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SAVVY FREQUENT-BUYER PLANS BUILD ON A LOYAL BASE DATABASE MARKETING HELPS MARKETERS FIND SEGMENTS

By Published on .

Frequent-buyer programs are still flying high and marketers are beginning to appreciate the importance of connecting this promotional strategy with the segmentation skills of database marketing.

Industries as diverse as fast-food chains, financial services, retail stores and telecommunications companies hope to garner the same sort of success as the travel industry by moving into loyalty marketing and offering everything from low-cost perks like newsletters or special shopping days to more costly benefits, like free products and services.

"Frequency marketing is moving out of the industry where it has grown up and moving into industries where there are new applications," says Rick Barlow, president of Frequency Marketing and publisher of Colloquy, a frequency-marketing newsletter.

"The real growth is in solidifying relations with [those] current customers. All customers are created equal, but some customers are more equal than others," says says Mark Levine, worldwide director of New York-based Wunderman Cato Johnson's Loyalty Practice.

Mr. Levine says all brands have a relatively small group of customers who account for an inordinant amount of profit-successful frequency marketing programs recognize that.

Specifics on industry usage of loyalty-based promotions aren't available, but it is moving back on a growth track, says John Cummings, president of John Cummings & Partners, Armonk, New York, a database marketing consultancy and a source for information on promotional activity.

In 1992, Cummings tracked 52 new loyalty programs. The number dropped to 30 in 1993 and then rebounded to 49 last year.

"Generally speaking, loyalty marketing is up," Mr. Cummings says.

High-profile programs abound.

Taco Bell is experimenting with a multimillion-dollar "Border Passport" frequent-rewards-club program that employes a swipe card to dispense free food, soft drinks and music.

It can also move giveaways from cooperative partners such as local music stores or movies.

The program, in test in Tennessee and aimed at the chain's target younger music- and sports-minded consumer, includes a toll-free hotline for customers to check balances and redeem points.

It's intended to encourage patrons to switch to higher priced menu items and to vist outlets more often during off-peak hours.

But Taco Bell faces obstacles to its loyalty-marketing strategy-as do other fast food marketers. Fast-food, by nature, is intended to be prepared and served quickly, and any additional card shuffling at the counter tends to slow service.

Because the purchase price of fast-food is relatively small, the marketers have a smaller profit margin from which to fund compelling rewards.

"When you buy a Big Mac, what is really left [for the company] after the cost of the item?" asks Joseph Mammano, VP-business development and partner marketing at Clarion Marketing & Communications' Clarion Direct, Greenwich, Conn.

In some cases, of course, when the competition is offering freebies, continuance in a program-although revenue neutral-may be the only way to maintain market share, Mr. Mammano notes.

Perhaps the biggest issue of all is the fact that customers themselves would be required to pay for the most expensive items out-of-pocket. Unlike an employee switching travel plans to gain frequent-flyer miles at the employer's expense, fast-food customers must spend their own money to enjoy the frequent-user privilege.

Still, innumerable retailers nationwide continue to experiment with giveaways ranging fromEgghead Software's Clue Club, which offers an instant 5% discount on all purchases, to Walgreen's Rebate Club, a combination frequent-user program and receipt-savers program that offers cash rebates for purchase of specific items each month as well as bonus product giveaways.

"Even package goods companies are experimenting," says Mr. Levine. "Very few businesses can afford not to do something to nourish their best customers."

Some, such as Adolph Coors Co. for its Zima brand, have taken to the information superhighway. Customers fill out a survey to join Club Z; the reward: an e-mail message with the latest adventure of a hip computer junkie named Duncan.

Others are embracing more traditional tools.

Nabisco Foods, for example, is trying to augment the marketing value of a coupon program by adding address blocks to coupons for its food products. Customers are enticed by the possibility of receiving more coupons for further savings and offers.

Frequency marketing took hold in 1981, when American Airlines launched its frequent-flyer program with the intention of securing the loyalty of the business travelers. By last year, 13 milion free flights were awarded to passengers industry-wide, with an estimated 34 million individuals holding frequent-flyer cards.

Despite the success, the airlines do face some unfriendly skies.

Earlier this year, the U.S. Supreme Court ruled in a suit against American Airlines that airlines could be sued for changing their frequent-flyer plans.

A second suit against American, now pending in the Illinois court system challenges the recent increase in the number of miles required for free flights.

"[The airline industry] is a victim of it's own success," says Randy Petersen, editor and publisher of the , a monthly consumer publication that helps consumers find ways to increase mileage.

"In the long run, the airlines cannot afford the millions of dollars in legal fees which would be required to protect themselves in all 50 states," he says, thereby threatening the entire program.

Indeed, to avoid self-victimization, loyalty-marketing experts argue that companies must discriminate among customers. For example, some of the airlines have initiated multiple-tier frequent-flyer programs.

"We argue strenuously, strenuously against naive sentimentalism on the part of companies who insist, `We love all our customers and we love all our customers the same."'

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