Club Loyal(e)

I came across one of the most comprehensive and insightful research (signup required for access) on Customer Loyalty Programs. The research was conducted by RSR by interviewing a wide range of retailers some of whom ran a customer loyalty program and others who did not. They have essentially categorized the respondents along several axes

1. Winners, average performers and laggards: This is based on their average same store sales growth, GMROI etc.
2. Length of time for which the retailers have been running the loyalty program: More than 5 yrs, Less than 5 yrs
3. Whether the retailers had any kind of loyalty programs

Some of the key points as per the research:

Purpose of the Loyalty Program: "Loyalty programs pull two of the most effective levers in retail performance. They have the opportunity to increase basket size, and also increase the frequency of shopping trips for existing customers. The original marketing rule of thumb is that it costs more to acquire new customers than it does to increase the value of existing customers – and loyalty programs offer an opportunity to do exactly the latter."

An interesting paradox elicited by the research (which rings true in today's cut-throat retail environment): "retailers are challenged to figure out how to appeal to“loyal” shoppers, while also reducing the costs to acquire new customers"

According to the research - Retailers who have been running a loyalty program for more than 5 years did so to provide a higher value proposition to their more frequent customers and to understand what their needs were and to provide better customer service. Customer data as such was not considered that much of a benefit or objective of the programs. However in recent times more and more retailers are looking at loyalty programs to get customer data which can be analyzed using latest data analytics tools and designing new promotional offers.

Having said that the research emphasizes that like everything else in retail - "Having a loyalty program is not nearly as important as executing a loyalty program well, should a retailer decide to pursue it as a customer service strategy."

One interesting fact that the research found was an across the board lack of good metrics to measure how well a program is doing. A loyalty program is no good if it’s not leading to an increase of avg basket value (top line growth) and at the same time not losing huge amounts of margin and affecting the bottom line growth. Also with the emerging trend of multi-channel retailing, a need to reflect the loyalty program across all the channels is not being executed well by most retailers. The research gives an idea of this through an interesting statistic - "barely one third of respondents let their members check their loyalty program status online, and only 20% of respondents credit loyalty program members for purchases made across any channel"

To summarize, the retail space is full of retailers that run as well as do not run a loyalty program. Loyalty programs by themselves cannot make one any more profitable. Recent instances of Albertsons and Borders significantly reducing their programs is a case in point. On the other hand groceries like Publix without a loyalty program are still able to get fiercely loyal customers. The challenge is really in executing a program by measuring its performance and improving it through a good organizational structure and technology.