Value in Loyalty Programs

Perceiving Value

Any loyalty program introduced to market must of course add value to a merchant’s brand. To gain traction, however, it’s required that consumers perceive value in the program as well.

Consumers typically choose where to shop based on quality, convenience, service and price. In a recent survey conducted by Colloquy, consumers cited understandability and relevant rewards/offers as the top reasons they continue to participate in loyalty programs. For those of us in the consumer engagement space, it can be a tremendous challenge to design a loyalty program for which consumers perceive enough incremental value to choose your brand over competition, while at the same time appeasing Accounting.

Crunching the Numbers

When a consumer earns currency by transacting, but does not redeem that currency, liability accrues on a balance sheet. This liability will of course limit flexibility and profitability. While 75% US companies operating a loyalty program yield a positive ROI from that program[1], there is an argument to be made that loyalty is not right for every organization— for some companies, the ROI simply won’t be there. Consumers are buying goods as-is, without a loyalty program in place, and to introduce a new factor may jeopardize the consumer experience.

The advantage that a merchant has when building a loyalty strategy is that they can specify the exact amount they wish to spend on a rewards or loyalty campaign. The investment is controllable. With the right KPI’s in place, it will be evident whether the organization should taper, increase or maintain their investment. When evaluating, it’s important to remember there are certain factors at play that cannot be measured with tangible figures— as an example, loyalty programs may create barriers to existing consumers moving to a competitor’s product when a natural barrier to switching may not exist.

A Closer Look

Of course, all of this means nothing if customers don’t perceive value in your program. Let’s take a look at how the customer may perceive value to be added or detracted from their experience in well-known loyalty programs:

loyalty-graphic

In the Starbucks example, if a consumer values free giveaways and a mobile loyalty experience more than that consumer is bothered by the loyalty revamp or impersonal push notifications, the consumer will likely opt to engage with the Starbucks loyalty platform. If not, the consumer will likely disengage.

When designing your loyalty program, it’s important to consider not only how the consumer will interact with every feature in your offering, but also how the consumer will react to features that are not included in the program. Ultimately, it will be the consumer who judges the effect that a loyalty program has on your organization’s ROI.

For further information, please contact Daniel at dkahan@wcapra.com.

[1] SelfStartr


Adopters and Adapters

Loyalty, I noticed as the miles on my odometer increased, takes on many forms.

The following is re-posted from Convenience Store News.

 

My recent business travels took me by my city neighborhood grammar school. It reminded me of the many yearly assignments to write a story about my summer vacation.

My travels these past two summers have been to both new and familiar places and more car travel than ever before. That’s afforded me to see and visit more convenience stores and gas stations than I’ve had on other summer travels. As vacation time often does, it made me slow down and think; come along!

Road Trip

What’s a road trip without an iced down cooler with refreshing drinks? At my first stop to get ice, there’s an a-frame sign, “Ice 10 lbs. / 98 cents – For the next 98 years.” I wondered about the commitment to this promotion and whether the store owner was using Market Basket data to measure the value of the deal he was giving his customers.

On a back country road near the Virginia state line I stopped for gas at an older store, without a canopy despite a rain shower, and knew I had to go inside to see what was going on. My technology mind got going as I saw an outdated Point of Sale system and wondered about PCI compliance and then how the home grown red and green tomatoes on display at the front counter were going to be weighed. Then I saw the handmade cardboard & crayon sign: “Selling the tomatoes by the each.”

For miles, I passed many ‘Country Stores’ offering Chicken Tacos, Sausage & Biscuits or Egg & Cheese on English Muffin, and outdoor seating. My order, with its local touch, was taken and prepared by the store owner. Sometimes it was written down and other times the ‘chef’ got right to work at the grill. Just outside of each of these towns, closer to the highway, bigger and brighter chain stores appeared. What a contrast with their kiosks for ordering, ovens with touch screen panels, and digital menu boards. Was the early adopter chain reaping the benefits from the technology they deployed? I know that volume and the need for consistency between stores were key elements in implementing such systems. While the country store owner relies on locals and the occasional traveler, he’s adapted to what he needs to stay in business today, but I wonder if somewhere down the road he’ll adopt some technology.

Even at the larger operator stores I visited I was struck by what might be next for them to adopt – why wasn’t I swiping or inserting my payment card for my food service order at the kiosk; were the prices on the digital sign, kiosk and Point of Sale being kept in sync by a unified system platform; how were merchandising decisions being made around demographic groups (like college students in one on campus store I visited) and the right amount of space given to local and store branded products; and how were they going to bring the customer back?

The Competitive Spirit of the Industry is Alive

Loyalty, I noticed as the miles on my odometer increased, takes on many forms. There’s the friend I visited who said, “I stop by ‘The Little Store’ a block away every day,” believing that was its real name, to catch up on neighborhood news. The friendly spirit of the store was enough to keep him coming back. Another operator truly believed a new system-based loyalty program was going to make the difference – she went all out in promoting the program from the street, to the forecourt, to talking it up inside the store. There were offers to sign up for all kinds of savings as I passed by other stores – lower my cents per gallon, use my points from the grocery store, come inside and as a club member get my sixth coffee for free, shop at another local merchant to build points, and more. For both the adopter and the adapter, the goal is to keep you coming back. But for me, the traveler passing through town, I wondered when I’d be back to reap the benefits, which made me realize the competitive spirit of the industry is alive when a small operator is competing with a chain or fuel brand’s loyalty offering. The personal touch as in ‘Joe’s Gas’ or living up to your name, as in ‘Snappy’s,’ will always be a way to adapt and still a key to success when you adopt.

 

Ed Collupy, executive consultant at W. Capra Consulting Group, can be reached at ecollupy@wcapra.com, and be sure to visit www.capraplus.com for more retail technology and business insights. Collupy has IT leadership and business team experience directing and supporting retail systems for store operations, merchandising, fuel and accounting teams in the C-Store industry.