As I was doing the research on this Newsletter about Loyalty Programs it brought to mind my childhood shopping with my mother and getting the S&H green stamps. What a thrill to get those stamps put them in the book and watch the books mount so we can exchange them through the catalog. That was started back in the 30's, and no guys I'm not THAT old.
Nevertheless, that was one of the original Customer Loyalty Programs and it sure worked on my mother, how about yours?
Well lets take a look this week on some practical ways to use them in your business. I really like the "samples" to the best customers. Its a way to build a perk without it costing a lot of money.
Use your imagination but make sure your driving more sales and more profit or don't bother.
There is no better type of sales lead, than a referral. There is no easier sale than a repeat sale.
Back in Issue 203 we talked about asking for a referral, today let's look at the other side of the coin, rewarding customer loyalty. An article I spotted on Business Advice Daily did a nice job of giving an overview of customer loyalty programs, but we're going to focus in on some real world food industry programs you can implement in your own companies.
- Cash back: The simplest form of customer loyalty program and the most direct. Pick a metric that indicates the customer is being loyal to your company (order qty, order frequency, order value) and provide a discount or credit for customers that meet the goal.
- Pros: Easy to understand and initially attractive to the customer, what's better than cash?
- Cons: Easy for competitors to mimic and can just get lumped into the price shopping process by customers.
- Recommendations: Be sure to set goals that require multiple continued purchases over time and result in profitable purchases. You could very well end up rewarding a customer for buying a lot of your loss leader products if your program isn't setup properly.
- Forgiveness: Based on the customer's history provide forgiveness for penalties. If a customer has had X on-time payments the late payment fee will be waived or if the customer has had Y orders at 150% of your minimum their minimum order charge will be waived.
- Pros: A great way to soften the blow while introducing the programs you need to keep your business profitable, customers see that they receive special treatment for loyalty.
- Cons: Only effective if your policies are well known and regularly enforced, of little benefit to your 'best' customers who never miss payments or go below minimums.
- Recommendations: These programs are good to use with customers just starting with your company, but lack long term reward power. If you have a special service (emergency delivery, rush processing, 24 hour ordering) consider offering those services along with the forgiveness to let your best customers know you'll go above and beyond for them.
- Toys and Prizes: A non-monetary reward to get the attention of the decision maker at your customer's company. Companies like Loyaltyworks, GiftDonkey, and hundreds of others provide services to deliver rewards to customers, or you can invent your own program and distribute the rewards yourself.
- Pros: "Prizes" tend to break outside of the price shopping comparison and often get the attention of the decision make (cash back often just gets lumped into the purchase cost). Creative prizes can carry branding and sales information as well as providing a functional value to the customer.
- Cons: This tends to be the most expensive type of program in terms of cost and time invested.
- Recommendations: Pick your prizes well. A grand prize vacation might seem spectacular but a good set of knives with your company logo might have better impact.
Will a customer program work for you?
There are success stories about customer loyalty programs everywhere (but most companies tend to hide their failures. The 'industry standard' seems to be that a 5% increase in sales can be attributed to a customer loyalty program, but that's not the whole story...
Likely you already have customer loyalty programs in place but they may not be 'official'. Your AR person knows who your good customers are and waives fees if a check is late in the mail, your salespeople discount for your good customers, and when a new product comes through the good customers get the samples. Turning these currently stand-alone activities into a 'customer loyalty program' is another way of taking the value you provide to your customers and making it more obvious and presentable. It also brings the costs associated with these unofficial rewards to the surface.
Control the costs, increase the value, how can it not work for you?
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