The Power of Loyalty Marketing
Customer loyalty programs can be invaluable to pet specialty retailers that make the necessary investment in designing and managing the right strategy for their stores.
Evolving technology has changed the face of marketing by making it easier to gather data about specific customers. The more you know about your customers, the better you understand them. The better you understand them, the better prepared you are to make marketing decisions that influence their behavior and increase shopping frequency and customer retention.
Fundamentally, customer loyalty programs are an exchange of information for rewards. To receive discounts or other benefits, customers provide you with information about themselves. Once this data is tied to their purchases, you can access very powerful information for targeted marketing. The best loyalty programs capture buyer information and use it to entice existing customers to return to the store again and again.
There is no doubt that these programs pay off for pet retailers. According to Insight Out of Chaos, a loyalty data management and marketing company headquartered in New York City, pet retailers that spend a minimum of one percent of sales on a basic loyalty program can typically expect a 10-percent increase in sales over the program’s first 18 months. Insight Out of Chaos research shows that a loyalty program will pay for itself in the first year—as long as your store invests money and other resources for successful implementation.
Turning Data Into Insight
Often, pet retailers think about loyalty programs only in terms of offering rewards and incentives to keep existing customers and attract new ones. This focus overlooks the power of loyalty program data.
Your retail strategies are driven by your store’s unique situation. One of the benefits of loyalty marketing is data that can help you better manage and adjust your retail strategies to succeed in your market space.
The information you obtain through a customer loyalty program can be used to:
• Craft marketing strategies to grow business and get customers into your store.
• Allocate advertising dollars to get the biggest bang for your buck from your marketing budget.
• Tailor your store’s products and services to your market demographic.
• Influence customer behavior across all marketing channels—e.g., your store’s website; social media; mailings; in-store signs and flyers; and advertising.
Designing a Program
Loyalty programs can be simple or complex, depending on your objectives, program structure and components, and how you plan to use the data. As you begin to develop your program, a number of factors should influence your decisions about the benefits you will offer.
Customer demographics: Is your customer base made up of price-sensitive or value-driven shoppers?
Competition: Where is your nearest competition located? What type of loyalty program and tactics do they use?
Administrative resources: What internal and external resources do you have to help manage and administer the program?
Technology constraints: What can your point-of-sale or business management software track and report?
Financial constraints: How much money are you willing to invest in your loyalty program?
In general, customer loyalty programs fall into one of the following structures:
Membership club: Customers typically pay an annual fee in exchange for discounted pricing, special services and access to member-only events. Some stores offer free memberships or charge a one-time fee.
Discount-based program: Customers receive discounts on special products and merchandise when they use a loyalty card or provide their name at the register.
Point-based program: Customers pay full price for products and services but earn points toward rewards for every dollar spent.
Non-point-based program: Customers receive amenities, gifts, special services, perks, sweepstakes entries, etc.
Many owners combine elements from these four structures to create a customized program for their store.
Managing Program Data
When analyzed regularly, the data you collect from your loyalty program helps you learn more about your customers and allows you to make better business decisions.
The simplicity or complexity of your loyalty program is largely driven by your technology’s capabilities to collect customer information and track purchase data. Sophisticated systems allow you to manage and administer more complex loyalty programs using built-in data reports. Less sophisticated or manual systems allow even lower-tech retailers to offer effective loyalty programs.
Loyalty programs do not need to be high priced or high tech to succeed. Small, lower-tech pet stores can use manual systems to collect customer information for targeted marketing and to track purchases for rewards. Manual systems—business card fishbowls, punch cards or index cards—can all work well, as long as customer information is consistently collected, entered in a spreadsheet or database, and analyzed on a regular basis.
Creating a retail experience that encourages loyalty is serious business that can help you grow your customer base, increase sales and improve profitability. But not all customer loyalty programs are successful. Stay focused on the following six success factors to make sure your investment pays off.
Commitment: As a pet store owner, your commitment is critical to your loyalty program’s success. This commitment includes overseeing and monitoring the program, thoughtfully using the data you collect and focusing on continuous improvement.
Differentiation: Not all customers are equally profitable for your store. The most successful loyalty programs are structured to recognize this, allowing you to differentiate between your best customers, potential best customers and inactive customers.
Simplicity: With almost unlimited options, in terms of structure and customer benefits, loyalty programs can quickly become complicated. To succeed, your program must be easy for your customers and your employees to understand. Remembering to keep it simple—particularly as your program evolves and becomes more sophisticated over time—is critical to its success.
Flexibility: Good programs change over time as you fine-tune them to meet the needs of your customers and your store. Be careful not to promise that any element—or the entire loyalty program—will last forever. Although you should definitely commit to a loyalty program plan long enough to give it a chance to catch on, always give yourself the option to make changes later.
Employee Rewards: Your team plays an important part in the success of your loyalty programming by answering questions and encouraging customers to participate. Employee rewards and incentives are critical to build enthusiasm and drive results.
Metrics: Successful customer loyalty programs are all about the data: collecting, analyzing and applying information. You should plan to routinely review your store’s performance and regularly monitor your customers’ purchase patterns. Use these measurements to fine-tune your loyalty program as necessary.
Stephanie A. Kaplan is the director of online education for the Pet Industry Distributors Association. She manages PIDA’s free online training program, Pet Store Pro, which offers brand-neutral training on critical skills for associates, managers and owners.
This article was adapted from “Managing Customer Loyalty,” one of 24 chapters available as part of Pet Store Pro’s online training. Lessons cover evaluating the benefits and costs of a loyalty program, developing an effective program for your store, managing the customer data your program generates, implementing and managing your store’s program, and promoting your store’s program on an ongoing basis. “Managing Customer Loyalty” also includes downloadable worksheets for planning a new program, revamping an existing program, program budgeting, marketing planning, and implementation and rollout. Pet Store Pro is free to qualified retailers; visit petstorepro.com to register and begin using the program.