The current National Retail Federation’s Stores online magazine reports on the outstanding success of a premium frequent buyer program available to Sam’s Club members at an extra annual fee. During year 2009, when the premium level was introduced, the percentage of members joining at this level grew 46%, and that percentage has continued to increase.
The Sam’s Club program uses predictive analytics to determine what items would be attractive to each customer, based on their prior purchase history, and then offers discounts on those items. Sam’s Club does the analysis with highly sophisticated computerized systems, including algorithms that mimic the business intelligence of a skilled salesperson.
The smaller retail operation could use simpler computer systems augmented by the live real-time business intelligence of sales staff who get to know their customers well and, during interactions with each customer, are continually thinking about what products and services are likely to interest this person. As is done by Sam’s Club, the discounts could be offered as online coupons the customer prints out or as a display shown using a mobile phone app.
You’ll make a little money from sales of the upgrades. Still, the primary purpose is to influence the purchasing habits of your customer. Because they have paid for the ability to get rewards rather than receiving them for free, the customer will be more motivated to use the privileges. Consumer psychologists call this the “endowment effect.”
For the customer, the appeal of the premium program is to pay less for the sorts of items they were already planning to buy and the opportunity to try out—at a reduced financial risk—brands and/or product categories they hadn’t been accustomed to purchasing, at least from you. According to retailing experts at Hofstra University, your customers’ favorite frequent shopper reward is a percentage discount on new purchases.
For the retailer, the advantages include using rewards to strengthen the loyalty of the frequent shoppers and encouraging these shoppers to develop habits likely to lead to higher business profitability.
As consumers hear more about behavioral targeting by retailers, they’re getting more comfortable with the notion of different people paying different prices for the same items. But still be ready to explain the reasons. Research finds that in this situation, the size of the discount is less important than is each concerned consumer recognizing they are being offered some sort of discount.
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Sell Upgraded Loyalty Programs
Offer Exclusive Price Discounts Cautiously
Expect Shoppers to Expect Nonexistent Discounts
Offer Frequent Shopper Benefits Beyond Discounts
Tailor Loyalty Programs to Customer Culture