An effective rewards program can drive new business and increase the average ticket ring with existing customers.
By Howard Riell, Contributing Editor.
There was a time when loyalty programs were tools used by large chains to reward customers for their daily business. But the times have changed. Convenience store operators of all sizes are now using rewards to satisfy existing customers, drive new business and increase the average ticket ring.
The average c-store shopper makes six visits to three stores per month, four of which include a fuel purchase. But when a loyalty program is in play, shoppers tend to consolidate their visits to only the store offering the program—and spend more. Clearly, the benefits of such programs are well worth the effort to develop and offer them.
Cincinnati-based Colloquy Research, which specializes in loyalty programs, noted in a report last month that with 50% of Americans defining themselves as middle class, the group has the power to shape the directions in which loyalty programs are growing.
“Middle class consumers want a helping hand in terms of not only price, but greater flexibility, choice and value from their loyalty programs,” said Kelly Hlavinka, Colloquy’s managing partner. “And with middle class consumers already making tradeoffs to figure out how to stay ahead of a shifting economy, marketers would do well to stay abreast of five trends that will add value to member programs.”
These five trends are:
1 Firing up flexibility by creating choice and options.
2 Offering instant customer rewards with long-term incentives.
3 Giving consumers more control with digital coupons that can be scanned right off of a smartphone or PDA.
4 Customers being driven by convenience versus price.
5 Rewarding the middle class with guilt-free indulgences and practical decisions.
“Many in the middle class continue to suffer from a financial ’squeeze’ and straight discounts aren’t delivering on the hype,” Hlavinka said. “What’s working instead are creative programs that leverage discounts as part of their overall mix to build long-term loyalty, and offer flexible redemption options, which are notably easy to use for time-crunched consumers.”
Additional Colloquy research shows that loyalty programs have grown in importance with the drop in word-of-mouth advertising, and that consumers are leaving significant loyalty dollars on the table every year. Colloquy also found:
• Approximately one-third ($16 billion) of perceived value in reward points and miles that American businesses issue each year goes unredeemed by consumers. Colloquy’s 2011 Forecast of U.S. Consumer Loyalty Program Points Value noted that the average household that is active in loyalty programs earns $622 a year and fails to redeem $205 of those rewards.
• Americans have cut back substantially since 2008 on the opinions they share by word-of-mouth about companies and their offerings. Only 58% of consumers said they often have conversations with family, friends and coworkers about products and services they’ve used, down from 73% three years ago.
Central Focus on Loyalty
On top of giving customers a reason to visit the store, there are endless possibilities for promoting store services. Bob O’Connor, president of O’Connor Petroleum, operator of three Jetz Convenience Centers in Hales Corners, Wis., said his company’s customer loyalty program has become the central focus of his day. “Loyalty works for us because it fills a need in this market,” he said. “Plus, it makes me unique and it creates my niche.”
Jetz locations include nationally co-branded food as well a large convenience store. “It’s a one-stop kind of shop,” said O’Connor. “And through our rewards program we tie everyone together in addition to some of the surrounding businesses in the neighborhood. Then we all work together toward a common cause.”
Customer feedback has proven positive. “They love it and even go so far as to ask me when we’re going to build a store near their house,” O’Connor said.
Jetz loyalty program, which launched in 2003, has several components. Visitors to www.jetzrewards.com will find a variety of companies—Frito Lay, Jack Link’s, Ferrero Rocher, Tic Tac, Pabst, Wild Bill’s and more— with which the operator is partnering.
“We have what we call the Jetz Partner Network,” O’Connor explained. “Vendors can be part of the network, and they can incentivize customers to purchase their products through our program.”
Email deals also on the site permit customers to get anything from a 25-cent doughnut with the purchase of a coffee or cappuccino to a 25-cent
coffee or cappuccino with purchase of eight gallons or more of fuel or a free Superwash with the purchase of 30 gallons or more of fuel.
Jetz also works with what executives refer to as community partners. “They are, in essence, the local butcher, baker or dry cleaner who surround each of our stores and work with us to cross-promote each other’s products,” O’Connor said. “We combine marketing talents and monies, and work through the Jetz Rewards program to put focus on their products, my products and the Jetz brand in general.”
