As shoppers rely on the Web to research merchandise and make purchases, they are also demanding that the medium support store-level services, including loyalty programs. But traditional point-based, or clipless coupon-style programs, just won’t do.
As convenient e-commerce channels continue to boom, shoppers don’t want to present traditional loyalty cards at the point of purchase. Instead, they are demanding immediate, specific and individualized attention that fits their needs and behaviors. So retailers are looking beyond basic store-level methods as they shift their loyalty efforts online.
Some companies are unsure of where to start their online loyalty journeys. Others are already using new programs to collect shopper data, and learn how to attract and cater to each shopper.
For example, Barnes & Noble, New York City, partnered with Norwalk, Conn.-based Webloyalty.com to launch its online loyalty-program initiative. Webloyalty, a company that offers revenue-driving services that enable retailers to deliver loyalty-based discounts and rebates, developed a marketing database that applies algorithms to customer data, and anticipates the interests and preferences of potential members. The retailer uses results for direct-marketing promotions and targeted-marketing messages.
Barnes & Noble represents a group of retailers that have successfully explored this new wave of loyalty. Lisa Bradner, senior analyst for Cambridge, Mass.-based Forrester Research, warned retailers to avoid embarking on loyalty programs just for the sake of doing it.
“If you are interested in changing your loyalty program or starting a new one, take a step back. Avoid doing so just because the other guys are doing it,” Bradner said.
“Think about how you are differentiating yourself from competitors and what you’re doing to drive loyalty, vs. the others,” she said. “And once a program is in place, make sure you leverage it.”
But the bigger challenge is getting started, according to Rick Fernandes, CEO, Webloyalty. Here are a few of his hints on where to begin:
■ Understand your goals.
“Sometimes retailers come to us and they aren’t sure what they want,” he said.
For example, some want to increase the margin of transactions; others want to drive new business.
“Retailers must be clear about final goals,” he said. “Once you identify exactly what you want, it’s easier to generate a goal-specific program.”
■ Try before you buy.
Before embarking on a program, retailers should pretend they are customers.
“Go through the process yourself,” Fernandes said.
“Sign yourself up, redeem points and then terminate the program,” he added. “If you run into any major issues or if it’s not the way you envisioned it, re-think the process or switch services.”
■ Check references.
When picking a Web-based loyalty program, getting company references is key.
“But don’t stop there,” Fernandes said, adding that retailers should talk to other companies, too.
■ Map back.
Make sure the loyalty program links back to the company brand and retailing strategy. “Broaden your perspective by looking at the design, then determine how the program fits your needs,” he said. “Be sure to stress a strong link between your retail channels.”
■ Determine the cost of loyalty.
“Since retailers put a price tag on loyalty, determine how much it’s worth to your company,” Fernandes said. “Tie the answer into the goal.”
Different goals may cost different prices. In the end, however, the benefits may outweigh the financial negatives.
■ Establish a marketing strategy.
Webloyalty.com markets through a variety of customer touchpoints. These can include sending marketing messages via order confirmation and status e-mails, and on a variety of places within a retailer’s Web site.
“We may offer a $10 cash-back deal and find other incentives, as well,” Fernandes said.
By homing in on the objective, and then complementing that point with the right marketing strategy, retailers can warrant strong results, he said.
Weekly Retail Fix
THE NEWS: SAM’S REALIGNS STORE-LEVEL MANAGEMENT
BENTONVILLE, ARK. Sam’s Club is changing the management structure in its stores. In the realignment, approximately 250 positions will be eliminated, Wal-Mart Stores announced last week. The company said it’s replacing five lower level management positions at each Sam’s Club location with three new higher level and higher paying assistant manager positions. —
“This is not a cost cutting effort. We expect a slight increase in payroll upon completion of this change,” said Sharon Orlopp, senior vp of Sam’s people division.
THE FIX: Differentiation would better help Sam’s
Since Sam’s decided that its refocus on the business customer was too narrow, it has sought to find ways to make its clubs more attractive to primary shoppers, i.e., women. And that’s a pretty tough row to hoe, as Costco has done a pretty good job at satisfying the club customer in general and BJ’s has been going after female shoppers for several years now, with some success.
Having fewer managers with more direct responsibility could create a tighter knit club-level management and shorten lines of responsibility and accountability. Yet, without differentiating the offering, execution isn’t going to overcome all of Sam’s challenges.
That being said, a store-level management realignment might be overlooked at other retailers, but, this being Wal-Mart, everyone has to make a big deal about it. But that’s the price you pay as the big guy on the block.
Weekly Retail Fix
THE NEWS: TOYS ‘R’ US EARNINGS GAIN 40.1%
WAYNE, N.J. Toys “R” Us today posted net earnings of $199 million for its critical fourth quarter, which meant it turned a profit for the fiscal year ended Feb. 3. But special charges and gains had an impact on its numbers. —
Sales for the previous fiscal annum were $142 million, the difference translating into a net earnings increase of 40.1% year over year. For the last fiscal year, Toys “R” Us posted net earnings of $85 million versus a net loss of $384 million for the previous period.
Operating earnings in the fiscal 2006 fourth quarter gained 53.1% to $571 million versus $373 million for the fourth quarter of fiscal 2005. For the last fiscal year, operating earnings were $649 million versus an operating loss of $142 million for the previous period.
THE FIX: Improved shopper experience ups comps
Of course, any observer has to take into consideration special financial circumstances. Fiscal 2006 operating earnings were positively impacted by $96 million from gains on property sales, slightly offset by restructuring and other charges. In fiscal 2005, operating earnings were negatively impacted by $410 million in costs relating to the merger of the company, as well as $58 million of costs and charges relating to contract settlement fees, restructuring and other charges.
Still, sales were trending up at last year’s end. Net sales gained 15.8% to $5.7 billion. In the full fiscal year, net sales advanced to $13 billion, up 15.2%.
Comparable-store sales for the Toys “R” Us’ U.S. division gained 0.6% in fiscal 2006, and that represents the division’s first comps increase in six years. Comps at Babies “R” Us were up 4.8% and those at Toys “R” Us international were up 2.6% for the fiscal year.
Jerry Storch, chairman and ceo of Toys “R” Us, said the company is “pleased with the strides we made in fiscal 2006 to improve at all levels of the organization and reposition the company for profitable growth over the long term.”
He said the company’s new management team has been focusing on executing a strategy that would turn the retailer into a global toy and baby products authority.
“This translated into higher overall sales, positive comparable-store sales, improved gross margins and strong operating earnings growth for the 2006 fiscal year,” Storch asserted. “The key to our strategy has been improving the customer shopping experience in our stores. We are accomplishing this by delivering a more compelling merchandise selection, better service and a cleaner and more comfortable shopping environment.”