My key chain has more rewards cards on it than it does keys. Seriously I have 3 keys and 4 rewards cards. The idea behind these cards is that rewarding my shopping behavior will earn my loyalty. But do rewards programs really influence customer behavior? Lets take a look.
My rewards cards:
- Jewel Preferred Card (grocery)
- Borders Rewards Card (books)
- Binnys Rewards (wine)
- Dominicks Fresh Saver (grocery)
You might notice that I have 2 grocery loyalty cards. Thats our first indication that maybe rewards dont lead to loyal customers. The only reason I have their loyalty cards is because they save me money when I do happen into one of those stores.
Im not really loyal to the Borders brand either. I like their stores and their staff is generally helpful but my patronage is really based on the fact that one is located a mile from my house. I go there because its convenient. If Barnes & Noble was a mile closer i might be carrying their rewards card too.
My point is I carry these rewards cards but they in no way influence my buying decisions. I will gladly accept the savings I get from them and I take some pleasure in seeing how much preferred savings I can rack up at the grocery store but in no way do these programs influence my decisions.
This begs two questions. 1) Why dont rewards programs work? 2) Whats a better investment to improve loyalty?
1) Why dont loyalty programs work?
The fatal flaw with rewards programs is the notion that a retailer can buy loyalty through freebies and discounts. Loyalty is not bought. Its earned through better service, better products, and a personal alignment with a brand image. Discounts, sales, your 10th coffee free, etc. may entice a customer to flirt with new retailers but its a temporary relationship. Rewards programs fail to generate loyalty because loyalty is not a commodity that can be bought.
2) Whats a better investment to improve loyalty?
The truth today is convenience is becoming the biggest influencer of customer loyalty. Brand differentiation is getting harder and harder in retail. Pricing is similar, product mix is similar, customer service is similar, even brand management is similar across retailers. All these being equal it comes down to which retailer offers the most convenient shopping experience.
6 months ago I would have told you that I am a loyal Starbucks customer. I would have been wrong. I buy a lot of Starbuck coffee but I am not loyal. I recently started taking the train into the city more often than I drive and there is a Caribou Coffee 22 steps from the train station. So 3 days a week my loyalty resides with Caribou. Location, location, locationright? Wrong. Convenience, convenience, convenience. Location is simply the first step towards convenience.
Lets say Starbucks moved into the the empty store front next to Caribou, thus solving the location issue. Where would I get my coffee? I have no idea because I like them both and the price of a medium (Grande) coffee is about the same at both. It would come down to which one could get me in and out the door fastest. I have a train to catch and the store that consistently gets me in and out the fastest wins because that becomes the most convenient stop for my morning coffee. Today, both of them do an ok job of getting me out the door quickly. But there are roadblocks. There are cups that get written on, lots of talking between the cashier and the barista, and a complicated menus that confuse customers in front of me and slows down the line. Not huge problems but inconveniences to be sure. All other things be equal, or close to equal, the inconveniences become opportunities to win loyalty.
How can we become more convenient and generate loyalty?
There are a number of ways to improve convenience through technology and else where. Heres a quick list.
1) Location: Location is clearly has the biggest impact on convenience, even in e-commerce. Location is about accessibility so location on the web means search engine optimization and a simple and easy domain access. The more customers have to look for an online retailer, the less likely they are to shop there. On the less technical sideIn our coffee war, Starbucks should be looking to relocate 2 blocks over.
2) Store layout: Im going to break with years or retail tradition and say get rid of the stuff that keeps the customer in the store longer. Make it easy for the customer to navigate the store or web site so they can get in and out quickly. If you have a physical store this extends to the parking lot. The local Burger King has a bad parking lot that gets obstructed by the drive-thru lane, so I go to the McDonalds across the street every timeeven when my kids would prefer the toy promotion that Burger King has going. My kids are clearly loyal to the coolest happy meal toybut thats a different story. That parking lot costs me 2-5 minutes every time I get near it. Inconvenient layout hurts loyalty.
3) Checkout Process: Get me through the line faster. Technology can play a huge role in the checkout process. Take the coffee makers for example. They enter my order in a Point-of-Sale and then write my order on individual cups. The POS could display my order on a screen for the barista automatically, which would save time on every cup sold. Once the coffee is made the barista yells out Latte and 8 people all think its their Latte. Confused customers leads to inconvenience. Since I paid with a credit card (because its more convenient for me) the POS could take my name off the card and display it with my order so the barista can yell Latte for Gary. Just two quick ideas on making my coffee buying experience more convenient.
4) Employee Education: There is nothing more frustrating than watching an employee struggle with store technology or have to ask a colleague about a product being sold when youre in a hurry. Employees need to know the systems they use and the products they sell before they work in rush hour. What do you do? 1) Build more intuitive user interfaces for your systems so employees learn faster and become ready for prime time more easily. 2) Provide regular multi-media based training on products and systems on site in the store. If you dont have an infrastructure for in-store training youre going to walk customers every time you hire a new employee or introduce a new product line. It may only be a customer or 2 but it adds up and hurts loyalty.
5) Customer Education: Better electronic signage that grabs customers attention and explains a Carmel High Rise Macchiato Espresso Double Dark would help reduce the inevitable explanation that occurs just as my train is entering the station. If the customers are better informed about the products they want to buy the shopping experience becomes more convenient for them and for other customers behind them in line. Microsoft Tag is another option for getting product information in the hands of the customer. Check out this post on Tag for more information.
6) Self-Service: Loyal customers no how to navigate your store quickly and effectively and they are the most likely audience for self-service kiosks and checkout lanes. I use self-service every where its available because self-service feels more convenient. It may actually take me longer to check out myself but the lack of idle time creates the perception that self-service is more convenient. I get a medium dark roast (Grande at Starbucks) every day. Wouldnt it be great if I didnt have to wait for 4 other customers to order the Carmel High Rise Macchiato Espresso Double Dark when all I need is my regular order. One swipe of a card and a touch of the screen and I could be half way out the door.
7) A more accessible staff: Busy employees create customer inconvenience because they are inaccessible. On the other hand, freeing up staff from mundane tasks creates a more convenient shopping experience and better customer service. Invest in inventory systems, automation products, and unified communication devices that improve labor efficiency. Do this not as a way to reduce labor costs but as a way to improve customer service, customer convenience, and ultimately customer loyalty. Often, companies use the potential reduction in staff and the corresponding cost savings as justification to take on a project. Bad idea. Keep the staff, earn loyalty, increase revenue. Use that to justify project investments.
Im picking on coffee vendors to illustrate my point, but seemingly minor inconveniences exist throughout retail and can be improved with simple but innovative investments in technology. Rather than giving customers free airline tickets, give them convenience instead. In the long run you will have happier customers and more revenue.
