Retail lesson: Small programs best

Some grocery efforts flounder but specialty stores build on benefits

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In an overstored environment, it's considered the Holy Grail of retail: Create a relationship so strong and chock full of benefits with shoppers that they never shop anywhere else.

And it's largely a myth, say the experts, even purveyors of loyalty marketing programs.

Bottom line: There's no such thing as fidelity among consumers today. Cross-shopping reigns.

"Blame the Wal-Mart impact, where you don't need a card and everyone gets the best price," says Gary Drenik of Big Research, a Columbus-based retail researcher. "Consumers now want an uncomplicated shopping experience. No retailer owns their customers anymore."

In no other retail category is this more evident than among grocers, such as Kroger, Albertson's and Safeway, which have lost market share every year to Wal-Mart.

"They've spent millions on these CRM programs and what good did it do them?" asks Mr. Drenik, citing the march of Wal-Mart, which has become the No. 1 grocer in the U.S.

Indeed, participation in loyalty marketing programs at grocers is declining, according to WSL Strategic Retail's "Loyalty Programs Lose Loyalty" report, falling to 52% in 2005 from 58% in 2003. It's on the wane among all retail categories, declining from 82% in 2003 to 75% in 2005.

There are always exceptions, and those that are continuing their programs and excelling at them include the New England supermarket chain Big Y World Class Markets (see story on Page S-4). CVS recently reported its quarterly profit rose 60% based on same-store sales. The company cited heavy use of the CVS customer loyalty card as one of the factors driving sales.

As database management evolves, retailers are revamping their loyalty programs all the time.

Phil Jacobs, chief marketing officer at CompUSA, had the advantage of starting from scratch to build a loyalty program in September 2005 for the chain of 240 stores. The CompUSA Network for Business effort was aimed at small-business owners. "We didn't want to be like every program out there," he says.

And it isn't. The rewards system offers such soft benefits as free cleaning and tune-up of computers and member-only sales. It has its own Web site (, which offers targeted sales offers and products including a range of general office supplies. For every dollar spent at CompUSA, the program banks 13 "Connect Points," which translate into rewards.


Big retailers such as Wal-Mart Stores, Home Depot and Target Stores are sticking with co-branded credit card programs with loyalty marketing elements-especially rebate programs to drive repeat visits. The U.S. had 494.5 million retail store credit cards in circulation in 2004 according to researcher Nilson Report.

And when it comes to a mound of useless data, there's nothing less insightful for marketers than solely transaction-based information. "There are so many things missing and you are still an invisible customer to them," says Terri Gaughan, a consultant at Colloquy, a loyalty marketing shop in Cincinnati that handles whose Eddie Bauer and CompUSAs, among others.

So which retail loyalty programs are working?

In today's environment, loyalty programs play best at smaller, specialty retailers targeting high-income consumers. In fact, 93% of shoppers with household incomes above $100,000 participate in loyalty programs vs. 58% of those with incomes below $50,000, according to researcher WSL Strategic Retail.

Case in point: The InCircle Rewards program at Neiman Marcus. Members get exclusive online offers, earning a dollar in rewards for every dollar spent, but must spend $5,000 in a calendar year to be eligible. It's a shockingly level of spending. And consider for the highest level of membership, the so-dubbed Chairman's Circle, a customer will have spent $1.5 million, but will receive an 18-karat gold store credit card engraved with his or her name.


Another example is specialty women's retailer Chico's and its Passport Club. Chico's shoppers must spend $500 to enroll, but then receive benefits like free shipping, monthly coupons and 5% off all purchases for life. Loyalty has also found a home with online retailers such as, which did $8.4 billion in sales in 2005. Selling everything from books to patio furniture and toys, Amazon calls itself the "earth's most customer-centric." It serves its 55 million customers with features such as online recommendations (based on what items users have looked at and purchased in prior visits), 1-Click ordering and Amazon Prime, that offers free shipping on certain items for an annual fee of $79.

Offline niche retailers are also expanding their programs to gain more accountability. On Feb. 21, Borders switched its informal loyalty program for Borders Rewards, a free, card-based program that offers, among several features, Holiday Savings Rewards, an incentive for frequent shoppers that works similarly to a holiday savings account.

However, in a retail world with innumerable choices, consumer loyalty is an elusive goal, especially considering most retailers operate loyalty programs. Retailers need to offer innovative benefits, not just run-of-the mill rewards.

"The programs right now among retailers are in parity," says Ms. Gaughan. "It's almost the cost of entry at this point in time. It's not hard to implement, but a retailer has to make sure they are giving shoppers benefits or it just ends up being another copy-cat program."

staying on top of rOi

Robert Passikoff, president of Brand Keys, a New York market researcher, says retailers need to measure engagement constantly to determine ROI. "The good news is everyone has some sort of program in place, and the bad news is everyone has some kind of program in place-so customers have come to expect it," he says.

A good acid test for retailers instead when measuring engagement is to test whether customers are willing to pay. Mr. Passikoff points to the Barnes & Noble members program that charges a $25 annual fee similar to warehouse club chains like Costco and Sam's Club.

"Fees are the equivalent of a shopper saying to a retailer were not just dating anymore; let's get engaged, and here's a ring from Tiffany's," he says.
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