Bring ‘Em Back for More

Whether you’re a seasoned cataloger or just getting started in this industry, you know that cultivating and maintaining your customer base is hard work. There are a number of ways you can acquire new customers, but if you want them to stick around, you’ve got to reward the ones who keep coming back.

Shari Altman, president of Altman Dedicated Direct, has more than 25 years of experience in direct marketing, with specific expertise in customer retention and loyalty marketing techniques. Matt Griffin, associate editor for Catalog Success, asked Altman to discuss some of the finer points of loyalty programs and what she’s seen work for catalogers over the years.

Q. What are a few reasons to institute a loyalty marketing program?
A. The one that supersedes anything else that merchants plan for specifically is to increase lifetime customer value (LCV). This is at the heart of what merchants want to do.

A secondary goal would be to increase referrals. People talk about loyalty and interpret buying behavior, like a customer purchasing more frequently, or having bigger orders or whatever as loyalty. But there’s been some real study on it, and at the core of it, the most loyal customers are the ones who recommend you to other people. Ultimately, if you get more people to recommend you to friends, family, colleagues, etc. that’s really where it’s at.

Another goal is to distinguish the brand, particularly if the cataloger is involved in a competitive arena. A loyalty program is a way to distinguish your brand and your catalog as different from others, thereby retaining your customers and keeping them from jumping ship.

The fourth goal I think is important, which goes along with improving LCV, is moving buyers up the ranks, in other words, segmenting your housefile. Your goals are to move one-time buyers to two-time buyers, getting two-time buyers to become repeaters and getting repeaters to provide referrals. Take whatever segment a customer exists in, and get him or her to move to the next level of involvement with your company.

Q. Can you give a few examples of types of loyalty marketing that you’ve seen catalogers employ?

A. The most common program catalogers use, although not necessarily the best, is a membership program. The customer pays a fee on an annual basis to become a member of a club, and then gets a discount on every purchase. It’s simple and straightforward, and that’s always good. But it doesn’t offer as much value as a program that offers both hard and soft benefits.

Let me step back for a moment. Merchants look at a formal loyalty program in terms of hard benefits, like discounts, and soft benefits, like special customer [phone] numbers, special communications, etc. The best loyalty programs combine both elements.

The straight membership program, frankly, is the most common, probably because it is one of the simplest to implement, as well as the easiest to explain to people. I’ve also seen a slight variation where somebody offers free shipping instead of discounts. I don’t see too many points programs, where each purchase earns customers points, but there are some out there.

One of the other tactics that I’ve seen several companies that offer discounts use is to explicitly state what the alternate price for members is.

Q. What are the best loyalty marketing programs you’ve seen recently?
A. Alexis Vogel Cosmetics has a program where the loyalty club membership is basically free. When someone initially buys from the company, she gets a free one-year membership. And as long as the customer purchases at least $50 in merchandise per year, she maintains her membership. It’s a good program because everyone has the opportunity to participate, and it’s egalitarian.

Once you’re a member, every product in the catalog has a discount. And I like that the discounts are explicitly listed. Alexis lists the regular price, and right next to it is the members’ price. It actually becomes an extra selling point, because someone can look at the catalog, see clearly the benefits of becoming a member and realize they don’t have to pay a fee to join.

The reason I like when merchants are really explicit in showcasing their discounts is because when a customer is contemplating whether or not to join a loyalty program, they start doing the math. Let’s say they get 10 percent off, and it costs $30 to join. They start trying to figure out how much merchandise they must buy to make back their investments. They get focused on math instead of on product and other member benefits. When you show the special member prices explicitly, it places the focus back on the product, because the math is already done for them.

Another program I wouldn’t have initially thought was so great is offered by Eurosport. The reason I wouldn’t have thought it would work is because it’s a points program, which tend to be complicated. For the catalog’s audience though, it works really well. Every purchase a member makes earns points for free merchandise. In its catalog as well Eurosport is very explicit about how many points it will take for any given item to be free. It encourages people to spend more because now they’re focused on how much they need to buy in order to get that next item for free. Customers can see the rewards very clearly right in front of them.

The other thing I really love that Eurosport does is that the price of membership is completely refundable if the customer is not satisfied. I’ve not seen any other company do this. I think this says volumes to a customer about the confidence level of the cataloger and the risk it’s willing to assume to get the customer’s business.

Q. What steps should a cataloger take before instituting a loyalty program?
A. First define what overall goal they want to achieve, whether it’s extending lifetime customer value or something else.

Next they should decide which specific tactical course will help them reach that goal. Whether it’s cross-selling between product lines or increasing average order value, you have to define what will help you reach your ultimate goal. Every cataloger knows who its best customers are, and can measure what makes them so great. If the behavior of the average customer is to become that of a great customer, what [can the cataloger change to] make it happen?

The steps that a cataloger needs to take always will come back to data. Understand your customer base. Understand who your good customers are and what characteristics they exhibit. Without defining your goals and what specific tactics you should attempt to reach those goals, a loyalty program is pointless.

Q. How much do you think a cataloger should spend on a loyalty program?
A. The merchant has to decide what it can afford to give up in order to get someone to participate in the loyalty program. If customers are going to participate, it’s because they get something. The cataloger probably will need to review some profit-and-loss statements. If you have a membership fee, how much do you need to charge to offset the cost of what you’re giving up? You don’t want to give things to your best customers who already are spending money with you in a big way and then not actually increase the value of your average customers.

Another set of things to consider is your systems. How complex is the program you want to implement? Are you managing your fulfillment internally, or are you outsourcing it? There are some programs that are easier to implement if you’re outsourcing than if you’re doing the work in house. Because a fulfillment house provides service to multiple clients, it’s likely the program that interests you has been done [by the outsourcer] before. Alternatively, you can choose a fulfillment vendor who has the capabilities to set up and manage loyalty programs.

If you choose to do it in house, how flexible is your current IT system, and can it handle a new program without a complete overhaul? It’s important to know what you can handle as you start figuring out costs.

To reach Shari Altman, call (336) 969-9538 or visit her Web site at: www.altmandedicateddirect.com