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Summer 2001 Frequent Buyers

How to Reward Repeat Business

Airlines do it. Credit cards do it. So do fast foods and movies and cafés. And now retailers are doing it, too—increasing sales by as much as 20 percent without adding advertising expenses. The secret? Frequent-buyer programs that reward shoppers for repeat business, and reward you, the specialty retailer, with added revenue.

“Historically, frequent-buyer programs have boosted sales 17 to 25 percent a year in the retail industry,” says Rick Barlow, president of Frequency Marketing Inc. (Cincinnati), which specializes in developing frequent-buyer programs. One business owner attributes the success of these programs to the fact that “everyone loves getting something for free.”

Look at frequent-flyer points. The airlines created greater loyalty and far greater frequency of purchase by giving you points every time you fly with them. Because you wanted that free trip for next year’s vacation or trade show, you booked all your flights on one airline. Here’s another, less global example: Before a ski business in Maine began offering repeat-business programs, only 20 percent of first-time customers returned. Since setting up incentives and rewards for return visits, more than 75 percent of first-timers return—and gross revenues tripled.

Transfer the frequent-buyer premise to your specialty store. Let’s say you handle several lines of a low-end consumable product that customers buy several times a year. Let’s also say you offer a frequent-buyer incentive: Buy nine of these items, get the tenth one free. So the customer who usually buys them five or six times during the year—some from you plus some at other stores—now buys all of them from you. For your dealer cost of that one “tenth” item, you sell three or four extra, plus whatever else the customer buys during those additional visits.

Does it work? Absolutely. Will it work for you? Of course! If you follow a few guidelines. “The secret to any frequent-buyer program is to offer as an incentive something that has a high perceived value to your customers, but a low cost to you,” says Joyce Gioia, a certified management consultant with Herman Associates (Greensboro, NC) and the author of 101 Ways for Retailers to Add Value (Oakhill Press). She points out that, surprising though it may seem, your customers may not value money the most. In fact, studies show that almost anything that’s “free” is often more highly prized. Here are some possibilities:

  • Added service—free delivery, free special-occasion reminders, free consulting.
  • Free gift—something attractive and useful that’s not normally sold in your store (e.g., a tin of cookies from a candle seller)—after they’ve spent a certain amount (like $100, or whatever you think is appropriate) with you, or after the frequent-buyer card you gave them is fully punched or marked. Offer a gift item that costs you about $3 but has a retail value of about $15.
  • Coupon good for a free item at nearby non-competing business that generally serves the same type of customers. This “strategic alliance” can be a reciprocal agreement—you do the same for their customers—or they may give you a special low- or no-cost deal in exchange for valuable advertising in your store.
  • And, yes, money—something like 10 percent off all of their purchases for the next six months after they spend a set number of dollars over a certain period.

“The best way to find out what your customers value is to ask them when they come in,” says Gioia. Ask questions like, “Would it help you if… ” or “Which of these two thank-you gifts would you prefer if… ?”

One step further

Enhance the simple frequent-buyer card or points program by turning it into a frequent buyers club. Two benefits accrue from this. It appeals to the customer’s desire to “belong” to something special (hence, all the music and book clubs), either by invitation only or due to merit. And it gives you an excuse to obtain information for your database, which you can parlay into even more sales (via targeted promotions, customer newsletters and the like). Make the club distinctive. “You might have some special name for it, like ‘Golden Circle,’” says Gioia, “which is what Nieman-Marcus used to call it, or ‘Inner Circle’ or ‘Preferred Shopper.’”

Another step further: If there’s a line of merchandise that’s particularly difficult for you to get, or that’s so in demand it sells out quickly, offer your preferred frequent buyer’s club first access to those hard-to-get items. Why? Because somebody who’s spending $100 a month in your store is much more valuable to you than someone who buys a $5 item once or twice a year. You could also extend the privilege to holiday merchandise. When new items come in, set aside a few off-hours for a first-access reception. Invite those special customers to come in and get first crack at them and have some fun in the process.

Avoiding the pitfalls

Certainly no promotion is foolproof, not even a low-risk, frequent-buyer program. Keep an eye on these potential problem areas…

Too costly.
Don’t “give away the store.” The goal is to get customers in more often to buy more merchandise. Don’t spend or give away more than customers bring in.

