Appealing to Repeat (Loyal) Customers

Tips for Better Retailing

Supermarket employee in blue apron
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Too many retailers concentrate on how to woo new customers and, thus, they do not pay enough attention to what they can do to gain the loyalty and increased patronage of their repeat customers. For example, when was the last time that YOU ran a special sale just for current customers, communicated with your current customers via a phone call or direct mail piece, encouraged current customers to recommend new ones by giving the former a gift for doing so, sent birthday, anniversary, or Christmas/Hanukkah cards to current customers, offered extended shopping hours just for current customers, etc.?

Unless you are actively engaged in all or most of these activities, you can do a better job in this area. Here is why it is so important to target current customers, as well as new ones:

  • It is more efficient to serve repeat customers than to heavily promote to lure new ones.
  • Often, new customers are lured because of a special sale, buy goods that have a low markup to the retailer, and then switch to another store when it runs a sale event. Repeat customers are more apt to buy a full range of merchandise, not merely discounted items. This means that the retailer can reach its profit margin goals.
  • Loyal, ongoing customers are the backbone of every business. And in today's highly competitive environment, these shoppers cannot be ignored or else they may be won over by competitors.
  • Revenues can be increased (not just maintained) by placing greater attention on repeat customers. They can be encouraged to shop more often and to purchase more on each trip to the store.

    These are some hints for targeting current customers better:

    • Develop a database with the appropriate customer information. This could be done by giving your shoppers a small prize for filling out a short form and then updating the information periodically. Computerization is not necessary to do this, although it helps.
    • Set up some type of frequent-shopper program that can reward people for their continued patronage. The program does not have to be complex. For instance, many car washes give out punch cards (or a similar variation) whereby customers can earn free services based upon a certain number of washes.
    • Communicate with repeat customers on a regular basis. Mail them a letter at least quarterly. Call them at least once per year. Customers are often quite impressed when they receive 'friendship' rather than "sales pitch" letters and calls. People like to feel appreciated.
    • Run special events for good customers. This also lets them know how important they are to the firm.
    • Offer extra services, such as free delivery or more liberal return policies, for good customers.
    • Do not reward your new customers at the expense of the current ones. Think carefully about having promotions that offer benefits to new customers that are not available to current ones, such as reduced credit terms for first-time car buyers. Try to run promotions in a way that also offers benefits to current customers, such as also having special trade-in terms for people who have bought their previous car from the same dealer.

    As we noted in Part 1 of "Appealing to Repeat (Loyal) Customers", too many firms concentrate on wooing new customers and do not pay enough attention to what they can do to gain the loyalty and increased patronage of their current customers. One of the ways to improve this situation is to develop a customer data base and use it to better communicate with these customers.

    What is Database Retailing?

    It is a way of collecting, storing, and using pertinent information about customers.

    Although customer databases are often associated with computerized management information systems, they may also be used by small firms that are not computerized.

    Here is an illustration of how a small, non-computerized firm can rather easily set up and utilize a customer data base:

    1. People could be asked for their names, addresses, telephone numbers, and product interests by having forms and pencils available at the checkout counter. They could be encouraged to provide the data by offering a monthly raffle and awarding a low-value prize to the winner.
    2. The customer information gathered in step 1 would be entered onto large index cards. The company would alphabetize the cards and keep them in a filing cabinet.
    3. Once customers have filled out forms, they would be asked for their names on each subsequent trip to the store. Thus, information in the data-base files would be updated from the sales receipts.
    1. Separate special mailings could be targeted at regular customers and at noncustomers in the data base.

    By adhering to the preceding procedures, a firm could learn more about its most important customers and treat them better. For example, in many situations, some version of the 80-20 principle probably applies, whereby 80 percent of sales are made to 20 percent of customers.

    With data-base retailing, a firm could identify those 20 percent and better satisfy them through a superior product selection, announcements of special sales, personal attention, etc. In addition, the firm could identify and place greater emphasis on the next 40 percent of its customers, a group that is often ignored by companies.

    Via data-base retailing, a firm could also determine which customers are no longer shopping with that company and which customers are shopping less often. In these instances, people may be called - in a cordial manner - to find out why they are no longer shopping with the company (or shopping less). Based on the explanations, the firm could then offer special promotions geared directly to those people.

    Research studies have repeatedly shown that people will patronize a firm with which they have been unhappy if they are given the opportunity to voice their opinions (which may be complaints), they are listened to in a courteous manner, and they feel that a firm has responded to their concerns. By no means are those customers "lost causes." In fact, properly dealing with customers who have had gripes might lead to even stronger loyalty by them to the firm.

    What's the key to successful data-base marketing?

    It must be viewed in a positive way as a beneficial tool, and not as an unwelcome and burdensome chore. Knowledge is power; and power leads to profits.

    In this article, we continue our discussion about gaining the loyalty and increased patronage of current customers. Our focus is on the value of frequent-shopper programs.

    What is a Frequent Shopper Program?

    It is one awarding special discounts or prizes to people for their continued patronage. In most such programs, customers must accumulate a certain number of points (or their equivalent); these points are redeemed for cash or prizes.

