CONNECTING THROUGH CARDS

Critics of loyalty cards have long complained that retailers don't make the most of their loyalty card programs and the data collected through them.They contend that stores use the cards just for electronic discounts. The cards, they say, don't deliver targeted messages and rewards to the best and most loyal customers, which was supposed to be the main point of the programs.That may be starting to

Critics of loyalty cards have long complained that retailers don't make the most of their loyalty card programs and the data collected through them.

They contend that stores use the cards just for electronic discounts. The cards, they say, don't deliver targeted messages and rewards to the best and most loyal customers, which was supposed to be the main point of the programs.

That may be starting to change, however, as the technology behind the programs matures and retailers gain more experience with them. Retailers are starting to employ the programs in more creative ways designed to engender a personal, even emotional, connection with their top-spending shoppers -- shoppers they would be most loathe to lose to competitors.

By doing so, stores are not only getting more return on the investment in loyalty programs, but are addressing privacy critics who question the need for the historical shopping data to be collected in the first place.

Several leading-edge loyalty card practitioners shared their strategies at the Global Electronic Marketing Conference (GEMCON), held at LaPlaya Beach & Golf Resort in Naples, Fla., Oct. 18 to 20.

One presenter, Dorothy Lane Markets, the recipient of SN's 2004 Technology Excellence Award in the independent category, made no bones about using its loyalty program to focus on its most profitable clientele. "We are totally top-customer centered," said Amy Brinkmoeller, manager of information systems, Dorothy Lane Markets, at GEMCON. For Dorothy Lane -- a Dayton, Ohio-based, three-store retailer known for its "Killer Brownies" and other delicacies -- it was a matter of survival.

"If all you offer is price, your customers are going to go to the next supermarket that comes to town and offers a lower price," said Brinkmoeller during the session "Learning That Price Does Not Create Loyalty." "A lot of stores believe in having the best price, service and quality. We don't believe that you can do all three, so we focus on quality and service."

Dorothy Lane came to that realization after running a 10-cent sale to reward its regular customers for a successful holiday season. Since it had no way to identify these customers, it relied upon advertising and drew numerous outside shoppers.

"The average shopping total was probably less than $3. All of our employees were working the front end, and regular customers said, 'Who are these people in my store?"' said Brinkmoeller. "In the end, we gave the best deals to people we didn't want to give our best deals to. Our associates and service suffered. We hit ourselves over the head, saying, 'We've got to find a better way to give back to our customers."'

Soon after, Dorothy Lane developed the premise for its five-year-old Club DLM loyalty program, which centers on rewarding the most loyal shoppers. The retailer has experienced a gross-margin increase of five percentage points since the program's implementation.

High-spending shoppers identified through the program get the royal treatment. So much so, that Norman Mayne, the retailer's chief executive officer and general manager, personally delivers thank-you bouquets to the homes of top shoppers. Most valuable customers are also given a holiday gift. Last year, it was professional chef knives valued at around $90.

"When these customers come to the service desk to receive their gifts, the manager is paged so he can shake their hand and thank them," said Brinkmoeller. "When we launched the program, we really didn't know who our top customers were. Now we can put faces with names."

Dorothy Lane also cultivates loyalty through offers presented to DLM Kids Club members. These include holiday parties, a free birthday cake and birthday present, as well as offers for free items like a piece of cheese, redeemable when children shop with their parents.

Dorothy Lane's top-shopper rewards philosophy is also reflected in its distribution of targeted postcards that feature differing levels of rewards based on shopping history. Its monthly Market Report newsletter is also versional, with differing levels of "WOW" coupons. "Every offer that we send is differentiated based on a customer's spending with us," said Brinkmoeller.

Dorothy Lane funds Club DLM with monies once allocated to the distribution of its ineffective weekly sales flier, which was sent to 45,000 homes. The flier's cost was equal to 2% of sales; Club DLM's is 1.5% of sales. Today, less than one-quarter of 1% is spent on advertising. Though its transaction count decreased after the flier's cancellation, sales never decreased.

With the termination of a discount flier that appealed in part to deal hunters, "we essentially 'fired' 1,500 customers," said Brinkmoeller. Still, she noted, "we never stopped communicating with [Club DLM] customers. When we dropped the advertising, we initiated our Market Report. So we were still going into their homes and talking to them."

