes time.

3. Build a strong database management team.
Because loyalty programmes are successful through the information they gather, they require large databases. The customer knowledge represented by those databases is usually the reason why the loyalty programme was created.

It’s important to have the expertise available (whether internal or external) to leverage the value inside the database. Building a strong database management team is necessary to demonstrate and prove increased retention, and the success of campaigns carried out under the banner of the loyalty programme.

4. Measurement is all about control.
When planning promotions for your most loyal customers there is a great tendency to want to include everyone. However, without creating a control group, the results of the promotion will not necessarily drive good business decisions.

For instance, if a company planned and executed a promotional campaign for all customers and created an average incremental spend of US$10 per customer at an execution cost of only US$2 per customer, what would the result be? The business would be thrilled, of course, because the net profit of US$5 (this lucky business has a 50% gross profit margin) for a cost of only US$2 is a great business return!

Or is it? Now suppose we included a control group in the above example, and members of the control group spent an average of US$6 incrementally during the same period. The difference of US$4 can be attributed to the promotion, and at an execution cost of US$2 per customer, the company actually broke even.

Be sure to include a control group. Accurate promotional measurement will help drive better business decisions. To address the common concern about excluding any loyalty members from the promotions, settle on tracking which members have been excluded from a promotion in the past (because they were in a control group) and ensure they are included in the next few promotions. Everyone gets a turn.

5. Protect the customer’s trust in you.
In launching a loyalty programme and asking customers for personal data (their name, address, telephone number, e-mail address, and so on), the company will have to make some privacy promises. Even if no promises are made, there is likely to be an implicit trust in place.

Companies must never break the trust between themselves and their best customers – the strongest asset of the business. That simply means: do not sell or rent customer lists to third parties, and allow customers to opt-out of various forms of communication (e-mail, promotional distribution, and any others you may have planned). Better still, present them with the choice to opt-in to those channels, rather than forcing them to opt-out – if you’re offering something that will genuinely benefit them, and explain the proposition clearly enough, there’s no reason why loyal customers would not want to opt-in.

And for the future…

Those second five factors are critical considerations for anyone operating a newly launched loyalty programme. Keeping them in mind as you work with your loyal customers will help you maximise the value of your loyalty programme.

During the first months and year of the programme, a profile of your company’s best customers will emerge. That profile, and those individual customers, will help the business build retention and become more profitable, and the critical success factors discussed here will help ensure active, positive participation.

Copyright © Malcolm Fowler

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Brian Woolf is a global leader in loyalty marketing. In addition to writing three definitive works on the subject, “Measured Marketing: A Tool to Shape Food Store Strategy,” “Customer Specific Marketing,” and “Loyalty Marketing: The Second Act,” he spends his time helping retailers develop and strengthen their loyalty programs. For more information about Brian and his books, visit www.brigantinemedia.com.

Loyalty is not all about price. It soars when retailers link emotionally to their customers through, for example, individual recognition or listening to their suggestions and then implementing them. Emotion is the true cement that bonds customers to their preferred retailers.So I was intrigued by a new emotional path being built that will be very attractive to those who believe that corporations can, and should, play a part in making our world a better place to live in. Corporations, for example, who not only care about planting more trees to make our environment more eco-friendly but also provide a way for their customers to participate.

Imagine if you could add to your loyalty program the opportunity for customers to not just express their concern for our environment but do something about it.

Well, you now can. The idea is the brainchild of Kent Ragen. His company, EcoUnit (www.ecounit.com), provides a way for customers to earn credits for environmentally positive actions and then use those credits in ways that make the world a greener place. (Perhaps Kent will become known as the person who triggered the greening of loyalty programs movement!)

How does it work?

Quite simply. A retailer offers recognition (in the form of points or credits) when its environmentally-conscious customers bring their own reusable shopping bags rather use the store’s plastic bags or when they buy those items around the store that are designated as environmentally friendly. These may be, for example, items grown locally (fewer pesticides and less transportation), Compact Florescent Light bulbs (CFL’s), or bulk foods (less packaging). Even online shopping and delivery (efficiency) can qualify.

Each environmentally-friendly action earns a specified eco-credit which is added to the eco-account (a subset of your loyalty program database) of each concerned customer. After their credits accumulate, customers choose how they will to use their earned credits to make our environment healthier. For example, one current option includes having a tree planted (thereby reducing the amount of CO2 in the atmosphere) for just 50 EcoUnit credits.

The average American emits 21 tons of CO2 into the atmosphere each year. Currently, the program is set up so that 250 EcoUnit credits can offset one ton of carbon dioxide. Therefore, any caring customer who earns 5,250 EcoUnit credits can become carbon neutral. Now that’s a 21st century idea!

The 2008 BBMG Conscious Consumer Report found that nearly nine in ten Americans say the words “conscious consumer” describe them well and that they are more likely to buy from companies that manufacture energy efficient products, promote health and safety benefits, and commit to environmentally friendly practices. Our customers seem ready. Are we retailers ready?

