Download pdf - Insight Out of Chaos

A Retailer’s Best Friend
In these turbulent economic times a strong loyalty program can increase the
number of a store’s most faithful shoppers.
By Richard Turcsik
April 15, 2004
Winn-Dixie shoppers are turning their purchases into gas. This isn’t some off-color burrito joke,
but an example of how retailers are making loyalty card programs work in their favor and
generate more than just product discounts.
In Winn-Dixie’s case, a rebate-type promotion running from March 3 to March 24
rewarded shoppers who spent $350 during that period with a $40 rebate on gasoline. Shoppers
who spent $300 received a $30 rebate, and those who spent $250 got $20 in free gasoline.
After shoppers collected enough points and purchased gas at t heir favorite local gas stations,
they mailed in the forms and receipts and received checks in the mail.
"This is a good time to do this promotion, because the price of gas is going sky-high,"
notes Joanne Gage, v.p., advertising and marketing at Winn-Dixie Stores in Jacksonville, Fla.
She says the promotion was very well received and is just one thing the company is doing to
attract more shoppers and add value to the Winn-Dixie experience. Other popular Customer
Reward Card programs include the Winn-Dixie Wine, Baby, and Pet clubs.
The gasoline promotion made the cover of Winn-Dixie’s weekly circulars and was
highlighted on its Web site. Winn-Dixie saw the promotion as a chance to clean and update its
database. "We emphasized in all of our advertising that we need your updated address so you
can receive the rebate, and so we’ve been getting a lot of updated addresses," Gage says.
"When people move, the last thing they think about is updating their supermarket loyalty card
information," she adds. "Our customers can update the address online, in the store, or they can
call, but we encourage them to go online and do it. It helps keep us updated."
Recall alert
Winn-Dixie is just one example of how retailers are bolstering the use of their loyalty card
programs. Southern California chains are using their cards to target customers scared away by
the four-month-old supermarket strike. Supermarkets are also using their programs as part of a
food safety effort, contacting customers by e-mail or phone if a pound of hot dogs they’ve just
purchased is being recalled because of possible listeria contamination, for example.
Progressive Grocer
This past winter the QFC division of Kroger posted a small sign in its meat department
with a telephone number that its cardholders could call to find out whether they had bought any
of the meat that was recalled because of the lone case of mad cow disease in the United States.
Customers calling the number were asked for the frequent shopper card number. The operator
then called up the purchase records and informed the customer whether he or she had
purchased any beef from the recalled batch.
The practice of using loyalty cards as an education tool to alert and educate consumers
about products is also on the upswing. "We think that’s a really exciting way to partner with a
retailer and find our target consumer in their stores, to make them aware of organic products,
and to explain to them the benefits of organic," says Gwen Scherer, director of marketing at
Horizon Organic, a division of Dean Foods in Boulder, Colo.
American retailers can also learn some lessons from their European counterparts, which
work closely with manufacturers and make much better use of the data gathered.
"In America I think a lot of the data that’s collected by these sorts of schemes is basically
just sitting there gathering dust," says Clive Humby, chairman and founder of Dunnhumby in
London, and co-author of the new book Scoring Points about Tesco’s customer loyalty program.
"We find the benefits of the loyalty program are small compared to the benefits of understanding
what consumers are doing and changing the retail offer. If all you’re doing is giving money off,
it’s just a different form of sales promotion. But if you use the data to understand what different
consumers want in terms of promotions, how they switch brands when prices are changed, etc.,
then you can actually shape your retail offer much more in line with the consumer and make your
store a more compelling place to shop."
"Slowly but surely people in the industry are starting to use loyalty programs for what they are
intended to do, as opposed to just using them as electronic coupons," says Spence Hapoienu,
president of Insight Out of Chaos, a New York-based marketing firm that counts Winn-Dixie,
Pueblo Supermarkets, Sutton Place, and True Value Hardware among its clients.
Coalition marketing
"What the marketplace is looking for right now is what the next generation of loyalty will
be," says Janet Sparkman, senior v.p. and g.m. at Gold Points Reward Network, a division of
Carlson Marketing in Minneapolis. "Our opinion is that it will be a version of coalition marketing,
which is a marketing platform between a group of brands."
"Loyalty marketing is definitely at a crossroads, and most of the larger clients that we have
are definitely looking to take it to the next level," says Christine McNicholas, senior v.p. of retail
partnerships at CoolSavings in Chicago. The company offers savings to consumers via the
Internet, and its recent acquisition of TMS will afford consumers the opportunity to essentially put
coupon savings directly onto their frequent shopper cards.
It’s important that retailers explain how the loyalty program works and its benefits to every
employee, even stock-boys. "The key, and really where a lot of the grocery guys have failed, is
not really understanding how to execute," Hapoienu explains. "You need a training of the full
staff; otherwise the program is going to fail. The customer relationship management program is
only as strong as the weakest link, and if you’ve got any weak link, it’s going to crash."
Progressive Grocer
Hapoienu predicts more supermarket chains will beef up their loyalty programs as a
defensive tool against Wal-Mart and other mass merchandisers. "As other retail classes of trade
start to build databases and loyalty programs, the external forces are starting to play on the
grocery industry, and they’re seeing that it’s really time that they start paying attention and using
their data," he says.
