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Beyond Cards: Special Services Count More Than Discounts In Loyalty Clubs

Loyalty marketing isn't the only weapon that Tesco has used to counter the American giant's invasion, but few observers would dispute The Wall Street Journal's claim that the company's Clubcard program has been critical in helping it "thwart Wal-Mart." Tesco got busy signing up Clubcard members soon after Wal-Mart entered the British market by acquiring the rival Asda supermarket chain in 1999. Today, Tesco has over 12 million members in its loyalty club, representing 80% of its volume. This loyal support has not only allowed Tesco to fend off Wal-Mart, but also to grow and increase its market share. Tesco's sales for the fiscal year ending February 25, 2006 rose 17%, while Asda's sales were "slightly negative," according to Wal-Mart.

More Than Cards and Discounts

Although Tesco sends its Clubcard members coupon mailers every quarter and awards them "points" for discounts, the success of its loyalty program is due to more than these incentives. The company has used its loyalty club histories to get a better idea of its best customers' likes and dislikes, so it can adjust its service and selection accordingly, and provide them with a more rewarding shopping experience.

For example, Tesco had been stocking Asian cooking oils and herbs only at stores in markets with large Indian and Pakistani populations. However, after studying the histories of Clubcard members, it realized that many British shoppers at those stores were also buying these products, so it introduced them chain-wide.

 

Your Loyalty Club Members Would Rather Be Treated Special Than Given A Special Discount

 

Although there are many differences between an American car wash and a British supermarket chain, full-service and exterior operators alike can take a cue from Tesco and use their loyalty clubs to learn more about their best customers. This can mean studying sales reports, or simply handing out surveys to club members. Click here for information on the SiteWatch® Loyalty Marketing Module.

As Tesco's experience illustrates, even though discounts remain very important to loyalty club members, a club's main benefit may well be the enhanced service it allows a business to deliver to customers. “Loyalty program success has less to do with the value of points or discounts to a customer, and more to do with a company’s use of data mining to improve the customer’s experience,” said Brian Wolf, author of Loyalty Marketing, The Second Act.

According to Wolf, discounts run the risk of becoming less effective over time. “Loyalty programs tend to do well the first year (with discounts),” he said, but after this point, “you have to keep filling the seats” by broadening the scope of your loyalty program to include not only discounts, but also other amenities. “Otherwise,” cautions Wolf, “all you're doing is training the customer to seek out the lowest price.”

Following this philosophy, Tesco has not only used information from its loyalty club to fine tune its selection, it’s also targeted the rewards in its quarterly mailer at club members based on their customer histories. So, customers who've purchased diapers will receive offers on other baby and infant products in the mail.

This personal touch makes membership in Tesco’s Clubcard program more meaningful to customers. In 2000, when the chain was actively promoting its club plan in response to the Wal-Mart threat, only 5% of British grocery shoppers said they placed a priority on loyalty cards when choosing a supermarket. Yet, the Clubcard program went on to become a key part of Tesco’s success. Why? Because it went beyond standard discounts and points (though it included those too), and appealed to shoppers on a personal level. Click here to learn how Madison Carwash has used customer histories to target mailings.

Special Treatment More Important Than Discounts

Perhaps the success of Tesco's Clubcard program can be explained by a 2005 Carlson Marketing Relationship Builder survey of British consumers. The number of survey respondents citing "points and rewards" as the main reasons for joining a club declined by more than 20%, while the number pointing to the special offers and frills more than tripled. It seems that British consumers would rather have their loyalty recognized by special treatment, than by discounts alone.

This message hasn't been lost on marketers on this side of the Atlantic. In June, Northwest Airlines announced that it would be implementing a special boarding lines dedicated exclusively to its Elite World Perks so they can board planes faster, even after their row was called without waiting behind other customers.

By doing this, Northwest joined a growing chorus of hotels and rental car agencies that have gone beyond discounts to offer their club members special perks, from separate registration and checkout lines, to fluffier pillows and deluxe breakfast menus.

 

According to Jupiter Research, 75% of Americans now belong to loyalty clubs. To stand out in this crowded field, a club has to offer more than discounts.

 

According to the widely followed Market Metrix Hospitality Index, Hilton HHonors is the most effective loyalty club in the hotel industry. Almost four in ten (39%) of Hilton guests say they stay at the chain because of its club program. It is no coincidence that Hilton has been at the forefront of offering personalized perks to club members. The chain's OnQ system maintains detailed histories on club member preferences regarding room locations, extra amenities and services. In 2007, Hilton will begin testing Radio Frequency Identification (RFID) Club cards that will prompt the front desk as soon as club members enter so they can be greeted more quickly by name.

