How Loyalty Programs Can Improve Your Business
A well-executed program will not only drive customers back into your store, it will provide valuable information that can be used to make your business more profitable.
Customer loyalty programs are a win-win situation. Customers win by receiving rewards and savings. Pet store owners win by receiving valuable shopper information that can be used to increase sales and profits, reduce marketing inefficiencies, and identify, target and retain their best customers.
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 demographic market.
• Influence customer behavior across all marketing channels (e.g., a store website, social media, mailings, in-store signs and flyers, and ads in newspapers, on the radio or on television.)
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.
Information for Rewards
Fundamentally, loyalty programs are an exchange of information for rewards. To receive loyalty program discounts or other benefits, customers provide you with information about themselves, such as their names, addresses and emails. Once this data is tied to customers’ purchases, you can access very powerful information for targeted marketing. Examples of this customer information include:
• Where they live.
• What they buy.
• How often they shop.
• How much they spend.
• When their spending shifts or changes.
• When they stop shopping at your store.
According to Spencer Hapoienu, CEO of Insight Out of Chaos, a loyalty data management and marketing company headquartered in New York, pet retailers typically can expect a 10 percent increase in sales over the first 18 months of a customer loyalty program. That return assumes that the store’s investment—of both money and other resources—is sufficient to fund and successfully implement the program. In other words, a store that invests one percent of sales and does a great job of executing a program will get a higher return than a store that invests three percent of sales but does just an okay job of executing its program.
Consider this example, based on one of Insight Out of Chaos’ clients: Pete Fictitious owns Pete’s Pet Palace, a medium-sized pet store. In the past, Pete spent 1.5 percent of sales on marketing, mostly for advertising circulars. Pete decided to shift his marketing focus from mass advertising to targeted marketing, using data from a new customer loyalty program. Eighteen months after introducing a customer loyalty program, Pete’s sales had gone up 10 percent, and his loyalty program spending was now only one percent of sales.
Regardless of investment level, pet retailers should also see savings due to reduced spending on other marketing. Improving the return on your marketing investment allows you to decrease your total marketing budget, increasing profit margins. While the return on a customer loyalty program depends on each store’s specific situation, the results can be dramatic.
For example, to better understand the loyalty program’s impact on his store’s bottom line, Pete calculated his new gross margin dollars and gross margin percent.
Spending 1.5 percent instead of one percent—and the resulting 10 percent lift in overall sales—increased Pete’s profit margin by 0.8 percentage points (or 12.9 percent) and gross profits by $55,125.
Retail Strategy Insights
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. These insights provide valuable direction to help you:
• Attract new customers.
• Retain existing customers.
• Win back former customers.
• Move customers up the spending curve.
• Increase a customer’s lifetime value to your store.
• Build stronger relationships with customers using social media.
• Respond to competitive challenges.
• Decide where to focus your marketing dollars geographically.
• Accelerate new product sales from targeted promotions to your best customers.
• Increase co-op marketing funding from vendors in return for providing them with customer analytical information.
Targeting Best Customers
All customers are not created equal. Your best customers (typically the top 30 percent) shop more often and buy more over their lifetime, spend more per visit and are more likely to tell others about their positive experiences in your store. That’s why you want to attract more “best” customers into your store and retain those you already have.
Information collected from your loyalty program will allow you to identify your best customers and potential best customers, analyze their shopping habits compared to other customers, adjust floor space and product lines to cater to their interests and offer them special benefits and rewards.
Site Selection Input
For retailers interested in expanding, a less obvious benefit of a loyalty program is information you can use to identify possible locations for additional stores. Analyzing the geographic data you have collected through your loyalty program can help you identify opportunities to extend your market reach.
Depending on the sophistication of the technology used to track and report program data, you may be able to print out a trading area map or a simple list of customer postal codes that you can plot yourself. You can then visit areas with concentrated pockets of customers. These “drive-bys” can help you identify each area’s demographics, as well as competitive pet stores and empty storefronts that represent potential locations for expansion.
There’s no doubt that a customer loyalty program requires an investment of both time and money. But the potential ROI can be huge. Using the data collected from your loyalty program will allow you to craft retail strategies to succeed in your market, increase the impact of your marketing dollars, and grow sales and profits. PB
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. Since it was first launched in 2008, over 6,000 retailers have turned to Pet Store Pro for brand-neutral training on critical skills for associates, managers and owners. Pet Store Pro is free to qualified retailers; visit www.petstorepro.com to register and begin using the program.
This article was adapted from “Managing Customer Loyalty,” one of 29 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.