Frequent Buyer Programs – Are They Worth It?
Alternate: Can You Afford Your Frequent Buyer Program?
Understanding Frequent Buyer Programs
I am sure that at one time or another your company has had does have or has previously considered the pros and cons of a frequent buyer program. Until recently I never gave the topic much thought as I was under the impression that most retailers offered customer award programs in some form or another.
My initial impressions regarding such programs are that they were designed to foster customer loyalty encourage frequent shopping and reward good customers. I believe that some retailers have begun offering frequent buyer programs simply due to the fact that many POS systems can now track the “points” automatically thus eliminating the need for punch cards or barcoded plastic tags cluttering most key chains. The reality may actually be that they just didn’t want to miss the boat if everybody else was getting on the frequent buyer bandwagon.
The Cost Factor
What I didn’t stop to realize is the cost associated with many such programs until I received a phone call from a client informing me that they were stopping their frequent buyer program immediately. The reason wasn’t maintenance confusion on the backend or lack of customer interest. It was cost pure and simple!
By “cost” I am not referring to administrative expense incurred by the program but rather the cumulative effect the reward earned will cost when charged against either a marketing expense or realized as a markdown.
Customer Retention Concerns
My first reaction was “do you think you will lose customers?”
Answer: No I don’t think we will. Our stores have a loyal following and I believe they will shop with us for the products and services we will continue to offer.
What about customers already in the program that have accumulated points?
Answer: We will continue to honor the points our customers have earned but we will no longer offer the current program to new customers.
Research on Loyalty Programs
I decided I would do a little research on the topic. I asked friends relatives clients and retailers of all sorts what their opinions were of these programs. The answers I received ranged from “we don’t have one” to “we are considering putting one in” to “we used to do this but found it to be too expansive.”
Rules and More Rules
All of the stores I queried on this topic had a different set of rules on how the program was to be used. Some were straightforward while others seemed somewhat confusing to me. Some computer POS systems do a superior job of tracking the needed customer information some not so much. A few stores still use punch cards potentially creating an opportunity for fraud and abuse. One merchant had a rule that stated even if you had accumulated enough points for your particular purchase that day you were supposed to use it on a future trip to the store. Understandably a point of contention with some customers.
Several stores had “use it or lose it” caveats similar to flexible benefit programs. One retailer I spoke with discovered that only 50% of those entitled were actually using the benefit. Other point programs have expiration dates ranging from ninety days to annually to never.
Another store merchandise manager told me that their system required a lot of maintenance and backend confusion and went on to say “Personally it doesn’t drive me to shop.” When asked if she owned the company would she have a program like they have the answer was a resounding NO!
Ideas to Consider Instead of Tracking Points
Sales and Promotions
Some stores feel that having frequent sales and promotions where good customers can benefit from extra savings provides sufficient value. Others find that using coupons in various denominations with tight usage windows are better motivators.
Alternative Incentives
Additional options to consider in lieu of buyer programs might include gift-with-purchase or purchase-with-purchase ideas a marketing concept popularized and still very much in use today by cosmetic companies.
Customer Appreciation Letters
I have had stores tell me that they experience very strong response and much better than average return to customer appreciation letters. These are sent out annually with varying dollar amounts based on how much the customer has spent the previous year. Customer appreciation letters are very effective if set up correctly. Implementation isn’t difficult or time-consuming but is too detailed to explain in this article due to space limitations.
Evaluating Buyer Programs
In the end a retailer should regularly review the true value of any frequent buyer program by looking at all facets.
- Are customers really more loyal to the store because of them?
- Are frequent buyer programs becoming generational? Meaning do they appeal to certain age demographics more than others say customers over age 40?
- Should credit be given on all purchases or just full price?
- If every store has a program does it really make a difference?
- Is our program simple to manage and easy for the customer to understand?
An argument could be made that customers should be shopping your stores because they enjoy the experience your people and the selection of merchandise and not simply because they rack up frequent buyer points that at least in some cases go unused.
New Buyer Program Considerations
When you embark on a new buyer program remember it is always easier to add more later than to take things away if you come to the realization that your program is becoming cost prohibitive. Strongly consider awarding points on full-price purchases only to help minimize costs.
Customer Profile Requirements
When associates fill out a new customer profile for a buyer program they must have at a minimum name and email address. Additionally mailing address and phone number would also be helpful. With that information you will at least have a tool to reach out to them in the future.
Review Your Frequent Buyer Program
If you have a frequent buyer program review it TODAY and be sure to find out how much you are giving away in reward dollars. If you are considering one of these programs you must do your homework or run the risk of having to answer the question Connie Francis posed back in 1958 when she crooned … “Who’s Sorry Now?”
Ritchie Sayner
(The author is happy to discuss customer appreciation ideas with anyone interested. He can be reached at rsayner@rmsa.com or 816-505-7912)
Summary
Frequent buyer programs are designed to foster customer loyalty and encourage repeat shopping but can become costly for retailers. Some businesses have discontinued these programs due to their financial impact opting instead for alternative incentives like sales promotions and customer appreciation letters. Retailers are advised to evaluate the true value of such programs and consider simpler cost-effective strategies to maintain customer engagement.
“An argument could be made that customers should be shopping your stores because they enjoy the experience your people and the selection of merchandise and not simply because they rack up frequent buyer points that at least in some cases go unused.”
Real-World Examples of Frequent Buyer Programs
Frequent buyer programs are prevalent in various industries aiming to enhance customer loyalty and increase sales. Here are a few examples of how different companies implement these programs:
- A major airline offers a frequent flyer program where customers earn miles for every flight. These miles can be redeemed for free flights seat upgrades and other travel-related benefits encouraging travelers to choose the airline consistently.
- A popular coffee chain provides a loyalty card that tracks purchases. Customers earn points for each coffee bought which can be redeemed for free drinks or snacks. This program is designed to increase daily visits and customer retention.
- An online retailer implements a points-based rewards system where customers earn points for every dollar spent. These points can be used to get discounts on future purchases motivating customers to shop more frequently and spend more.