Everyone wins with this program. The customer becomes even more environmentally conscious. The retailer enables the customer to do so and, in so doing, builds a stronger bond with her. And our world becomes environmentally healthier.

It’s an idea worth thinking about.

Copyright © Brian Woolf

Brian Woolf is a global leader in loyalty marketing. In addition to writing three definitive works on the subject, “Measured Marketing: A Tool to Shape Food Store Strategy,” “Customer Specific Marketing,” and “Loyalty Marketing: The Second Act,” he spends his time helping retailers develop and strengthen their loyalty programs. For more information about Brian and his books, visit www.brigantinemedia.com.

Introduction

CEOs embrace loyalty programs because of their economics. Consider the analogy of site location. When evaluating two possible new store sites, the one with the higher projected ROI will be chosen. The same logic applies to customers. A rational CEO will choose to focus on that customer segment which yields the highest projected (or actual) ROI. Loyalty marketing is, essentially, all about such economic differentiation. It’s about deciding how to optimize our long term yield from the limited resources we have. Understanding our customers’ behavior and economics (derived from our loyalty program) allows us to do just that. Some food retailers whose loyalty programs exemplify this thinking include Gerland’s, Dorothy Lane, Big Y, A-Coop, and Tesco.

Gerland’s

Gerland’s, based in Houston, Texas uses a two-tiered pricing strategy. Customers receive lower prices on a wide range of shelf-identified items, triggered when their cards are presented at check-out. In addition, the company offers points on a selected range of identified items (typically private label and high gross margin items). When a customer has accumulated 400 points, a 5%-discount certificate (to be used against any subsequent purchase) is automatically generated and given to the customer when paying for her purchases.

The Gerland’s loyalty program accomplishes three main goals. It:

1. Differentiates the company from its competitors
2. Keeps customers coming back to the store (the points and discounts act as hooks)
3. Provides marketing flexibility as the company can add varying amounts of points to any customers accounts as needed (eg, locking in new customers, holding selected customers when a competitor opens)

Issuing points on a varying number of higher-margin items is superior to the traditional one point per $1 spent program because it is more flexible and costs less.

Another unique element of the Gerland’s program is that it gives its members additional rewards as their spending increases. The rewards available at four different spending levels are publicized and known to all customers. Rewards include check cashing privileges, earning your 5%-certificate at lower point thresholds, and lower spending amounts required to buy specially priced merchandise.

The most important aspects to note about the Gerland’s loyalty program are that it is:

• Open
• Tiered
• Transparent (the different reward levels are known to all)

The basic principle behind Gerland’s program is that customers who spend more contribute more to the company’s profitability and, therefore, should receive greater rewards. Its program is grounded in logic and economics. It’s no surprise that Gerland’s has a very successful program.

Dorothy Lane

This three-store chain, based in Dayton, Ohio, launched its loyalty program six years ago. After just 14 weeks into the program Dorothy Lane replaced its weekly newspaper advertising with a monthly, 8-page newsletter mailed to just the top 30% of its customers. This was a very bold move—a first among food retailers—but it worked admirably. By focusing on the top 30% of its customers, who generate 75% of its sales, Dorothy Lane was applying basic economic sense: matching costs to revenues.

The same economic sense flowed over into its newsletter. The back page carries eight high-value coupon items: with different prices for the top 10%, next 10%, and third 10% of customers. Customers know the average weekly spending thresholds that trigger the different coupon prices. Therefore, customers set their own prices! At Dorothy Lane, the more they spend the lower their prices will be. This, of course, is the same set of rules that apply when businesses buy from suppliers.

Each month the company also sends customer-specific postcard offers for items they regularly buy. The pricing of these offers are so aggressive the postcards usually elicit a Wow! when received. So Dorothy Lane calls them their Wow! postcards.

By radically altering its promotional cost structure and increasing the value to its higher-spending customers on an individualized basis Dorothy Lane has been able to dramatically increase its profits.

Big Y

Springfield, MA-based Big Y, a privately-owned $1 billion food retailer has developed a unique program. Its marketing program is extremely promotional, rare for a loyalty program. Its weekly advertisements scream headlines such as: 10 Cent Sale! 25 Cent Sale! Unlimited Triple Coupons! Super Express Deals! Buy One, Get One Free! Buy Two, Get Three Free! And Buy One, Get Two Free!!! The economics of some of these promotions are hard for competitors to understand, but somehow the overall combination works as they are regularly repeated and the company keeps growing.

