Your loyalty program

It is probably outdated and underperforming

Independent retailers in the arts and crafts industry have a unique relationship, and opportunity, with their customers that is very different from most of retail. While they may occasionally wander to a chain store or some online business, treated properly and giving their wants the appropriate attention, these customers can be very loyal to your business.

To that extent, many businesses have loyalty programs. These programs were initially designed to incentivize a customer to return to do business with a store. The downside to these loyalty programs is that you are giving away profit to get the customer to return. This is on top of the dollars being spent with discounted prices which are supposed to get anybody to visit the business.

Together this seems like a bit of an oddity as the store is discounting merchandise and then offering to reward that customer when they next return; often returning because of another discounted merchandise ad. Frequently, the only additional marketing that is done to customers is on social media which, like the mass media, is directed to everyone.

Few people have ever taken the time to calculate just how much this loyalty program is costing their business. I did receive a call from one retailer who did make the calculations and found they were losing on each loyalty transaction. What’s to change?

We will offer two solutions. With each we offer reports that say our customers are no longer interested in what we have just described. The good news is that each can make you more profitable.

The first is changing to a premium loyalty program. An example you can see in many communities occurs with Panera Bread. They are a restaurant with a bakery offering many pastries. Their loyalty program costs the customer $7.99 a month. For that money the customer can come into the restaurant as often they want and get their coffee for free.

Panera is banking on the customer ordering food or purchasing pastries when they come in. Compare this monthly expense to only two trips to Starbucks and the customer is money ahead each month.

We have seen a knitting shop with “members” who pay $20 each month.  For that investment, the customer gets a skein of yarn, a pattern and “free” needles each month.

As compared to a delayed reward with the original loyalty program, the premium loyalty program provides an immediate reward which is what the reports are showing that customers want.

The second solution is a very unique twist in that its focus is increasing the size of the average sale as well as getting an existing customer to introduce a new customer to your business.

Envision a business which knows the size of the average purchase in their business is $45. The first goal is to get the customer to make a purchase larger than that amount. With our example business, the reward occurs when the customer makes a $60 or more purchase. There is no advertising associated with this, so there is no discounting of the merchandise. Already we have maintained margins and an increased ticket size.

With each transaction exceeding $60, the customer receives a gift card in an amount determined by the store. This online calculator, gift card vs discount calculator, was created to help you perform the mathematical exercise to determine what the numbers should for your business.

You should not be starting this, or any type of reward program without first making the calculation to determine if you are going to make money.

At this point you have had a transaction with your existing customer which has two very desirable results; you have not discounted merchandise and you have a transaction that is larger than your average sale.

You also have a customer with a gift card in their hand that can become a gift to your customer’s friend or family member if your customer does not use it for themselves. In test stores we have seen that when someone is using the gift card in a purchase, the average sale is even larger. And again, there is no discounting of the merchandise you sell.

Either, or both of these loyalty programs are better than the one that is utilized by most stores. There is one final component to recognize. All the customers we have discussed are special because they are doing business with your store. If your loyalty program is set up correctly, you have the contact information to these people.

How are you uniquely going to “speak” to these people? It should not be the same way you talk to the public as you discount to attract them to your business. The message and the effort should be treated as gold. Because the competition will gladly take them from you.

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This article is copyrighted by Tom Shay and Profits Plus Solutions, who can be reached at: PO Box 128, Dardanelle, AR. 72834. Phone 727-823-7205. It may be printed for an individual to read, but not duplicated or distributed without expressed written consent of the copyright owner.