Wyndham Hotels & Resorts has taken this service/perks strategy a step further. The chain's ByRequest loyalty club awards airline miles, but no discounts on hotel stays. Instead, club members fill out a profile with more than 300 guest preferences covering such topics as favorite pillow type, welcome snack, beverage and in-room reading material. Each hotel in the chain can access this information to customize a club member's stay. According to the company's own survey, the share of club members staying at a Wyndham hotel four times or more between January and September increased by 14.3% as a result of the ByRequest program. Click here to view a video showing how Mr. Magic Carwash uses the perk of a special "FastPass® Lane" to reward loyal prepaid customers.

A multi-dimensional loyalty program that appeals to customers with discounts and points as well as special perks and privileges tends to be more effective than simply offering a lower price to club members. A 2005 study of an unnamed 400-plus store US retailer by the research firm Colloquy examined the purchases of customers in five different groups:

  1. The first group was offered no discounts or perks.
  2. The second group was enrolled in a club plan that offered only points that could be redeemed for a reward later.
  3. The third was enrolled in a plan that offered rebates.
  4. The fourth was enrolled in a blended plan that combined rebates with special perks like exclusive parking areas.
  5. The fifth was enrolled in a complete plan that included rebates, points, privileges and extra services.

The fifth plan was the most costly for the retailer, but its payback was well worth the investment. Using a "customer value" formula that considered frequency of visits and dollars spent per visit, researchers evaluated each group. Group Five was the clear winner, scoring 10 percentage points higher than Group One.

Creating A Dialogue With Your Best Customers

Other marketers have used customer histories to open dialogues with their most important customers, even if they do not have a formal loyalty club. A famous example is Amazon. The online bookseller routinely draws upon customer histories to make informed selling suggestions. Buy a book from Amazon on geckos, for example, and pretty soon you'll get an e-mail informing you about a special offer on The Encyclopedia Of Pet Lizards.

Informed selling suggestions like this are not only more effective, since they cover a topic of interest to the customer, they also engender greater loyalty. Customers who receive informed selling suggestions are likely to be flattered by the fact that the company cared enough to remember their interests. Conversely, customers who purchased a lizard book, and then received an e-mail about The Complete Guide To Vegetarianism will probably feel less connected to the company.

This loyalty building has paid off for Amazon by encouraging customers to focus on their relationship with the company rather than price. According to figures published in the New York Times, when Amazon raises its price by 1%, its sales dip only slightly (about 0.5%). On the other hand, when rival Barnes & Noble raises prices by 1%, its sales drop eight times as much (4%).

In the car wash industry, full-service and exterior-only operators have followed a similar strategy, using their customer history files to make informed selling suggestions at the point of sale. This has been made easier by the advent of hand held terminals. . Click here to learn how Super Star Carwash has increased sales by making informed selling suggestions using the SiteWatch Portable Touchscreen Terminal.

Customized Loyalty

This May, "modern" loyalty marketing celebrated its 25th anniversary. Back in 1981, when American Airlines changed the world of marketing forever by introducing the first Frequent Flyer program, the loyalty club concept was pretty simple: the more miles you flew, the more points you earned toward a free trip. However, as the loyalty club concept became more established, and the number of competing clubs proliferated, marketers abandoned the "one size fits all" approach and began creating different versions of their loyalty clubs for different levels of customers.

Today, most airlines have multiple levels of frequent flier status, depending on how often a customer flies. American Express has no fewer than 24 levels of loyalty, depending on how valuable the cardholder is to the company. This segmentation offers two critical benefits to the company: By fine-tuning its loyalty club into many different levels, it is able to target rewards at customers so they are more meaningful. Also, by offering more attractive rewards to its upper level customers, it encourages other club members to work to achieve a higher status. This multi-level approach to loyalty club offers helped drive American Express card member spending up by 15% for the last quarter of 2005.

Implementing a multi-tiered loyalty program requires a fundamental change in the way a business looks at loyalty marketing. Traditionally, clubs were seen as a way to build loyalty. However, in a multi-tiered club, this objective may only apply to the more basic levels.

Customers who are eligible for a company's "elite" club status have obviously already demonstrated their loyalty. In their case, club benefits aren't to attract loyalty as much as to recognize and reward it. This strengthens the bond between a business and these ultra-loyal customers even further, and turns them into invaluable goodwill ambassadors. At a time when an unprecedented barrage of marketing messages and discounting has made many consumers more fickle than ever, this kind of loyalty is something that any business, including a car wash, can take to the bank.