Out of the Box

A Loyalty Card for a Small Company

By Menachem Lubinsky on June 20 2008

Starbucks recently introduced a new card that offers customers many freebies, including syrup and soy milk additions to its drinks, refills of drip coffee and a tall beverage of any sort for people who buy a pound of whole bean coffee. As the New York Times put it “on a pure dollar basis, all of this doesn’t add up to much.” The Starbucks Reward card is much like those used by other major companies in what is known in the industry as a loyalty program.

There are many good marketing reasons for having a loyalty program, but fundamentally it is designed to create brand or institutional loyalty that is so important to the bottom line. By offering perks, discounts and even rewards, the marketer hopes that the customer will spend more money on the brand or with the sponsoring institution. Loyalty cards have also become an important source of information for marketers, allowing them to better target their customers, plan their products and services and even in launching new products. With today’s technology, marketers can accumulate detailed information on their customers, including demographics, buying habits and even history, all helpful in marketing to customers. Securing all of this information is well worth whatever freebies are being offered.

Of late, many companies with sluggish sales have turned to loyalty programs to help them recover. The evidence is that it works. Loyalty programs like all business promotions and programs require management but with today’s technology and firms that specialize in the management of loyalty programs the information can be easily managed.

On the surface, it certainly sounds as if loyalty programs are for the large companies that have huge marketing budgets. But of late, say marketers, many mid-sized and even smaller companies are turning to loyalty programs to help sales. Club cards are common with many supermarkets. Drugstores have their own discount cards and many well-known retailers have jumped in as well.

A relatively small book store in a major city faced enormous competition from the national chain bookstores in his area. It seemed as if he almost always had to undercut the price of books just to compete, but the discounts for him spelled small margins and small profits. He couldn’t compete with the volume of books purchased by the chains, which is why they can offer the books for less, and thus he found it increasingly more difficult to stay in business.

A marketing consultant advised the storeowner to launch a loyalty card that would offer customers an array of special services. The card offered free coffee, the right to exchange books with other used books, notification of new books by authors that the customer bought before, invitation to book signings and readings by authors, and more. The store did extensive mailings and advertising, including posting a huge sign in the window, with an offer a free book just for signing up that generated more than 1500 applicants in less than 6 weeks.

The agency that gathered the information provided the bookstore with valuable information on the customer base. It even was able to pinpoint how many books were sold on what days and what hours. This information enabled the store to be more efficient in staffing, inventory and general services.

It is important for every business to know its customer base well. The more information that is gathered, the better the company is able to target the customer. If at the end of the day, the loyalty card accomplished its goal of generating more loyalty, which will result in a greater share of the customer’s spending dollars.

Loyalty cards also offer a great deal of flexibility. Each sponsor can design their own program, depending on what the impact would be on their financial situation. Benefits can be increased or withdrawn, with proper notification, of course. Special promotions can be targeted to loyalty card carriers. Finally, it can even be offered as part of a joint program with another business, potentially increasing the clout mani-fold.

I noticed that some marketers are advocating card-less loyalty programs. They argue that the data is already available and can be accessed at any point, including the check-out counter. But others see a great deal of value of the consumer actually having the card in their wallets. They say that it is an important branding function and has proven to generate significantly higher sales.

The bookstore encouraged signing up for multiple cards so that families would be included in the loyalty effort. They also kept information on the demographics of family members and even touched base with their customers on their birthdays. There are many retailers throughout the country that offer discounts to customers on or around their birthday date but with the loyalty program it is that much easier.

Should you consider a loyalty program? If you can manage the information to your advantage, it is crucial that you do. But if the information becomes part of the paperwork on a crowded desk, probably not.

Out of the Box is a collection of strategic marketing articles that Lubicom has published on various topics, trends and ideas in the marketing world. The articles have been published in the Hamodia weekly newspaper circulated on three continents to a readership of well over 100,000.

The name, "Out of the Box" is a term used frequently in business nowadays to describe creative thinking that is not the norm. It is meant to help a business pull away from the pack or separate oneself from the competition. It is to some extent fraught with risk, simply because it is not the run of the mill thinking, but it is at the same time the key to reaching the next opportunity.