News

Web-based Loyalty Programs Aid Retailers' CRM Efforts

SelfServiceWorld, August 05, 2008 by Cecilia Crosby

CRM and loyalty programs are garnering a lot of attention these days, but the concept of "buying" a customer's loyalty is by no means a new one. From giving away glassware with laundry soap and Quaker oatmeal during the Depression to offering S&H Green Stamps with grocery purchases, retailers have long sought ways to encourage their customers to keep coming back — and spending more.

Today's programs are, however, a bit more complicated and sometimes downright confusing for customers. Too many cards to juggle, too many points to track and discount promos for size-15 neon green tennis shoes can leave customers frustrated instead of satisfied. The onus rests with retailers to make their programs meaningful, personalized and accessible to both potential and existing customers.

Loyalty point programs are valuable in that they can be used to "pay off" a customer in exchange for more useful information, but they don't promote genuine affinity, said Gartner Inc. principal analyst Adam Sarner. "It's more complex than saying loyalty points equal loyalty," he said.

Yet point programs can be a "temporary promotional type of vehicle for getting hooks in customers," said Sarner. Retailers can then use the information they glean to manage and understand a customer relationship and use that information to promote extra interactions with consumers.

Successful loyalty programs are geared toward helping retailers build relationships with consumers and tailoring promotions based on a shopper's transaction history as opposed to blanketing customers with generic offerings.

Not worth the cost?

Despite the desire to build strong repeat business, some retailers don't offer a loyalty program because the programs have been historically too expensive to create and maintain. Loyalty programs have meant buying, installing and licensing software and then managing the program with a staff that hasn't been trained to make the best use of the information provided — all of which could cost millions of dollars.

An alternative to building and implementing a loyalty program on one's own is to use a third-party application service provider. In essence, retailers can rent the software and maintain complete control over promotions to and communications with customers, but not have to pay staff to maintain the database.

Retailers use the Web-based applications to set up targeted offers that can be triggered by a date or a behavior. For example, a retailer can create a Christmas offer any time during the year to go out Dec. 1 for any customer who spends a certain amount in November. Or, customers who have visited a store's Web site but haven't made a purchase for three months can receive personalized messages that show up on the site the next time they log on.

"Great retailers should focus on product. Just as they've outsourced bill payment and real estate management to third-party providers, it makes sense for companies to outsource management of their loyalty program," said Mark Goldstein, chief executive officer of San Francisco-based Loyalty Lab. "Instead of spending millions of dollars to do these things, why not rent it and spend $5,000 to $10,000 a month?" he said.

Case in point

York, Pa.-based Pfaltzgraff Co. began its store-branded credit card point program in 2004, but the dinnerware company found that, while established customers embraced the concept, the program was not well received by their most loyal customer base. "Customer feedback was that they didn't want another credit card," said Barb Grafton-Stoner, vice president of catalog and Internet operations at Pfaltzgraff. "Consumers felt that they should be rewarded — period," she said. So the company sought another solution that would not be tied to the opening of another credit card account.

In mid-September, Pfaltzgraff launched a Web-based loyalty program created by Loyalty Lab that enables the company to track customer behavior so that it can deliver targeted promotions through e-mail, direct mail and eventually through text messages on cell phones, if they so choose, to specific audiences.

When the Pfaltzgraff Orlando store is having a sidewalk sale, the company can send out a promo to area customers alerting them to the sale and offering incentives of Reward points for purchases. Reports from Loyalty Lab also enable Pfaltzgraff to determine how many members it has per geographic area and the gender breakdown of its members. Pfaltzgraff can then use the reports to provide promotions that will be meaningful and useful to its customers.

"Relevancy is a definite driver," said Sarner. "Personalization doesn't always mean high touch. It means understanding what that customer wants and delivering it."

The program adds consistency to Pfaltzgraff's multi-channel offerings, in addition to giving the company a vast amount of information about its customers. Whether a customer visits one of the 75 retail stores, phones in a catalog order or visits the store's Web site, he will receive a consistent message. Even the customer service representative fielding a call from that customer will know his preferences and buying history.

Giving customers control

Web-based loyalty programs are a valuable way to build relationships with customers and allow them to direct the nature of interactions. Customers have complete access to their accounts. They can choose which types of rewards programs in which they wish to participate, opt in and out of specific buying clubs, see the progress of their points and even request not to receive promotions of any type.

Perhaps the strongest argument for a Web-based loyalty program is that the self-selecting nature of the program supports the age-old adage — the customer is always right.

"Consumers now expect rewards," said Goldstein. "They want retailers either to have the best price or to honor them. … CRM and loyalty programs help retailers do a better job of reaching out to customers."