Focus on: Loyalty Programs

Consumers, fed up with poor customer service from retailers, are getting their revenge the easiest way possible: by shopping at competitors that offer a more valuable shopping experience. Many have abandoned longtime favorite stores in search of more agreeable alternatives. As the economy slowly recovers, retailers will need to win back these shoppers while still rewarding their most loyal customers. Chief among their tools: a top-notch loyalty program.

The goal of any loyalty program is to engage shoppers in real-time with rewards and services that matter to them. Unfortunately, according to some experts, many retailers still miss the mark and treat their loyalty programs as nothing more than a vehicle that provides discounts to their overall customer base.

“When a retailer treats its loyalty program as a discount program, far too often the chain doesn’t distinguish between its good, better and best customers,” said Janet Hoffman, managing director of global retail practice, Accenture, New York.

A fragile economy has only exacerbated the effectiveness of half-baked loyalty programs. Many consumers hit hard by the recession began defecting to chains that offered a better value proposition that included price, customer service, in-stock merchandise, better assortments, easier store navigation and friendly associates.

In fact, globally, 69% of shoppers stopped shopping at some retailers in the past year due to poor customer service—a slight increase from 67% last year, according to the “2009 Accenture Global Customer Service Satisfaction Study.”

”While many chains were lucky enough to gain new customers, on the downside, they lost customers they wished they could have retained,” Hoffman explained. “Retailers now feel the pressure to constantly work on creating additional services that will keep shoppers loyal.”

One sector that has felt the impact of consumer pullback is the petroleum/convenience store segment. Many of these loyalty programs are based on “points systems” that enable shoppers to earn approximately 1% rebates for specific fuel purchases. However, many programs faced a bit of turmoil when the economy tanked.

“Since petroleum companies are impacted by the global financial industry, we were subject to many changes regarding our loyalty programs,” said Paul Culver, payment solutions manager for Cenex Convenience Stores, a division of agricultural co-operative CHS Inc., based in Twin Cities, Minn. “There has been a total upheaval spurred by the banks backing the industry’s co-branded credit loyalty cards.”

Cenex, which describes itself as the “convenience store and petroleum chain for rural America,” offered a co-branded Visa card loyalty program. Users earned rebates after hitting specific thresholds, but Cenex wanted more.

“It was more of a ‘me-too’ program to compete with the big petroleum companies. But earning a couple of cents rebate for every gallon of fuel you purchase can get lost and forgotten, even if it is shown on a monthly credit card statement,” Culver recalled.

Then banks began capping the amount of points shoppers could earn for specific time frames, and this caused pullback from users.

“We wanted to offer a program that truly rewarded our consumers for making purchases, not one that punished them with caps,” Culver said.

This pushed CHS to consider working with a noncompetitive retailer that had a similar philosophy and business culture. After approximately two years of carefully considering the perfect partner, Cenex approached Cabela’s with an idea.