Too complicated.
Remember the “kiss” adage? Keep it simple for customers to understand, and simple for you to carry out. If it takes more than a couple of sentences to explain or more than a few minutes to track, better rethink it.

Too long.
People won’t hang in for as long as it may take to earn that free item or sufficient bonus points, says David Marcotte, senior business consultant with IBM, which supplies expertise and systems for customer-purchase tracking. “Punchcards and point systems can break down very rapidly. So what you might want to do is say periodically, ‘Anybody who has a card gets 20 percent off a certain item today. ‘” Or cardholders who spend a certain dollar amount today get 10 percent off. The idea is to keep it interesting and on customers’ minds.

Cheaters.
To prevent someone from punching the card themselves, you can do either of two things: Design your card with numbered squares larger than the hole-puncher, then initial the card beside the punched hole; or buy a custom hole-puncher with a uniquely shaped hole rather than the usual circle. (Check with your own suppliers and local office-supply stores about custom hole-punchers.)

Multiple locations.
If you use a point system and track it via cash registers in multiple locations, Marcotte cautions that “you’re getting into another realm altogether. Those points have to be able to go from store to store; it’s not enough to keep it at a local level.” And the deals on that card have to be centrally coordinated, as well. “At that point it becomes a bit more complicated,” he says. Talk to your register and/or computer vendors for advice on this.

No disclaimer.
Just in case all does not go well and you have to cancel the program before its completion, have your attorney prepare or approve a disclaimer in the rules you give all participating customers. In fact, if your program is more complicated than the basic “Buy 9, Get 1 Free” punchcard, it’s a good idea to have your attorney approve the program itself—the rules, the promotion materials, even the card.

Step by step

Here are 10 steps to follow if you plan to implement a frequent-buyer program:

  1. Do some careful research and thinking before you decide on the reward or discount to offer.
  2. Determine exactly how much business you need from a customer to cover your costs and make the promotion worthwhile. Factor in overhead and any ongoing administration costs.
  3. Verify that the reward is easy for your average customer to reach.
  4. Put a time limit on your program, usually six months or a year. You can always extend it if it’s going well.
  5. List everything you need to produce, print, buy and prepare for your program-punch cards, hole-punches, date stamps, tally sheets, software add-ons, signage, flyers, and so on.
  6. Schedule all of these steps, and delegate and/or do them.
  7. Put your program through a dress rehearsal. Make sure every employee understands the program and the procedures. Ask them to come up with as many “what if” questions as possible so they can learn the answers, and you can catch any problems before they occur.
  8. When you’re satisfied that everything is ready, post your signs, give every customer a flyer, and proceed with your promotional activities.
  9. Monitor the program closely especially in the beginning to spot any glitches. Talk to your customers about it, too; their feedback can be crucial.
  10. After a pre-set length of time (e.g., 12 weeks, six months, one year), evaluate the results and decide whether to continue the program. If you do continue, identify any changes you should make.

Bonus benefits

Getting your current customers to come back more often with a frequent buyer program can do more than boost sales volume from these shoppers alone.

  • Referrals increase. Satisfied customers who get bonuses and discounts are likely to tell others about you.
  • You solidify your piece of the marketing pie. If customers are buying from you more frequently, they’re not shopping your competitors.
  • Your spin-off sales should multiply. For example, if frequent-buyer shoppers visit your store two extra times this year over previous years to earn the free item, that’s two extra shots you have to show them something else they might need or want.
  • You should lose less business to price competition. The more visits a customer makes to your store, the more personal attention you can give, the more loyal they become and the less likely to be lured by a one-time, few-cents-off coupon or discount.

By offering a frequent-buyer program, you create and reward “good behavior”—repeat business. Without spending a penny more on advertising or costly promotions, you can tap a hidden resource—your own existing customers-and increase sales.


Dana K. Cassell

Dana K. Cassell has been writing full-time since 1976. Early on, she specialized in the retail trade magazine field, but for the past dozen years has concentrated on pharmaceutical and medical topics. Of her titles available on Amazon.com, two are The Encyclopedia of Drugs (Facts on File Library of Health and Living) and Food for Thought.Her credits also include children's magazine fiction and nonfiction, greeting card verse, consumer magazine articles, ad copy, editing projects, writing for business clients, PR articles, and ghostwriting, amounting to around 2,000 articles/columns and a dozen books.

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