What’s Your Frequent Buyer Program?

Filed Under Client Retention 

Despite your better judgment you may sometimes indulge in the belief that the world is a fair place and that you can offer the same deal to everyone, regardless of their size, interest, loyalty and buying power. But the realities of the market require you to customize your offerings to prospects and customers, offering great deals to some customers and mediocre ones to others. Frequent use cards make it easy to differentiate.

Customers know that the offers they receive will be based on their past loyalty and the size of their budget. This concept was first explored when airlines instituted frequent flyer programs to reward and encourage customer loyalty. Retailers soon jumped on the bandwagon, offering frequent use cards that reward customers with a free item after they buy a specified amount. It works for loaves of bread, pounds of coffee, video rentals, haircuts, and exercise classes to name a few products and services.

Let’s face it, profit margins are tight and there’s a limited amount of funds that customers designate for purchasing. It is only logical that you direct both marketing efforts and special deals to those customers who will yield the greatest return. Differentiation means that you abandon the Herculean task of trying to be all things to all people in favor of being some very specific things to certain people. Many Guerrilla salespeople and entrepreneurs have applied this technique and increased profits.

Differentiated marketing has blossomed as companies of all sizes have installed computers and databases. The computer’s ability to collect, process, and analyze customer information makes it easier to institutionalize customer-specific marketing and pricing strategies.

In his book “Customer Specific Marketing,” Brian P. Woolf discusses the two levels of differentiation. The first level of differentiation is offering prices and privileges to all customers who present your frequent-shopper card when they shop. This means you have a two-tiered pricing system. For the majority of your customers who provide the bulk of your sales, you offer discounts. Woolf claims that your gross margin will have increased because you will no longer be giving markdowns on sales to non-cardholders. The big profit gains come at the second level of differentiation Here, different offers are made to different cardholders based upon the value of the relationship. As your marketing costs align with customers’ sales and profitability, the return on your marketing investment increases correspondingly.

Once you have locked in the customer’s loyalty, it’s time to apply qualifying levels to receive rewards. By directing your rewards towards more profitable customers, you’ll increase your profitability. Ensure that your rewards are proportional to customer spending and profitability. The more a customer spends, the more she should receive, proportionally, in rewards. If your rewards are proportional, you should be able to recruit your competitors’ best customers and continue to reward and retain your own best customers. In setting up differentiation programs, try to avoid spending caps or else you may breed resentment or sneaky behavior.

Remember, the goal of differentiation is to shift your marketing dollars from customers who produce a low return on your investment to those with superior returns.

by Debra Kahn Schofield

This article appeared on the Guerrilla Marketing Online web site.

Jay Conrad Levinson
The Father of Guerrilla Marketing
Author: “Guerrilla Marketing” series of books
Over 14 million sold; now in 42 languages

I specialize in creating customized marketing solutions for small business. Contact me at georgann at catchphrasemarketing dot com, or call me at 888-494-8445 to discuss how you can get more clients and increase profitability without increasing marketing expenses. Yes, you really CAN have it all!

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