CHICAGO -- Retailers may be distributing frequent-shopper cards in record numbers, but some are expressing dissatisfaction with the overall performance of their customer-loyalty programs.
Programs can establish some level of loyalty and increase sales volume, but the loyalty can be short-lived if a competitor introduces its own frequent-shopper program. In addition, retailers looking more deeply into the data such programs provide are finding that simply encouraging customers to increase their sales volume does not always translate into increased profitability.
"There's frustration at the potential vs. the actual benefits of loyalty marketing," said Brian Harris, chairman of the consulting firm The Partnering Group, Playa del Rey, Calif., who chaired the session titled "Rewarding Your Most Profitable Shopper: The Next Frontier in Making Loyalty Marketing Deliver," at the Food Marketing Institute's Supermarket Industry Convention and Educational Exposition here this month.
Retailers are discovering "that there's a difference between the sales value of a customer and the profit value, so the next migration [in loyalty marketing] is to reward the profitable rather than the simple volume customers," Harris said.
Joseph Battoe, president and chief executive officer of the consulting firm Concept Shopping, Lisle, Ill., outlined how retailers can implement customer-yield management, a marketing approach that differentially rewards customers based on their value to the retailer's business.
Customer-yield management "focuses on today's wasteful promotional spending," said Battoe, noting that as much as half of the $80 billion spent annually on promotion is being directed at households whose behavior will not be affected by the promotion. CYM programs help retailers identify such households and withdraw the offers, focusing efforts on more profitable prospects.
Retailers planning to undertake a CYM program need to forecast the results of each promotional effort they make, so that they have a baseline to compare actual results to. Another important idea is to plan by category but market by customer, meaning the promotions should feel "personalized and individual" to each customer, said Battoe.
In addition, "supermarkets need to respect their own brand in planning promotions," he said. "Supermarkets have the number of customer visits and frequency that are the envy of other retailers," and they need to preserve that relationship.
In executing a CYM plan, retailers should promote offers via a number of different advertising channels, including direct mail, toll-free numbers, in-store vehicles such as kiosks as well as e-mail and Web site offers.
Whatever channel is used, retailers need to chart each customer's response to each promotion.
"Supermarkets are good at capturing sales information, but they also need to record the offers made, and the response, in order to optimize their use of these advertising channels," said Battoe. "The goal is to move all customers to the most cost-effective way to reach them, but [the retailer] must know what they respond to in order to do this."
As the program takes place, retailers need to continually monitor its progress and modify it based on their data collection. With electronic media such as e-mail and on-line offers, these looping mechanisms can be automated.
"If a customer isn't accepting an offer, some of the options a retailer has include increasing the amount of the offer, offering a deal on a different brand, or trying to reach them through a different advertising channel," said Battoe.