Among the promotions are:
• Country Lanes Bowling (buy one game of bowling and get a game free with the purchase of eight gallons of fuel; buy eight gallons of fuel and get a free beverage, up to a $4 value, with any fish fry).
• Speedway Auto Detailing (buy any car wash and get $30 off a full vehicle detail); Subway Sandwiches (buy eight gallons of gas, a six-inch sub, chips, and a drink to get a free six-inch sub.)
• Dairy Queen ($1 off of a DQ value basket or $2 off a cake with the purchase of eight gallons of gas; buy five DQ value baskets and get one cheeseburger basket free.)
The program is designed to be inclusive. “You certainly want to appeal to all of your customers,” said O’Connor. “Everybody puts money on the bottom line, so you don’t want to exclude, or not pay attention to, anybody.”
At the same time, there are certainly core demographics that retailers concentrate on that represent the bulk of their business. “Since we’re working with other partners we have to keep in mind their demographic needs and requirements as well,” O’Connor said. “Through our system we help them become smarter with some of the things they’re doing.”
Patrick Lewis, partner/CEO of OasisStop ‘N Go, took a similar approach with his proprietary Kick Back Rewards program.
“In the beginning, we wanted to create an electronic loyalty program for our c-stores only,” Lewis said. “Instead, a coalition concept grew from that.”
The program is fueled by what Lewis called “hard benefits” and “soft benefits.” Hard benefits reward users and retailers with promotions from vendor participation and club programs, as well as by giving members rebates and reward points. Soft benefits, such as prizes and sweepstakes, give members something to pique their interests so that they frequently return to the convenience stores.
“With margins as thin as they are, we realized we were not going to be able to reward huge amounts to customers,” said Lewis.” Instead, we use the soft benefits, which don’t cost the store a lot, but still have a high perceived value to the members.”
The Jetz loyalty program has, by design, remained in a near-constant state of change. “Understand that loyalty never stays in its present form longer than, say, 15 days or less,” O’Connor explained. “It’s constantly evolving. But I would say the general theme of what we’re doing right now has been in existence for a year and a half to two years.”
The changes continue with O’Connor and his colleagues working on what he calls a very aggressive next chapter.
“I can’t tell you all the specifics yet, but I can tell you that it will be fun, it will be interesting and it is going to have a very big impact throughout our markets,” he said. “We’re going to take what we have and make it work better, faster, quicker and generate more information for everybody.”
Those changes will come, he promised, at the earliest possible opportunity. “A lot of this involves technology, and the coders can only work so fast,” O’Connor said. “We’re at their mercy to a certain degree, but we’re on the same page as to what we have to get done, and we’re working on it.”
One of the initiatives O’Connor and his partner companies are looking at now is making the Jetz brand and loyalty program available to others in the marketplace. “We’ll do the work and they can just put our technology in and share in our expertise and marketing,” he said.
In O’Connor’s view, perhaps the No. 1 problem c-store operators have with loyalty programs is that they underestimate the commitment needed.
“It ends up being more complicated than they think. It becomes very time consuming, and so they take their eye of their core business,” he said. “They get lost on both sides of the equation. That causes frustration, and it becomes too difficult. Keep it simple, keep it focused and give the customers what they want.”
Loyalty for All
With the influx of technology that has saturated the retail market over the past decade, loyalty programs have become so accessible that any company can use them. But while these programs can be valuable in cultivating a new customer base, the programs aren’t an instant remedy for low sales.
In fact, said Rick Ferguson, editorial director for Colloquy, a magazine dedicated to loyalty marketing programs, retailers typically don’t make money with a loyalty program during the first year.
“Loyalty can be expensive and it will not fix a store’s problems immediately,” Ferguson said. He warned that too many retailers are launching loyalty programs simply because they’ve hit some sort of snag, such as losing customers to stiff competition.
The advantage of loyalty programs tends to be more long-term, such as observing customer behavior and then acting upon it. “If you can decipher the data a loyalty program yields and identify which customers are not profitable, but have the potential to be so, that could give you a strong boost to your bottom line,” Ferguson said.
Savvy retailers are doing this by collecting and analyzing customer data to develop long-term, interactive relationships. These relationships are crucial to a loyalty program’s success, and it’s very much a give-and-take partnership. Retailers offer incentives to customers, such as coupons and merchandise, which lead to more customer visits and also provide historical market basket information.