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Turning Customer Loyalty Into Leverage

Small retailers have an advantage in creating this asset. Here’s how to use it.

By By Tricia Warrick, Contributing Writer
August 12, 2015

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Income statements, inventory, profit margins and assets consume the interest and attention of business owners, yet a vital, underlying component that fuses retail cadence often is overlooked. When asked, some retailers fail to recognize the magnitude of customer loyalty and its capacity to shape their business.

The direct correlation between consumer choice as it relates to growth and profit sometimes doesn’t receive the focus and attention it deserves. Research has identified key drivers of commercial success that engage, evolve and sustain strong relationships — none of which more powerful than customer loyalty to the bottom line. It begs the question: What really matters to the customer, and should this reshape current thinking? Can loyalty be bigger than the brand itself?

Studies have shown that it costs six to seven times more to acquire a new customer than to keep an old one. So, while customers may love a product or brand, the real measure of success is determined if they keep coming back.

For small retailers, the presence and resources of big-box stores threaten a second-tier approach in reach and effectiveness. However, when it comes to creating customer loyalty, the advantage yields to the smaller incumbents. Small business owners can not only compete, but also beat the larger competition by providing a level of service that cannot be matched. While the tools of marketing and customer acquisition may reign supreme with the big guys, smaller shops are in a game of their own. Deep discounts and vast options seem to guide buying decisions, but choice is driven by the heart, not the dollar.

What Matters?
Customer loyalty is not a tool or a tactic; it is the ultimate asset of any business. Therefore, building a loyalty program is more important than ever before. Customers become loyal to companies in the same way they do with other people — based on warmth and competence. Therefore, loyalty programs should be built on connecting and maintaining strong relationships with customers. While technology has assumed a natural part of the environment, a complex experience is overwhelming and customers maintain the simple expectations of time and attention. Real loyalty is built on communication, value and trust, and smaller retailers can thrive in these areas.

Jeffrey Harris is co-founder and CEO of SpringBig Inc., a marketing agency that develops and manages loyalty programs. With more than 20 years of experience including a history in the sports industry, he recognizes the best way small-business merchants can boost customer loyalty, increase revenue and engage customers is through a loyalty marketing program.

He also knows the unique potential inherent in the local corner shop. The life-long customer journey begins entering the door. Customer interaction leads to customer information and is the first step in laying the foundation to an extended, lasting connection.

It is important to structure a loyalty program that meets the goals of your retail business. What are the objectives? Harris says he has found that most small businesses want customers to visit and buy more often. Knowing the merchandise that is on hand, along with specialized knowledge and support, means these stores can greatly benefit from increased foot traffic.

Making the Connection
The critical points of difference for smaller retailers lie in their approach and engagement with customers. Building the right program begins with the first conversation. “A loyalty program is a means to build an agreement or contract with customers to let the retailer into their lives and, in exchange, value is given to them in various ways: points, discounts, sales, advance notice of events or exclusive invitations,” Harris says.

The intent is to gather as much information about the customer as possible to build a better relationship. Knowing names, faces, shopping habits and lifestyles creates the basis for a mutual benefit for the customer and retailer.

“What’s really behind a loyalty program is access to the customer,” Harris says. “The real benefit is the ability to market and communicate directly to the customer.”

Customization and Personalization
While the concept of loyalty programs is not new, there is a fundamental misunderstanding of the nature of loyalty and the benefits from rebates and rewards. While larger chains offer the oft-used punch-card or rebate mentality, more successful results come from relationship-based customer loyalty programs that are uniquely designed to recognize repeat customers.

Customers’ wallets and key chains are full of supermarket, department-store and restaurant “loyalty” cards that are required for discounts or special offers, but these programs typically do not affect shopping frequency or maximize customer participation or loyalty. The offers are not special to the individual, thus, they are translated as generic instead of unique, Harris says.

A successful loyalty program must use the information shared by customers to better serve and value them during future transactions. Retailers must capture and optimize customer data and profiles to build relationships and compel interest and repeat visits. Promotions and discounts should be designed to offer various products and services based on purchasing patterns and store profitability.

To the customer, being part of a loyalty program should feel like recognition and appreciation uniquely tailored and beneficial. “Signing up for a loyalty program should feel like the best thing they ever did,” says Harris, who suggests offering VIP customers access to special events during key event seasons like beginning-of-school sales, equipment discounts or new product demos for sports in which customers are interested. Such promotions have proven successful and reserve more profit than other promotions like those offered by Groupon, which can give 75% of the profit away based on structure.

On historically slow days, alert customers to special one-day deals or promote special offers to the first 100 customers. Limited special promotions often generate more than the intended target sale.

Customers always love a bargain, but multi-class customer loyalty programs prove even greater results. Rewards structured in tiers compel loyalty members to maintain or gain certain status or privileges with advancement. For example, “Gold” members get better offers and invitations than “Silver” members, while premium groups, such as “Platinum,” may encourage people to spend more. Research shows the closer people get to a goal, the more effort — in this case, spending — they exert toward achieving it.

Contact is Key
While information and program customization is important, the mode of communication and delivery also are vital in loyalty programs.

Harris notes successful communication is defined by how customers want messaging. A current scope of technology and customer profile demographics determine this. For example, SpringBig incorporates four methods of message delivery into its loyalty platforms: short message service (SMS), email, Facebook and Twitter. It is also possible to link technologies that allow SMS messages and tweets to deploy at the same time and also trigger links to other platforms.

In the age of Twitter and Facebook, why the emphasis on SMS messaging? Perhaps it’s the miniscule cost for implementation. Harris says that after a program set up, the average price his small retail merchants spend is $100 a month, a stark juxtaposition with increased revenue and patronage.

Get in the Game
It may be tempting to assume that every small retailer has enacted a loyalty program of some type, right? Not so, says Harris.

“Most independent small retail owners are not the first to buy into new methods and technology,” he says. The idea of software-driven tablet loyalty programs is not there yet.” Harris notes that 98% of small merchants don’t have a fully integrated loyalty program.

However, like-minded establishments quickly adopt. Harris sees the current 2% penetration rise to 50% in subsequent months as retailers weigh the results.

“The evolution is coming — the retailers who get in first will get the most benefit,” he says. Early adopters will get the most benefit because loyal, satisfied customers have no reason to go to competitors. Customers who are engaged, aligned, connected and mobilized to merchants who personalize offers will remain loyal.

“Look into [a loyalty program], research it, use it,” and evaluate it based on cost and results, he advises. “The ability to communicate with customers is very powerful. Those who jump in first will see.”

Editor’s Note: An expanded article on this subject will be published in the December 2015 issue of SportsFan Retailer.

Tricia Warrick is an Atlanta-based strategic relations consultant who specializes in content development and branding for maximum visibility and impact across omni-channel platforms. For more information or to comment on this article, email Tricia at triciaw31@msn.com.