Integrating Loyalty Promos Without Rocking the Margin Boat
Sandra Gudat, President & CEO, Customer Communications Group
Retailers often have trouble balancing their overall promotions plan with offers and discounts for their loyalty program. In fact, it may be enough of an issue that they keep loyalty as an independent P&L entity, or even steer clear of loyalty altogether to avoid the problem. After all, every retail business is about profit, and adding another layer of promotional discounts into the mix could be seen as a threat to the bottom line.
But loyalty promotions can be integrated with regular promotions in such a way that they can actually help retailers manage their margins. How? The key lies in getting corporate and merchant stakeholders to agree to adjust the total promotion markdown (PMD) budget to make room for loyalty.
Smooth Sailing … at First
During the initial launch phase, executives typically aren’t worried about the loyalty program’s impact on margin, as the incremental promotions are balanced by the incremental lift in sales they produce. To encourage program enrollment without reducing traditional markdowns and potentially impacting sales, the c-suite is willing to allow loyalty to function independently. As the program matures, however, pressure to merge the promotional efforts and manage margin becomes more intense.
Testing the Waters
The first step in creating a tighter, coordinated PMD budget is to aggressively test targeted program-currency loyalty offers against traditional markdowns — or even combine them based on the overall champions. Rather than focusing on response rates, look at incremental margin. Are reward redeemers more likely to respond to a loyalty double points offer on top of the regular PMD of $25 off? Is the best margin rate achieved by targeting recent redeemers with double points only, while the top five deciles receive a combination offer?
The key to successful testing is finding a merchant who is willing to work with you to determine that sweet spot. Typically, merchants will react in one of three ways:
1. Early adopters will aggressively begin planning bonus offers leveraging loyalty currency. They understand that bonus points can provide a competitive edge; particularly in commodity categories or for big-brand products.
2. Test and learn advocates will not be totally sold, but will be willing to try offers — nothing too aggressive in case response over-performs projections.
3. Rejecters will decide to take a wait-and-see approach: They will schedule one test offer, wait for reporting, get feedback from other merchants that are trying it and learn from their experience.
Fine-tuning the Sails
You’ll also want to look into the “earn versus burn rate” to understand where members are earning and redeeming the most points. What merchants are taking a margin hit on redeeming rewards that were earned in a different category? For example, one retailer reported that customers earned a large volume of points — 20% of sales — on the purchase of a washer and dryer combo. But the burn rate on home appliances was only 1%. Instead, customers redeemed the majority of their points in other categories such as apparel and footwear.
Work with the merchants on creative ways to drive customer redemption by using analytics, such as a market-basket analysis, to help equalize the hit on margin. This makes your merchant partners more likely to become loyalty advocates. Or find vendor or manufacturer funding to help offset costs and manage margin. The quality and depth of loyalty purchase data often leads to new co-op opportunities.
All Hands on Deck
Once you have some results under your belt, take your findings to a senior advocate to help you negotiate with merchants. Often times this is the chief financial officer (CFO), who acts as guardian of the PMD budget. Your advocate should use your results to revise the PMD budget and also communicate the new goals to the operating unit and merchandising team.
Lifting the Anchor
The takeaway is that loyalty promotions don’t have to replace traditional markdowns, nor do the two programs need to run parallel to each other, which can make managing margin a nightmare. Instead, the two types of promotions are integrated in an evolving process that takes shape over time. Gradually, you’ll be shifting your overall promotion budget to focus more on customer-driven incentives, which can result in higher sales — and a healthier margin.
Sandra Gudat is president and CEO of Customer Communications Group, the full-service loyalty and marketing agency with a consultancy approach and a dedication to providing measurable, sustainable results. She can be reached at [email protected].
Epson teams up with Mobivity to transform the receipt
Epson, a leading supplier of value-added Point of Sale (POS) solutions, and Mobivity Holdings Corp., a provider of retail customer engagement and marketing technologies, have entered into a strategic partnership to transform receipts from transactional to actionable.
The two companies have paired up to offer Epson’s OmniLink TM-T88V-i smart printer pre-configured to communicate with Mobivity’s recently acquired SmartReceipt innovative cloud software. SmartReceipt leverages the power of marketing messages on receipts and has been road-tested in thousands of locations across North America, according to the company.
The OmniLink/SmartReceipt is now available.
“The innovation of this solution is that QSRs can bring mobile printing and cloud-based marketing solutions to their point of sale by replacing the printer,” said Tom Kettell, senior manager of North American Sales for Epson’s Business Systems Division. “Using the receipt for more than just a proof of purchase provides real value, and a natural fit for Epson.”
“SmartReceipt is already a proven-revenue generator at thousands of large QSRs and retailers,” added Jon Cassell, VP of business development for Mobivity. “Now, with the Epson product pre-configured to interface with our application, adding the power of SmartReceipt is as easy as replacing your existing POS printer.”
OmniLink TM-T88V-i combines Epson’s industry-leading TM-T88V printer with PC functionality to enable cloud-based services, open platform mobility and flexible Web-based printing from any mobile device. Merchants can also access POS data from the cloud while connecting POS transactions to consumer mobile applications. Paired with SmartReceipt software, OmniLink enables QSRs to transform ordinary receipts into a targeted, revenue-generating marketing medium — without upgrades to existing software. SmartReceipt functionality enables real-time, behavior-driven marketing that supports in-store point-of-purchase decision-making, proven to generate revenue and influence customer behavior.
Mobivity is an authorized Epson Envision partner. The new Epson OmniLink TM-T88V-i smart printer solution preloaded to interface with SmartReceipt software is available directly through Mobivity and / or through a select list of its value-added resellers.
Facebook, RB partner for direct-to-consumer sales
Parsippany, N.J. – Facebook and RB, a provider of health and hygiene products, have entered into a multi-year, nine-figure global partnership. The two companies have committed to integrating members of their global sales, marketing and creative teams to connect RB brands like Lysol, Mucinex, MegaRed and Air Wick with consumers on Facebook.
Rapid expansion of the relationship is planned during the next three years. Facebook and RB dedicated teams will work together initially in the U.S., UK, Canada, Italy, Brazil, India and Australia. In addition, RB and Facebook will hold joint recruiting events at key universities and have committed to investing in bringing in the best talent for both companies.
“In 2013, we laid the ground work,” said Carolyn Everson, VP of global marketing solutions at Facebook. “This year, we are implementing a radical new way of working together. And, by 2015, we will have uncovered even more innovative ways of driving our businesses together."