Small and medium-size retailers are also seeing good results from loyalty programs that
encourage repeat visits to build points and credits, like S&H Greenpoints and the Gold Points
Reward Network. Last fall S&H added the Brown & Cole chain in Bellingham, Wash. to its
Greenpoints network.
Because 15 of those stores are in predominantly Hispanic neighborhoods, S&H has
created a special Spanish-language catalog for those locations. The Spanish catalog lists about
100 items that shoppers can get for redeeming Greenpoints – the electronic version of S&H
Green Stamps-including mixers, coffeepots, cameras, irons, children’s games, car seats, baby
strollers, bicycles, and even a VCR/DVD player for 143,000 Greenpoints, compared with about
800 items in the regular S&H catalog. "We picked out what we thought would be the most
appropriate items, and if they want other items we’ll reference them to our English-language
book," says Ray O’Brien, s.v.p., chief customer officer at S&H Solutions, which maintains dual
headquarters in New York and Ft. Lauderdale, Fla.
Points for Pontiacs
S&H has programmed its printers to print receipts in Spanish if customers so choose
when filling out their application forms. "The Hispanic population is growing by leaps and
bounds, and there is a concern among grocers that they’re reluctant to join loyalty programs,"
O’Brien says. "We did some testing and found that Hispanics love the concept of getting
rewarded for shopping at a store. We’re finding that our sign-ups in Hispanic stores are just as
good as in English-speaking stores." The one difference S&H is finding is that Hispanics are
more apt to redeem their points for groceries than for household goods. "We find the free
groceries to be appealing to everybody, but just a little bit more so in the Hispanic areas," he
notes.
In addition to growing through signing up new supermarket members--S&H will be adding
another supermarket partner in midyear—it’s also looking to grow by teaming supermarkets with
other classes of trade. In Pittsburgh, for example, the Shop ‘n Save chain has teamed with CoGo’s convenience stores. "Co-Go’s is the No.2 gas player in the Pittsburgh marker, behind
Sheet’s, and we’ve tied in with the Shop ‘n Save rewards program where consumers get points
for buying gasoline that can be used for items in our catalog or free food at Shop ‘n Save,"
O’Brien says.
Other types of stores are also being added. "We’re trying to use the Shop ‘n Save stores
as the hub and branching out and looking at pizza chains and other retailers, including car
dealerships," O’Brien says. "We have a couple of car dealerships that give 50,000 points for an
’04 purchase and 100,000 points for an ’03 purchase of leftover inventory."
Gold Points, which is the loyalty program used by A&P’s Food Emporium division in New
York, has also branched out by teaming with other marketing partners, including TGI Friday’s,
Progressive Grocer
where 1,250 Gold Points can be redeemed for an appetizer or dessert; Thrifty Car Rental, where
a $10 gift certificate can be obtained for 6,250 points; and a variety of Carlson-affiliated hotels
and travel services, including cruises and limousine companies.
Like their Greenpoints counterparts, Gold Points can also be redeemed for products
chosen from a catalog, including Lladro` figurines, tents, binoculars, Skil electric drills, a
KitchenAid mixer, and even a Lane recliner. The program with Food Emporium just passed its
first anniversary, which may explain why shoppers tend to redeem their points for discounts on
groceries there instead of for items in the catalog. "Right now consumers are having fun
redeeming their rewards right in the store," Sparkman says. "As they become more
knowledgeable about the program and continue to build up their point bank, traditionally in loyalty
programs that’s when you’ll get people saving up for bigger gifts."
Last fall Gold Points ran a Gold Rush promotion at Food Emporium in which other retail
partners were highlighted so consumers could see how easy it is to earn Gold Points. "We saw
cross network activity with non-Food Emporium members contribute to sales at the Food
Emporium," Sparkman says. We had a 72 percent lift in points earned by Food Emporium
members, and a 4.1 percent increase in redemption."
Retailers can also witness increases in loyalty card use by doing a better job marketing
their use in-store. CPMG is working with retailers like Parsippany, N.J.-based Kings Super
Markets to place in-store billboards at store entrances where manufacturers can advertise their
loyalty card specials for the week. "In terms of loyalty marketing, we work with the supermarket
to make the in-store experience something more rich than it is now," says A. Michael Pruskowski,
v.p. marketing at CPMG in Warren, N.J. "with our message board, customers have the ability to
learn what’s on sale as soon as they walk into the store, and that helps move product."
Columbus, Ohio-based E Any Time is further taking loyalty marketing into the electronic
age with kiosks that check customer identification for prepaid items such as movie rentals in
peripheral service departments, and can even be used in the pharmacy department to pick up
prescriptions ordered after-hours online.
"Today’s supermarket managers no longer want to have to deal with cash; they want the
customers to do everything themselves," says Laurence Cohn, president and c.e.o. of E Any
Time. "[Managers would] rather spend time servicing the customer, and that’s what we do."
And if retailers can better serve the customers in their aisles, they can develop a loyalty
that money can’t buy.
Progressive Grocer