TECHNOLOGY UPDATE

LOYALTY REDUX

Just how well are all these
loyalty programs working out?

By Keith Reid

In November and December 2002 NPN took a look at a variety of new loyalty programs that were being marketed to retailers. The technology was hot, fresh (at least for the petroleum/ convenience store industry) and had been the buzz of industry meetings and trade shows for months. Virtually any company that had a product that remotely touched the consumer in any way were promoting a loyalty angle. A variety of the more firmly established players were contacted to see how their programs were structured and what progress was being made in the field. Many approaches looked promising, but they were just in the trial stage, or had limited deployments.

With the better part of a year under the belt, NPN is taking another look at some of the companies featured in the initial articles to see how the technology has panned out in the field. So far, the results have generally lived up to the initial enthusiasm.

Excerpt from the article:

KickBack Points

KickBack Points was the brainchild of Patrick Lewis, former CEO of Oasis Stop'n Go which operates 10 sites in Twin Falls, Idaho. He spent $100,000 developing the program, after failing to find one that fit his needs, and uses it at his retail sites. Its success prompted him to market the program to other retailers, first regionally and now nationally. Currently, 100 different companies (not all convenience retailers) use the "village" program at over 150 locations. KickBack Points offers the customer one to five points for each dollar spent at a variety of retail establishments, with each point being worth one cent. The petroleum/c-store site falls in the 1-cent category, while a higher-margin operation like a restaurant could fit in the 5-cent range. Realtors and lawyers have even shown interest in participating with points in the 10 cent range. The participating merchants donate the various prizes, as do the various vendors and manufacturers. Each time the card is swiped there is a potential winner for a 1,000-point giveaway and other instant prizes, and the customer gets one entry in an annual sweepstakes.

The program has been so successful that Lewis hired a new CEO for the Oasis operation and is devoting all of his time as the CEO of the KickBack Points program. In Fact, Lewis even exhibited at NACS for the first time in an effort to expand what has been a regional program.

While the program brings in new customers, it works to reward the best customers. The system allows him to identify the top customer for every location, the number of visits, how much the customer spends and lost-customer reporting, which tells the merchant if he has a frequent customer that has stopped shopping. The program worked well for Oasis, allowing it to increase margin and volume growth, and was so successful that a local competitor fought to get on board.

"The program has been phenomenal said Jim Lynch, president and owner of Mr. Gas, which operates six stores out of Burly, Idaho. "I went into this with the idea that there are markets where I'm big, and markets where Oasis is big, but not the same markets. I convinced them that it was more of an advantage to both of us than a threat, and it's been good for both of us."

Lynch notes that he is redeeming more points than he is issuing, but even if he wasn't, the increased traffic makes the program sustainable.

"Customers bypass competitors to shop at your locations," said Lynch. "The technology works great, and we've had no problem educating our customers. Our only concern was making sure no one finds a way to cheat the program. We put purchases over $85 on hold for a day to confirm they are legitimate and look for any indications that someone is manipulating the system."

Final paragraphs of the article:

A year down the road, and the initial enthusiasm for the loyalty concept seems to have been well placed. Is it worth it to be an early adopter with loyalty? Most experts in the field give early adopters a leg up on the competition, and there are plenty of glowing, individual success stories to add comfort to the decision to proceed. Of course, these programs are new opportunities for consumers, and generally lack serious loyalty competition among convenience retailers in their markets. The impact of any particular program once some degree of loyalty saturation occurs has yet to be determined.

Even now, retailers should enter into a sophisticated, technologically focused loyalty program with realistic goals and an understanding of what is involved. Technology-based loyalty programs can be expensive and require some degree of sophistication to make sure they provide a positive return on investment. Not all systems will work equally well in all markets due to competitive factors. Loyalty programs also need the full commitment of the organization -- from the CEO to the cashier -- to optimize results. And, it can be very difficult to close a loyalty program that doesn't live up to expectations, and produce a backlash against the retailer from disgruntled customers who embraced the program.

From the November 2003 issue of
National Petroleum News.

Please Note: Some pictures or diagrams are only
available through the printed media.