These crazy promotional prices act as a magnet to draw customers to its stores and, once there, Big Y introduces another magnet: “coins” (actually, four different-colored plastic tokens). Big Y has never announced, either to its customers or employees, what triggers the generation of a red, blue, silver, or gold coin when a customer is checking out. Because coins are not issued in every transaction, “winning” a coin is a surprise to customers. As you can imagine, behind the scenes, Big Y carefully analyses customer behavior and spending. Then, after deciding which customers it wishes to reward or influence, it downloads computerized instructions to the stores’ point-of-sales terminals to give specific-colored coins to specific customers should they shop that week.

Obviously, the different colored coins carry different values and are redeemable for different identified items in its stores. (The range of items changes twice a month.) The coins have no expiration date and are redeemable only at Big Y. They act, in effect, as an alternative currency which brings the customers back to Big Y, rewarding them for their past patronage. They act as a brilliant exit barrier. How can a customer stop shopping at Big Y if she has a purse full of “coins” and more keep coming when she shops?

Like the previous programs mentioned, this program is highly successful because of its flexibility (the company decides who receives what coins and how often) and its adherence to economic differentiation: it is the higher-spending customers who receive the higher-value coins. A company which bases its program on these two foundations will always succeed.

A-Coop

A single store in a foreign country may not seem a likely place to learn great loyalty lessons but A-Coop, about 100 miles from Tokyo, is one of my favorite programs.

A-Coop’s base program is very traditional—customers receive one point per ¥100 (approximately $1)—but its ingenuity lies in the way it rewards customers for spending “big” with them. Rather than appeal to customers with three-times-a-week advertisements (the norm in Japan), A-Coop dropped all advertising in 1996 and switched those monies to rewarding customers based on how much they spend. Since then, A-Coop’s customers have received quintuple points on their purchases on the 5th, 15th, and 25th of every month. The result is that this program almost guarantees three very large purchases from customers every month.

And the points? A customer can insert her card into the store cardholder kiosk and read her latest balance at any time. Points are redeemable from the kiosk as certificates in 1000-point (the equivalent of $10) amounts. These can be used to reduce the cost of any purchase; or applied against any special event a customer bids on (eg, customers can enter a sweepstakes for a limited number of seats for a one-day visit to Tokyo Disneyworld, using the 1000-point certificates); or, can be used on the first Tuesday of December, when each 1000-point ($10) certificate increases in value by 50%, to $15! Not surprising, this is the busiest day of the year for A-Coop.

The genius of this program lies in its simplicity and its economic differentiation: those customers who spend more (particularly on certain easy-to-remember days each month) gain the greatest returns. Who needs to advertise with such a potent easy-to-understand formula?

Tesco

Tesco is the largest food retailer in the UK. Its uniqueness lies in how it has used its newly-gained customer information better than any other large retailer, anywhere in the world. Tesco’s strategy is to Circle the Customer.

After gaining customer information from its simple 1%-rebate program (roughly, earn one point per £1 spent, receive a quarterly rebate check equal to 1% of quarterly spending) Tesco has converted that data into helping build its supermarket business—and a great deal more. Customer information has been used to help develop the leading UK food home-shopping business; build, from scratch, profitable banking and insurance businesses; lay the foundations for an extensive Internet shopping mall; and add to its market appeal by allowing Tesco points be earned and redeemed at other UK retailers.

The information gained by Tesco on its customer behavior has allowed it to understand their customers’ myriad needs and then find profitable ways to solve them. Rather than just thinking how to increase customers’ spending in its stores, Tesco is using its customer data to solve a bigger riddle: In what ways can we satisfy more of our customers’ needs (even if this means moving into new businesses to do so)?

Closing Comment

All of these companies have moved beyond deciles (breaking customers into ten equal groups), the traditional way of classifying customers. Rather, they classify customer spending based upon average weekly spending thresholds. For example, among food retailers in the US, the four typical spending thresholds are: Diamonds (over $100 week average); Rubies ($50-100); Opals ($25-50); and Pearls (under $25). A fifth group, New Customers, rounds out the customer classification. Tesco is a classic example of what it means to be customer-centric.

The reason why thresholds are preferred to decile rankings is because they are so much easier to understand and manage. It’s easier to aim at increasing the number of customers spending over $100 per week, for example, that improving the metrics of the top 10% of customers (as we don’t know how many customers will be in the top 10%).

To date, the single best measurement for business success that I have found is: By how much have we increased the average number of Best Customers (Diamonds and Rubies) Per Store this year over last year? All of our efforts should be focused on improving that number—as do the retailers I have talked about today.

Copies of the Microsoft PowerPoint slides for this presentation have kindly been made available from Fred Newell’s site, at www.loyalty.vg

Copyright © Brian Woolf

Brian Woolf is a global leader in loyalty marketing. In addition to writing three definitive works on the subject, “Measured Marketing: A Tool to Shape Food Store Strategy,” “Customer Specific Marketing,” and “Loyalty Marketing: The Second Act,” he spends his time helping retailers develop and strengthen their loyalty programs. For more information about Brian and his books, visit www.brigantinemedia.com.