CCG - Loyalty Marketing, "The New Relationship"

This speech, given by Morris Saffer, Chairman of the Retail Advertising & Marketing Association, was provided compliments of Customer Communications Group, Inc. and presented at the 46th Annual Retail Advertising Conference.

Loyalty Marketing, “The New Relationship”

Last year I reported on the dramatic changes that I felt were impacting on the retail scene. These included the dangerous decline in the importance of Christmas sales.

General merchandise sales in November and December have fallen 2.2% over the past decade. That’s $51 billion less business now done in the last two months of the year.

A trend that appears to have continued this past Christmas.

Equally calamitous has been the ever-increasing over-storing, a situation that has had some categories, such as chain restaurants, struggle to achieve any growth at all.

Even Sears, after two wonderful turnaround years, is struggling to meet same-store sales.

Overall the trends are against retailing sales growth. Even the strong economy has not translated to stronger retail sales as customers hoard their increased wealth for what most believe will be stormy days ahead.

So, without getting too morbid, it has become apparent that opening more stores and running more sales is not going to get the same kick as before. The relationship with customers has to change. The struggle to hold on to your customers becomes greater every year — and your focus on this relationship becomes more relevant.

With this in mind, RAMA decided to begin a process of research that would take the pulse of key trends in the retail marketplace, especially in an era where the store as a brand is an ever-increasing marketing reality.

We asked our members for their key concerns, and at the top of the list this year was loyalty programs.

Right off the bat we had a dispute. What is the difference between loyalty and frequency programs? Even the experts gave us conflicting definitions. So for the sake of RAMA we have defined:

	Loyalty	The focus on your best customers
	Frequency	General market programs to increase overall usage

or put another way:

	Loyalty	Exclusion
	Frequency	Inclusion

Of course, most frequency programs should have loyalty elements as well, but more about this later.

A quick explanation of our research methods.

First, a general questionnaire was circulated to RAMA members, and we received 82 responses. Hope you do better this year.

Second, Marshall Marketing and Communications added our questions to their attitude study of 3,000 consumers.

I’d like to thank Kristen Napoleon of Marshall Marketing, and Tom Conway and Susan Cuccinell of TVB for their contributions.

I’d also like to thank Rick Barlow of Frequency Marketing, Inc. and Sandra Gudat of Customer Communications Group, Inc. for their help, and this afternoon in the college breakout session they will present some case histories, and you’ll get a chance to get into more detail and hear a lot more detailed answers to your questions.

Finally, I’d like to thank Paul Lebland and David Saffer for their analysis of the information, much of which I used in today’s presentation.

American Airlines inaugurated its AAdvantage Frequent Flyer Program in 1981. It revolutionized, not only air travel, but the whole concept of frequency and loyalty rewards.

AAdvantage attracted 1.8 million participants in 1981. Today, it is estimated over 51 million people in North America are enrolled in points programs. Growing at about 11% a year. About 40% of these air miles are now earned on the ground through partners, such as Citibank’s Advantage Credit Card.

Air Miles, crossed over from England, crashed and burned in the U.S., but has been a raving success in Canada with banks, food chains and retailers of every persuasion — even the government-owned liquor stores — offering the ubiquitous miles. Just last month, The Bay, Canada’s largest department store, replaced Sears in offering air miles with every purchase.

There are, according to industry estimates, only 75 major retailers (excluding grocery) operating loyalty programs.

		No. of Stores
	Department	27
	Women‘s	18
	Home	6
	Books	8
	Large Box, Discount	1
	Crafts, Fabrics	3
	Drug	5
	H & B	5
	Music	3
	Catalog	4

Neiman Marcus was one of the pioneers of department store loyalty programs, launching its In Circle in 1984. Of course, it was credit card initiated, which is fine for Neiman Marcus.

But, whereas in the airline industry there was immediate competitive response, it wasn’t until 1992 when Saks Fifth Avenue created Saks First, and Sears Best Customer program was introduced.

It took until December 1993 before Bloomingdales, Dayton Hudson, Nordstrom and Macy’s began testing their belated response.

Equally, in Canada, Zellers launched its breakout “Club Z” over a decade ago — today with 9 million members, almost 80% of all Canadian households, “Club Z” still has no competition.

Of course, Wal-Mart hasn’t needed a frequency program to steal market share from Zellers, and everyone else, in Canada.

Actually, if we’re interested in historical accuracy, it was almost 75 years ago that Canadian Tire Money was given as a reward for cash sales. It still is, without a doubt, the longest running retail frequency program in North America.

How many people actually belong to retail loyalty programs?

Well, 54% don’t belong to any.

The 46% who do belong break out this way:

	Total %	Working Women %
Grocery	36.7	43.2
Dept./Discounts	14.9	18.1
Restaurant	11.0	12.0
Other Retail	9.8	10.3
Book Stores	9.4	12.8
Greeting Cards	6.0	10.4

When you exclude grocery, 63% don’t belong to a loyalty program.

And 80% of loyalty program members belong to a grocery plan.

As you can see, working women are the group most likely to belong. Also, the more affluent you are the more likely you are to belong.

	Total %	Working Women %
Grocery	36.7	43.3
Dept./Discounts	14.9	18.3
Restaurant	11.0	13.7
Other Retail	9.8	13.2
Book Stores	9.4	16.7
Greeting Cards	6.0	9.9
None	54.0	45.7

Also, the higher your income level the more programs you joined.

		Avg. # Categories Respondents Joined
	Under $20,000	1.77
	$20,000 to $39,999	1.89
	$40,000 to $49,999	2.87
	$50,000 to $74,999	2.06
	$75,000 +	2.80

In fact, if you’re FEMALE, WHITE COLLAR, COLLEGE GRADUATE, 35 to 49 and earn over $40,000 a year, you’re approximately 10% more likely to join a retail loyalty program.

Not surprisingly, customers with college and graduate degrees were two or three times as likely to belong to bookstore programs. 16.4% vs. 5.2% for those with only high school education.

		Total	High School	College Graduate	Graduate Degree
	Bookstores	9.4%	5.2%	12.7%	16.4%

And for some strange reason, the more educated, the more romantic. Those with graduate degrees belonged to greeting card loyalty programs twice as much as those with just college education.

		Total	High School	College Graduate	Graduate Degree
	Greeting Cards	6.4%	5.5%	4.0%	8.2%

Obviously, the higher the education, the higher the libido!

When asked why they didn’t belong to any program:

		%
	No reason	35.7
	No one asked	19.4
	None at favorite store	10.9
	Takes too much time	4.2
	Discounts not worth it	3.8

Retailers believe that the primary benefits of loyalty programs are:

Increased usage and shopping
10-12% increase in overall sales
Compete on more than price
Builds relationship with customers

But only 21% of them actually have any measurement system to establish success.

Yet 90% of retailers believe customers on their program buy more, but few had any actual hard evidence of this fact, at least that they were willing to share.

So, what did customers say?

	Total	18-34	Male	Working Women
Bought More	42.7%
Bought Same	35.5%		38.0%	45.9%
Exclusive	16.4%	21.6%
Don't Know	5.4%		19.4%

STRATESCAPES and STRATESCAPES SUPPLEMENTS are published by Customer Communications Group, Inc., a full-service agency specializing in relationship marketing and customer communications. Our comprehensive, turnkey services include data analysis, customer segmentation, strategic consulting, account management, creative execution, print production and multimedia solutions.