Seamus Estherson opened his butcher’s shop in Cabra, Dublin, five years ago. He spent the first three years building up custom — and the past two working to hold on to it.
“In 2009 I could see things changing,” said Estherson, 39. “We had built up our customer base to a point where it was plateauing and my fear was that, as a result of the recession, things could start going into reverse.”
He fought back by launching a loyalty scheme to reward his regulars. “Our turnover was stagnant. It was time to start working harder to hang on to the customers I had.”
Since the launch of the scheme two years ago, 1,700 shoppers have signed up and turnover has grown 15% year-on-year.
“We send out a text on a Thursday night, telling customers what’s on offer for the weekend, and that has worked particularly well to drive people in,” he said. “I think customers are very grateful to get something back. Yes, the offers are coming off the margin, but I’m happy to sacrifice a bit of margin in order to keep sales up.”
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Consumer appetite for loyalty schemes is growing, according to Finbarr Malone of Customer Connect Ireland, which creates loyalty programmes for the retail and hospitality sectors, with an entry price of €160 a month.
Any business with a regular footfall, such as butchers, coffee shops, hotels and salons, stands to benefit from such schemes.
For the business, the aim is not just to boost sales but to secure a better understanding of customer shopping patterns. “We can highlight which customer has been missing for a month, or has dropped their spend by €150, which is exactly how large supermarket chains do it,” said Malone. “I have small kids and, if I haven’t been in Tesco for a few weeks, a voucher for nappies will come in the post.”
The key to setting up a customer loyalty scheme is to keep it simple. “Our programmes ask for name, month of birthday, so the retailer can offer special birthday promotions, and mobile or email details. Some schemes want to know how much you earn but these are too intrusive,” he said.
A scheme also gives a business owner something new to say. “Talking about triple points or whatever means they finally have something else to talk about other than their ‘lower than low’ prices, which, after all, no one can keep up forever,” said Malone.
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Points-based loyalty schemes can be confusing, cautions Simon Kent of Applied Intelligent Marketing, which specialises in loyalty programmes.
“Customers don’t know what the value of a point is, which can make it hard for a scheme to succeed. It can also be hard for a small business to reward customers who don’t spend that regularly, which is why sometimes points schemes don’t have enough traction,” he said.
Increasingly, customers are asking why they have to spend money to get a reward, added Kent. The proliferation of deal sites has resulted in customers thinking there is nothing you can offer them that they cannot find online.
“Response rates to traditional discounts have fallen through the floor, so to achieve cut-through you may have no choice but to give away free stuff, which unfortunately necessitates a bigger [marketing] budget.”
Retailers must select deals carefully. “Offering a client something that isn’t right for them will only make them feel you don’t know them at all, and that will have the opposite effect and put them off,” said Kent.
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“Once you launch a customer loyalty scheme it’s a long-term commitment,” added Estherson. “You can’t just withdraw it without risking alienating customers. Also, it will only work if you are active about it.”
Retailers should set clear goals, then tailor the loyalty scheme accordingly. “The top three goals we see from our clients are to drive revenue, profits or market share,” said James Lenehan of rewards company Win Win. “Others may want to boost frequency of visits, or increase purchase amounts per visit.”
Lenehan is currently setting up an online business dedicated to customer loyalty schemes, called theloyaltybusiness.com.
The data that loyalty programmes generate is their real value, he said.
“They should not be seen as a quick win, as a short-term tactical promotion to boost market share, but as a tool for building long-term relationships by rewarding people with things they value.”
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Neither should they be confused with posting discounts on deal sites. “Deal sites are for bargain hunters,” said Lenehan. “They should be used as a customer acquisitions tool only. Loyalty schemes are about existing customers.”
A smart move is to use a scheme to introduce customers to something new. “The loyalty scheme familiar to most people will be the coffee shop that gives you your 10th cup free. But the real aim should not be to promote something that just diminishes your margin,” said Ronan Perceval, the founder of Phorest, a software company specialising in designing loyalty schemes for the hair and beauty salon sector.
“The customer is just as happy to get something new because it can have a wow factor, a sense of being a treat. So, if you have a customer who comes in for a facial, don’t reward them with a free facial, offer a pedicure instead.”
If you do not want to commit to a bespoke loyalty programme, try a DIY version.
“Facebook, Twitter and LinkedIn provide a very cost-effective platform to reward your customers,” said Nuala Canning of Brandfire, a customer loyalty specialist.
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She cites Domino, the pizza company, which used Foursquare, a social networking site, to drive loyalty by rewarding customers with discounts and even free pizzas when they “check into” a Domino pizzeria.
She says it is essential to know your customer and provide rewards “that really resonate with them”.
Yvette Fidgeon, chief executive of Bombay Pantry, launched a scheme last month where customers were rewarded instantly for spending certain amounts. “We looked at the classic scenario of the coffee shop where you get your card stamped but decided we wanted one that rewards you as you go, rather than having to wait,” she said.
Users are rewarded when they hit a trigger price point, ranging from a naan bread to a free main meal. “It really is about saying thank you to existing customers rather than trying to attract new ones,” said Fidgeon. “But in fact, we are finding people are taking forms to sign up their friends too.”