Loyalty that Lasts

According to studies by Boston-based consulting company Bain and Company, it takes five times as much time, money and effort to attract new customers as it does to retain current ones.  Repeat customers buy more profitable products, ask for fewer price concessions and have fewer returns.

With that being said, most business put more effort into getting new customers into their stores than in getting old ones back again.  Well-crafted loyalty programs keep customers coming back over and over.

Airlines didn’t invent customer loyalty programs.  The first ones were developed for grocery stores in the 1950s.  Many of us remember pasting pages of S & H Green stamps into books and going to the redemption centers with our moms to choose between coffee makers and camp stoves.

In fact, loyalty programs have become so ubiquitous that a Fair Isaac study in late 2006 showed that only 22% of next-generation shoppers find the programs important in creating repeat business.

Still, according to Jupiter Research, more than 75 percent of Americans have at least one loyalty card.  Forrester Research and META Group Inc. suggest that since many loyalty programs really trade customer information for future discounts, the trend is likely to continue.  In 2003, companies spent $1.2 billion on loyalty programs and the amount continues to increase.

Like most Americans, I’m drawn to retailers who value my business and who have made customer loyalty a true guiding principle.  Loyalty programs help to build repeat business, improve margins and grow bottom line profits.

Recently I noticed that nearly all the stops I made on a given weekend were in stores who had demonstrated the true lifetime value of my business.

Ladies’ clothier Chico’s has developed a Passport program to reward customers after they spend $500 at the chain.  Passport members get a 5% discount off of all future purchases—even those already reduced for clearance.  Best of all, Chico’s tracks my Passport number so that any store can access it and I don’t have to carry a membership card or remember another pin number.  As a Passport member, I get additional savings coupons in the monthly Chico’s catalogue and a special discount each year on my birthday.

Bed Bath and Beyond frequently sends me their highly recognizable bright blue 20% discount coupons.  They never expire and I can use one for each item I purchase.  My friends and I save them to use when buying gifts, changing our bedroom décor or adding new kitchen cookware. 

The Fresh Fish Co. in Denver just marked its thirtieth anniversary.  Started long before the latest Atkins or South Beach diet crazes, the restaurant has lured customers with the freshest fish available grilled to order on smoky mesquite grills.

Birthdays are big events at the Fish Co.  So much so, customers are encouraged to join the company’s birthday club.  Club members receive postcards inviting them to the restaurant to receive a discount on their entrée equal to their age. 

Manager Timothy McNamara says that the birthday club is so successful, 25% of the customers in the restaurant each evening come in to receive their birthday discount.  On most nights, the restaurant serves birthday dinners to 100 guests. 

 Entrees are about $30 at the restaurant and the average discount is $12 - $18.  Is it profitable?  Consider this:  How many people go out for dinner alone on their birthdays?  Most celebrants come with parties of four to eight.  They usually order appetizers, drinks and desert with their entrees so the average meal costs about $45 to $50.

Most important, the restaurant has built a loyal customer base.  Every year, 36,500 unique customers come in just to mark their birthdays.   One woman—now 107-years-old—actually collected $7 from the restaurant on her recent birthday!   The birthday club list grows every year—ensuring the success of the Fresh Fish Co. for years to come.

At this point, you may be thinking “sure, restaurants, clothing stores and home stores can offer discounts….they sell commodities and have great margins.  This doesn’t apply to my business.  Besides, national chains have the resources to run those kinds of programs.”

Centaur Forge is a full service farrier and blacksmith supply company located in Burlington, WI.  Unique in their industry, Centaur Forge gives a $500 in-store gift certificate to any customer who purchases $3,000 from them within 12-months. 

Programs only work if they are truly targeted to the needs of the core customer.  What kind of programs can you develop?

The easiest and most common program to keep customers coming back to your store is the in-store credit card.  90-day-same-as-cash programs provide people with an incentive to open a new account.  Account holders are more likely to come to your store fist for future purchases.  Don’t believe me?  Why do department stores consistently offer first purchase discounts to get you to open a new account?

Give customers who buy furniture in your store discount cards for 10% off any accessories they purchase.  Not only will you increase sales but customers will be happier if their new sofa looks more like it did on your showroom floor where it was displayed with matching lamps and accessories.

After replacing one appliance, many customers soon notice that others in their kitchen don’t match or don’t look as fresh and new as the one just purchased.  An offer of a gift card with every appliance purchase will ensure that your customers will come to you first when buying those other appliances.

Only 10% of 20% of all big screen TVs are sold with additional audio equipment or speakers.  Most people don’t really experience home theater, just bigger TV.  You may be able to develop a loyalty program to help customers attach additional products when buying consumer electronics from you.

The old fashioned “Buy 10 - Get One Free” punch card still works in restaurants, craft and hobby stores, and nail salons.  I even have one for my local quick-lube offering a free car wash with every oil change for their card holders.

Encourage customers to send their friends and relatives into your store by making your gift cards or future discounts transferable.

In the “good old days” we knew all of our customers.  We had fewer competitors and didn’t have to fight to get folks back to buy from us.  Those days are long gone.

Customers don’t owe us their loyalty.  We have to earn it every day Creative loyalty programs can be great incentives to keep consumers coming back.