Big Y's Big Surprise

Big Y takes a somewhat different approach to loyalty, basing it on serendipity. That is, the Springfield, Mass.-based retailer keeps its Big Y Express Savings Club members coming back to its 50 stores by surprising them with rewards over time.

"Buying people's business is not going to make them into the most loyal customers," said Harry Kimball, director of database marketing, Big Y, in the session "Incenting and Rewarding Consumers for Loyalty." "We believe in surprising people rather than having them reach a certain threshold of spending. It's like we're courting these customers through emotional experiences."

Big Y's loyalty club members are rewarded with gold, blue, red and silver "Express Reward Coins" that are redeemable for bouquets, food items in Big Y's food court, car washes, airline miles and discounts on movie tickets.

"We don't tell customers what they need to do in order to get these. They just know the more they shop, the more they'll get," said Kimball. "Cashiers award these coins and become an ambassador for [Big Y]. It's a fun experience, and our customers love it." Shoppers can win coins by playing a slot-machine game on a touchscreen at the point of sale. "It creates a lot of excitement, and kids like to play it," said Kimball.

The touchscreen is also used to ask customers about their shopping experience. "It's a good way to get immediate feedback from customers," he said.

Big Y thanks top shoppers with gifts, too. Last year, it timed its umbrella giveaway to coincide with a rainy forecast.

"When gifts are given away, it's done with energy, excitement and the store manager gets involved," said Kimball. "Customers say to us, 'You're giving me something. No one gives me anything,' and we get thank-you notes. We don't tell customers to spend this amount in order to get this. We're telling them that we know who they are, and we appreciate their business."

Big Y communicates with its loyalty club members through a "professional quality" magazine that provides recipes and information relating to health issues.

Like Dorothy Lane, Big Y tries to engender loyalty in the most basic way: with delicious products. To that end, it partners with a local business that makes products like fresh apple pies baked with apples from a local orchard.

Managing Diversity

For a larger chain, individualized service is not executed as easily. For example, 142-store Pathmark, Carteret, N.J., had to take the needs of its ethnically diverse shoppers -- those of African, Hispanic, Asian, Italian and Irish descent -- in mind when it launched its Pathmark Advantage Club Card in 2000.

"Because we're so ethnically diverse, we have multiple versions" of the correspondences (like direct mail and e-mail) we send to customers, said Margaret Bigley, marketing director for Pathmark, during the GEMCON session "Promoting Pathmark From Outside to Inside -- Electronically." For example, these missives reflect differences in product offerings in certain locations.

Format also varies, as marketing messages are relayed to shoppers by means of print, online, broadcast, mail and in-store communications. Targeted e-coupons and a versional e-mail newsletter are part of the retailer's online distribution strategy.

To manage the processing of all electronic offers and coupons at the POS, Pathmark is using an electronic offer management system from POSnet, Rolling Meadows, Ill.

With the POSnet system, Pathmark is able to link both manufacturer and store discounts from such sources as the Internet, cards, direct mail and elsewhere to an individual item. Electronic offers like these can be automatically redeemed when Advantage Club members swipe their loyalty card.

"These offers create excitement and differentiate [Pathmark] in the marketplace," said Bigley.

NEED A LIFT?

Loyalty cards are not the only way to create a personal, warm-and-fuzzy connection with shoppers. Indeed, some retailers are offering highly customer-friendly services to all of their customers.

For example, leading U.K. grocer Tesco is testing a program that offers customers in some of its London stores a free ride home (within a limited distance) after they've finished their shopping. Tesco customers simply show their shopping receipt to the driver of a taxi from a participating taxi company. Tesco may expand the program nationally.

As a courtesy to its shoppers, Springfield, Mass.-based Big Y offers knife-sharpening services to those who bring their knives from home to the stores. The retailer will also steam a customer's shellfish purchase.

"A lot of people don't know how to [prepare] shellfish," said Harry Kimball, director of database marketing, Big Y. "We'll take the uncertainty out of the equation and do it for you."

The retailer also provides free services for customers, such as baby-sitters for shopping parents and a homework help-hotline for children. The latter is a free one-on-one homework assistance service staffed with certified teachers and available for students in kindergarten through grade 12. Kids can take advantage of the help by calling an 800-number Monday through Thursday from 4 p.m. to 7 p.m.