The Value of Customer Retention and Loyalty Program Attributes: Part 4 in a Series

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The Value of Customer Retention and Loyalty Program Attributes: Part 4 in a Series

Many formal studies have shown that retaining customers is far less expensive than attracting new ones. Of course, the figures and statistics depend on the nature of the industry and the study cited. Nevertheless, the idea of customer retention being less expensive than new customer acquisition has been around a long, long time. According to an article in the Harvard Business Review, it is anywhere from five to 25 times more expensive to cultivate new customers. The same article notes that if you’re not convinced that retaining customers is valuable, consider research done by Frederick Reichheld of Bain & Company (the inventor of the net promoter score) that shows increasing customer retention rates by 5% increases profits by 25% to 95%. In short, retaining customers is a valuable pursuit and loyalty programs can help.

Moving from the general world of retail to the more specific world of c-store retail, we find that there’s room for improvement in terms of the acceptance and implementation of loyalty programs. Research conducted by General Mills indicates that most convenience store shoppers (89%) participate in loyalty programs of all kinds. Yet, only 35% participate in their c-store loyalty programs. An article in Convenience Store News stipulates a definite opportunity for loyalty programs at the c-store level, yet also shows that many c-stores do not offer one. Another 15% of the sample indicated it was aware of their c-store’s loyalty programs, but had not yet enrolled in one. Factoring into all this, too, is that millennial shoppers are increasingly tending to shop at convenience stores…and their numbers are growing along with their spending power. So, why are c-stores behind on the development and implementation of loyalty programs?

Both articles cited above, and several others on the topic, including one from KMPG, describe barriers. Loyalty programs require an investment in technology, infrastructure and expertise — as much as five percent of sales, at least initially. Creating and maintaining a loyalty program may also require a different skill set than the one required for running the greater operation. Yet, in view of the potential returns noted in the research about customer retention and associated profits, it seems developing a loyalty program is a “must.” Yet, all experts agree it must be done carefully and thoughtfully … and they list common steps in the approach.

Understand the Customer
The first step is to understand the customer and use that knowledge as the basis for the program. This fundamental step hearkens back to the “marketing principal” exposed by Northwestern’s Philip Kotler in the previous Gilbarco blog. In that blog, we noted how the Impulse Countertop Merchandising system can be programmed to conduct customer surveys. In addition to surveys (which can get to the heart of matters), you can use product purchases, shopping frequency, spending patterns and many other pieces of data (by leveraging the power of Gilbarco’s Passport® POS System) to form a picture of your customers’ wants, needs and preferences.

Leverage Customer Data
The experts agree that successfully leveraging the data can separate a great loyalty program from a good one. Moreover, they also indicate that the findings need to be applied beyond the confines of the loyalty program to the entire c-store operation with the goal of creating an overall “positive experience.” The research from General Mills points to what might be considered some “universal” direction in terms of what c-store customers are seeking in a loyalty program. Some of these are captured below:

  • An easy sign-up process (“friction-free”) and immediate award to induce trial (perfect opportunity to use Impulse)
  • A program that’s easily understood with benefits that are easy to obtain (points for what they’re already buying) without significant behavioral changes
  • A program that’s fun with surprises, customized offers and exclusive awards for dedicated shoppers (easily achieved using Gilbarco’s Passport® POS System and Impulse Countertop Merchandising System)

Develop A Loyalty Program
A common theme in the articles is planning. They note that operating the c-store and the loyalty program may require different skills and experience — and time and investment. It is suggested that before worrying about the budget, you figure out what kind of program is desirable (based on some of the above) and design a business model accordingly.

The next blog post will discuss how Impulse can serve to make the development and implementation of your loyalty program easier.