Loyalty Programs: Driving Incremental Revenue?

I recently discovered that the 3^rd largest retailer and #1 pharmacy in the nation has plans to roll out a massive loyalty program next year. Walgreens is currently running a pilot of Walgreens Rewards in Richmond, Kansas City, and Portland. The program is based on points that can be redeemed for substantial rewards like gift cards and merchandise. Even though Walgreens is late to market behind the competition, the program seems to build a relationship with the customer over time. In comparison, CVS ExtraCare Rewards are only good for a limited time and more difficult to keep track of. The program will be tweaked based on the results of the pilot, but it seems very easy to participate and rewards customers for behavior that they would be doing anyways. This got me thinking about loyalty programs and wondering if they actually drive incremental sales.

For me, loyalty programs work. I continue to go to Starbucks over any other coffee shop so that I can get closer to a free cup of coffee. I also added a credit card to my Chase account to get double the points from Chase Rewards. If I can be rewarded for behavior that I am already doing, I am likely to increase that behavior. I suspect this is probably true of many other consumers as well. In my opinion, there are a few best practices that will help create a successful loyalty program that drives incremental sales. After all, it costs 5-7x more to acquire a new customer than it costs to keep the ones you already have. So why not give them a reason to stay?

1. Most important is ease of use. Customers don’t want to be bothered to think about their points. They should be easy to keep track of and just as easy to redeem.
2. Collect data. Use the data from member profiles to target messages, offers and optimize rewards.
3. Create an experience. Encourage your members to share their stories, pictures, etc. related to your loyalty program. This will increase engagement and allow you to have meaningful conversations you’re your loyal customers. This can also help to establish passionate brand advocates.
4. It’s all about value. Customers will remain loyal and increase their spend if they feel they are getting a true value out of the rewards. An example is Southwest recently enhanced their Rapid Rewards program by allowing members to earn points for shopping at retail partners.  Consumers want the greatest value they can get out of each dollar they spend.

What rewards programs are you loyal to?


Jessica Wesley
M.S. Candidate, Integrated Marketing Communications
Northwestern University
@jeswesley

A New Type of Loyalty: MyPanera

A few months back, when the cashier at Panera asked me if I was part of the MyPanera program I cringed at the thought of my wallet getting any thicker by adding another loyalty card.  But like most other entitled Panera purchasers, I wanted to be rewarded for the significant amount of cash I spend on my You-Pick-Two’s, so I signed up.

A few days later when I was prompted to fill out my profile online, I kept looking for the points converter.  Was this like their Cosi competition where every tenth meal is free? Or, could this resemble the Starbucks model based on the ever-exclusive Gold Card? The answer: neither.

Panera created a loyalty system based on two key insights: Surprise and Delight.  The MyPanera program has no publishable points system.  Every time you go, you swipe the MyPanera card and sometimes you’ll be surprised with a treat.  As a marketer and Panera-loyalist alike, I was skeptical of this program.  Would this work to create loyalty? Would consumers grow frustrated by the lack of structure? Most importantly: how does this benefit the customer?

However, I am now quite the fan, and it seems that Panera customers are for the most part, quite thrilled.  With the recently announced Q3 results, Panera’s revenue increased 22 percent from the previous year. The CEO attributed some of this success to the increase in customer loyalty.  In fact, in one year, Panera was able to attain 8.3 million registrants for the program. 

There was also some negative whiplash.  Customers complained online that Panera did not understand their purchase decisions.  In fact, one outraged customer said that the program never rewarded with the types of food purchased, instead attempting to buy other menu items.  Panera responded that over the year the program has been course corrected, and is working to continue surprising and delighting customers. 

My advice, keep doing what you're doing, Panera.  For those who are not yet members, go ahead, sign up.  You might surprise yourself.

By Hillary Grey
Twitter: @hgrey
www.hillarygrey.com