Can a simple punch card really work as a loyalty program?

Punch card programs do reward loyalty, but most executions of this type don’t fulfill on the promise of a true loyalty program. The typical coffee shop’s punch card program, where one buys 9 cups and gets the 10th one free certainly rewards volume business, but is it anything other than a discount?

I have two criticisms of the simple punch card execution for a loyalty program. First, it doesn’t really develop loyalty or change behaviors. Instead I believe it simply rewards the heaviest customers for doing what they were already doing. The customer who frequently buys coffee will participate because ultimately they get something free! The customer understands it’s like a deferred 10% discount. Infrequent customers decline to participate because they know it is unlikely to ever payoff for them. In my opinion, a punch card program used this way seldom changes the typical customer’s normal buying behavior. It’s really just a margin giveaway, with one possible exception I’ll discuss later.

My second criticism is that too few retailers using punch card programs seize the opportunity to learn who their customers are and develop new business with them. I often see pre-printed punch cards that allows for entry of customer’s name and contact info, but seldom have I seen this information actually required or captured. If a retailer is going to use a punch card and give away product, then by all means capture enough customer information to support future direct marketing efforts.

Ideally the retailer should collect the completed punch card. In addition to contact info, the punch card can provide necessary data ingredients for calculating the customer’s recency, frequency, and monetary metrics. In addition to helping know the customer, I believe the punch card reward provides an excellent opportunity to develop new business with the customer. Instead of giving away another free cup, one I expect the customer would have purchased anyway, why not give away a tasty muffin or scone with the 10th cup of purchased coffee. This way the giveaway promotes trial of a potentially new product, instead of just surrendering margin on the regular item the customer already buys.

There are exceptions of course where I believe the punch card works like magic. One I’ll highlight is the volume buyer situation. Consider the construction site worker who gathers everyone’s hot coffee and sweet donut orders before driving somewhere nearby to purchase. Or think about the high rise office tower secretary who accepts orders from desk-bound coffee addicts, and then l walks somewhere nearby to purchase. These people are making a volume buy and often have some discretion in choosing which coffee shop to patronize. I have seen more than once, these volume customers going out of their way to make their purchases at a coffee shop having a punch card program. What’s in it for them is they are getting free product on the back of other’s purchases. It’s a slightly twisted form of loyalty, but it’s one that really works in my opinion.

I’m encouraged when I see simple punch card loyalty programs mentioned in business news publications like the Pacific Business News . In a recent article  the write describes how the Sedona gift shop in Hawaii uses their punch card program. Let me point out several smart things the retailer is doing. One, they collect customers contact info from their punch card for use in future direct marketing efforts. Second they set the “punch” unit of measure at a $10 minimum amount designed to lift average sale amounts overall. Third, they use the collected punch cards to score the customer’s recency, frequency, and monetary metrics as an aid in segmenting the customer in business analysis and future targeted mailings. With just a simple punch card program they have created a situation where they know most of their best customers, they can direct market to them via postal mail or e-mail as appropriate, and they have enough data to be able to make targeted offers. It’s all good!

Working in the data mines filled with gold!

It appears this AP article http://tinyurl.com/7wyj7e was picked up and run in over a 100 news publications yesterday and today. Could be indicative that editors across the nation find it interesting that grocery stores are capable of knowing what their customers purchase at a SKU level and then targeting these shoppers with new promotions based on their individual purchase history. Or was it these editors expect the grocery shopping masses to freak out at the thought of big brother watching their every purchase.

I for one believe what Dunn Humby are starting to do with Kroger represents a best practice in retail database marketing. For a hint of where they are most likely headed with all this, you should read the book Scoring Points It’s a good read and explains the database marketing potential quite well.

Dining loyalty: what’s on the menu?

I saw an interesting article (http://tinyurl.com/874xys) published last Friday.  Written by Sylvia Rector, a Detroit Free Press staff writer, the article reports what Detroit area restaurants are doing to ensure their dining customer’s loyalty in the difficult economy. 

dining menu

Reading the article reminded me of two loyalty program maxims warranting further discussion.  They are: (1) discount prices is not a strategy for customer loyalty, and (2) the best customer loyalty programs are free for the customer and profitable for the operator!

 

Discounts are not a customer loyalty reward.  I refer to the quote attributed to Jim Eggl, restaurant operator and president of the Michigan Restaurant Association, who says “My longer view of discounting is that it does not breed loyalty. Why would you come in today and pay full price, when the same thing was half as much yesterday?”  It appears Mr. Eggl understands well that one can acquire customers with temporary discounts, but the customers won’t be loyal customers when the price goes back up.

 

Every day low prices is a sound marketing strategy for the dominant market leaders, as evidenced by Wal-Mart, but in reality the customer is showing loyalty to the price, not the brand or particular store.  It’s hard for me to imagine another big box retailer overtaking Wal-Mart anytime soon, but just imagine if there was another one.  Consider for example, what would happen if the customer could find and purchase the same wide variety of products at consistently lower prices from Target?  Would the customer be loyal to Wal-Mart alone?  I think not!

 

Why make a customer pay for the privilege of sharing name, profile, and contact info, plus opting into receiving marketing promotions?  I refer to the quote attributed to Matt Prentice of the Matt Prentice Restaurant Group, a restaurant chain operator in the Detroit area.  Mr. Prentice says he is eliminating the membership fee for his company’s frequent-diner program, hoping to dramatically increase customer participation, so he can e-mail them directly with offers and promotions.

 

I predict Mr. Prentice will be happy with the result of this charge!  A true loyalty program can work for all kinds of dining customers: big spenders and not-so-big, frequent and infrequent, plus recent and lapsed diners alike.  Charging for membership ensures that only the best customers will join.  Often it’s more difficult and costly to improve the recency, frequency and monetary metrics for the best customers segment, compared with easier, faster improvements resulting from marketing campaigns designed to recover lost customers at any level, move poor up to good, and good up to best. 

