A forever evolving and changing digital landscape has altered the way we communicate, interact and learn from our consumers. The loyalty and engagement sector is changing fast; new technologies, data legislation and ever-rising consumer expectations mean that the drive to find and develop motivating rewards is harder than ever. We’ve interviewed Brian Woolf to share some of his experiences and findings from the US.
By Charlie Hills, Editor at Large
Brian Woolf, a global leader in loyalty marketing, has written three definitive works on the subject: Measured Marketing: A Tool to Shape Food Store Strategy; Customer Specific Marketing; and Loyalty Marketing: The Second Act. The techniques and metrics from Brian Woolf’s work have helped develop guiding principles for those operating some of the world's most successful programmes – making him a leading figure in the world of loyalty and engagement.
Brian is President of the Retail Strategy Center, which he founded 25 years ago. This Greenville SC-based consultancy focuses on helping retailers, globally, improve their sales and profits through results-oriented loyalty programs.
What’s a common mistake in reward programs?
In retailing, I see three major mistakes:
- Not defining the 2-3 major goals sought
- Not designing the program to be quickly profitable
- Not fully integrating the program into the pricing, promotions, merchandising and marketing of the company.
You probably recall the great psychologist, B F Skinner, and his research with pigeons. It resulted in the concept that “Behaviour follows rewards.” Human beings are no different — we must choose the key behaviours we want and design the rewards that will encourage such behaviours.
What’s the most important element of a reward program?
Many years ago, management guru Peter Drucker told us: The purpose of business is to create and keep a customer. It follows that the most important element of a loyalty or rewards program is to support both of those goals — create and keep your customers.
Having said that, it doesn’t mean we should give equal rewards to all customers because customers are not all equal. In food retailing, for example, I have found four distinct kinds of customers, and segment them accordingly:
- Core Customers (who spend an average of over $50 weekly)
- Convenience (or Occasional) Customers who spend an average of less than $50 weekly
- Reactivated Customers (previously active, then lapsed, but have started shopping again this quarter)
- New Customers (shopped with us for the first time this quarter).
Each segment has different characteristics and can be targeted and rewarded based on those characteristics. My preference is that programs are open to all customers, but you should reward customers according to their spending and other behaviours the company wishes to encourage.
One example of this approach is Amazon where, if you pay $95 a year, you become a Prime Member and receive free shipping and other benefits. It’s not a “closed” club; anyone can join. But Amazon customers will join if they think they will make enough annual purchases (of books and everything else) to justify the fee. Otherwise, you can buy from Amazon and pay the shipping costs. Heavy Amazon shoppers benefit most from the Prime Customer programme.
Costco has a program based on comparable principles. By paying an annual fee of $60 (or $120 for premium membership), you can buy bedrock-priced items, day in and day out, at any of their Warehouses or online. And the more you buy the greater the “return” on your membership fee. On the other side of that equation is the whole Costco team is focused and encouraged on doing everything possible to satisfy each customer so that he (or she) will renew his membership the following year. And it works — in the US/Canada, 91% of Costco’s members renew their paid membership annually! Just that one number reassures Costco that they are, in Simon and Garfunkel’s words, “keeping the customer satisfied.”
A similar approach but, without any upfront or annual fees, is seen at Dorothy Lane Market (DLM), a high-quality food retailer in Dayton, Ohio. Anyone can apply for a free customer card which triggers points on total spending; on certain featured items; and 10x points (for regular customers) on two orders of the customer’s choosing each month. The rewards are internal and significantly increase the retailer’s price perception as accumulated points can be redeemed, on any visit, on 15 popular everyday items such as bananas for 9¢ lb (plus 100 points), eggs for 49¢ dozen (plus 100 points), and artisan bread for $2.99 (plus 200 points), in addition to seasonal Crazy Price offerings of seasonal fruits. These everyday price reductions of 50-70% are available to all but, of course, the more of one’s shopping budget spent at DLM, the greater are one’s rewards. In my experience, this is a superior approach than the standard 1% cash rebate programmes that have been so common in loyalty marketing.
What should the UK learn from the U.S.?
A recent study by Pymnts found only 13 percent of U.K. brands collected segmentation data, compared to half of U.S. brands which suggests UK brands need to work harder to collect, use and measure customer data smartly to develop rewards that consumers really want.
In addition, locating excellence in loyalty/reward practitioners throughout the world for ideas and benchmarking is extremely helpful for no country has the monopoly on loyalty/reward excellence. In every country, I see companies “who get it”, amidst a sea of those who don’t. My advice: find and study the gems of excellence wherever they are in the world. They are your benchmark for excellence.
Finally, it’s important to stress that loyalty and rewards programs, while requiring the flair of an artist, also require the mentality of a financial wizard to understand what the numbers say and extract every ounce of value out of every cent. In loyalty/rewards, it’s so, so easy to give away money; and it’s so, so difficult to spend every cent wisely. But it can, and is, being done well by the masters.
Charlie Hills is Managing Director and Head of Strategy at Mando Connect.