    Here are examples:

    1-800-Flowers.com sends its registered members E-mail reminders for special occasions (such as birthdays), provides them with express checkouts and online order tracking, and offers them regular special buys.

    Through the Rite Aid drugstore chain's Rite Rewards program, members can take advantage of unadvertised in-store specials and get 10 percent off Rite Aid branded products every day.

    Lettuce Entertain You, a chain encompassing 30 different restaurant concepts, has a Frequent Diner Program whereby customers earn points toward future dining, gym memberships, free airline travel on United Airlines, and more.

    The AT&T Rewards program is offered to valued customers. It is automatic, and customers earn a reward every 6 months based on their average AT&T usage: free calling, frequent flyer miles, or gift certificates from various retailers.

    Among the advantages of frequent-shopper programs are the loyalty bred (customers can accumulate points only through patronage of one or a few firms), the "free" nature of awards to many consumers, and the competitive edge (distinctiveness) for a retailer that is similar to others.

    Frequent-shopper programs also let existing customers know they are important to the firm and encourage them to shop more often. As a result, a good frequent-shopper program can actually increase the profits of a retailer (rather than decrease them due to the costs of the program).

    Here are several hints with regard to setting up and carrying out an effective frequent-shopper program:

    • Make the plan easy for people to understand, as well as easy for them to participate.
    • Make the plan easy to administer by the firm.
    • Make sure that points can be redeemed for items which are of value to customers.
    • Do not set the point totals needed to gain a benefit from a frequent-shopper program (either a discount or a prize) so high that customers will be frustrated and thereby abandon the program.
    • Have a range of prizes and discounts to encourage higher patronage by current customers. Introduce some new prizes on a regular basis.
    • Run some special promotions that are keyed to frequent-shopper points (such as "Double Points Day") rather than to run-of-the- mill sales (which everyone else will just copy).
    • Promote the program in and out of the store.
    • Publicize the big award winners. This creates excitement for all.
    • Keep prices competitive so that people do not think they are getting points in exchange for paying higher prices.
    • Constantly re-evaluate the program to see what is working and what is not.

    In this article, our focus is on communicating with ongoing customers. Our assumption (based on the previous articles in our "Appealing to Repeat (Loyal) Customers" series) is that your business has started to develop a customer database and that you are also now at least thinking about enacting a frequent-shopper program. There are several basic issues to consider in preparing to better communicate with your current customers.

    What topics/themes should be covered?

    During the year, there should be a combination of "image" and "product/event" oriented messages; yet, the two messages do not have to be presented together. Image messages are broad and intended to portray positive company traits to customers (such as the number of years a firm has been in business, the family-owned nature of a business, the emphasis on customer services and a friendly sales staff, the quality of products sold, etc.)

    These messages are long-term in emphasis and geared to making customers feel good about the firm. Product/event messages are more specific (such as the introduction of a new product, a special sale, holiday shopping, etc.). The purpose is to get short-term business. Frequent-shopper programs are both image and product/event oriented.

    What audience should be addressed?

    By examining the firm's customer database, people may be divided into five categories: (1) regular, heavy shoppers; (2) regular, light shoppers; (3) infrequent, heavy shoppers (those who seldom shop at your store, but who spend a lot when they do); (4) infrequent, light shoppers; and (50 former shoppers (people who once shopped at your store, but who have not done so in at least sixth months or a year).

    Different communications approaches should be tried with each group.

    What medium should be used to communicate?

    Personalized communications should predominate. Therefore, letters with each shopper's name (not with "Dear sir or madam") and telephone calls should be the media most used. Because letters are less costly and can reach a large group quickly, they are often the preferred medium for communicating with current customers.

    However, if a firm wants to show greater interest in its regular, heavy shoppers or to try to recapture some former customers, phone calls better indicate to people how customer oriented a firm really is.

    How often should the firm communicate with current customers?

    Letters should be sent at least quarterly. If possible, a phone call just to keep in touch with customers (not to sell anything) should be made at least twice a year. Customers are often impressed when they receive friendly rather than sales letters and calls; they like to feel appreciated. Obviously, product/theme communications should be sent at appropriate times during the year.

    What should be the mix of communications targeted at current versus new customers?

    The typical small retailer, as well as some large chains, allot very little (or nothing) from their promotional budgets for communicating with just their current customers. They either spend all of their budgets on attracting new customers or, more often, they use the same messages for both current and new customers. Our recommendation is for retailers to spend a minimum of 15-20 percent of their promotional budgets on messages targeted exclusively to current customers.

    Joel R. Evans, Ph.D., is the RMI Distinguished Professor of Business and Barry Berman, Ph.D., is the Miller Distinguished Professor of Business - both in the Zarb School of Business at Hofstra University. Drs. Evans and Berman are co-authors of 10E: Marketing, Marketing in the 21st Century and Retail Management: A Strategic Approach, 10E. They are also partners in Berman Evans Associates, a consulting firm. They may be reached at mktjre@hofstra.edu or mktbxb@hofstra.edu.