 

Consider this simple fact.  To know your best customers, you must first know all your customers and know their dining behaviors.  Once you know all your customers, it becomes possible to execute promotions and measure the impact on all customer segments, lost, poor, good, and best. 

 

With a complete customers list and some minimal transaction history about their dining recency, frequency, and monetary levels, it becomes easier to segment the customer list and market accordingly.  Identify the recent and frequent diners having average tickets, and then promote something to lift their average spend, perhaps a special deal on appetizers and dessert.

 

Find the recent yet infrequent diners, and then promote something to get them back in again soon.  Find the long term regular diners who have inexplicably abandoned the restaurant for many weeks or perhaps months, and promote something special to win them back!  Find families that dine together most often on weekend nights and run special promotions to get them back in on a less busy weeknight.  My personal favorite is kids eat free on Tuesday promotions!  Knowing the size of family and first names and birthdates of individual family members is important for this.  Thos who have read my blog will know I believe birthday recognition offers guaranteed sales promotion winners! 

 

The ideas go on and on, but the real secret sauce in Mr. Prentice’s comment is that once he acquires a bigger list of customers, all who enroll for free and provide their contact information and demographic data, he can massage the customer database and target market special offers using less expensive marketing channels like email, text, and telephone. 

 

A well designed and executed customer loyalty programs should be free for the consumer AND profitable for the program operator.  Attractive returns on investment (ROI) are both predictable and the actual results measurable.

 

 

 

 

 

 

 

 

 

Alaska Air to build loyalty with birthdays?

I saw another timely article about an airline loyalty program this morning http://tinyurl.com/6wp7uc. In the article Steve Jarvis, Alaska Air’s VP of Marketing, is reported saying the airline is going to do much more than keep track of and dole out customers’ earned miles using their new Siebel Loyalty Management software platform from Oracle. He goes on to say they have plans to heavily use the system’s “triggered events” feature and explains that at a future time, this might include offering a promotion tied to an important date, such as a customer’s birthday.

 

Wow, that’s a cool idea!  Have you heard me comment on that before? I say kudos to Alaska Air and Steve Jarvis, and I muse that implementing birthday recognition to building customer loyalty needn’t await a complicated and expensive new system.

dump truck and excavator

Sometimes the job can be done with just a shovel and bucket, no need to wait for a big new excavator and dump truck.  I don’t mean to infer it is child’s play, but it just isn’t that difficult.  If you want some help figuring out how to start doing it now, contact me!  The payback on these sorts of customer loyalty marketing campaigns is fast and the ROI usually very attractive!

shovel and bucket

 

Plunging value of flier’s miles saps loyalty

I read this article in The Salt Lake Tribune http://tinyurl.com/74h9sv about the plunging value of airline miles as a loyalty currency and sarcastically thought the real reason for the decline is that one has to be a masochist to want to fly anywhere these days. It’s so unpleasant on many levels, who in their right mind would want to be rewarded by doing that? OK, flying beats walking or driving long distances. That’s why people do it, I know this. I feel flying is so unpleasant I prefer to take the train (Acela) from Boston to New York City, instead of flying like I used to do a lot of. For longer distances, I’m stuck flying in coach, often in the middle seat, sometimes paying extra for baggage, doing without a water bottle, and buying my own snacks if I’m hungry. It’s not really an enjoyable experience I lust for more of!

But seriously now, the reason air miles are no longer the preferred loyalty currency is there are so many better options! There is competition, and lots of it. Some loyalty programs give cash back, others give rewards. My personal favorite in the non-cash rewards category is the HiltonHonors program. Their primary currency is free hotel rooms and I find that very valuable. Weekend trips for motorsports and annual vacations usually involve staying in hotels for me and my family.

As an example, I spent several nights in an expensive Tokyo Hilton hotel earlier this year for the same number of points it would have cost to stay in a domestic Hampton Inn located in Nowhereville.

Hilton Hotel in Tokyo near Shinjuku Station

A free hotel room in Tokyo was a great reward because if you haven’t checked lately, fancy hotel rooms in Tokyo are pretty pricey. Not only was my room free for points, there was room availability when I wanted to stay, where I wanted to stay! When traveling for business I always pick a Hilton property if I have a choice, and that’s the loyalty rewards equation working! As a consumer I’ve also taken an American Express HiltonHonors card because that helps me attain more points and rewards faster.

Seat availability is the most common problem I’ve found with the airline frequent flier points programs. Now it’s true the points for free flight exchange value has gotten worse over the years. You don’t earn miles as quickly and it seems to require twice as many miles to get a free airline ticket now compared with thirty years ago when I was just starting my career. Over the years I have still managed to earn plenty of airline miles, but it’s too difficult to use them on short notice. The airlines have also added all various fees and charges when you actually redeem for a flight, so it is no longer really FREE. But the real problem is the flights I want to take (going to popular vacation sorts of places) are seldom available, and for sure they are not available for a family of four to fly all together on the same airplane.

I don’t know how many years ago I encountered this problem, but I seem to remember a catch twenty two situation where finding free seat availability for a family of four from Boston to Honolulu required planning more than two years in advance, but the airline’s reservation system couldn’t book free seats that far ahead! Go figure?

It is true I’m still partial to earning miles in a short list of airline frequent flyer programs, but as the article points out, more often than not low fare and convenient schedule trumps loyalty to a specific brand of airline. Let’s just say I’m loyal to a degree. The airline’s loyalty program still has influence, but it’s definitely not as strong as it once was. The airlines should tweak their programs, but unless they remove blackouts and make more seats available, they are not going to recover their premier position in loyalty programs.