Why Loyalty Works
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Loyalty programs can significantly increase profits for small businesses. Red Robin and Panera Bread saw success by beefing up their loyalty programs, which increased revenue, margins, and foot traffic. Loyalty programs are an effective marketing tactic for small businesses because they allow increasing the lifetime value of customers through higher visit frequency, larger spend per visit, and response to targeted promotions. Automated loyalty platforms make it easy for small businesses to launch programs by integrating customer data and communication tools into existing point-of-sale systems.
Why Loyalty Works
- 1. Why Loyalty Works Live discussion with Chris Luo April 25, 2013 Prepared by: Chris Luo, VP of Marketing at FiveStars Former Head of Small Business Marketing at Facebook chris@fivestars.com
- 2. How can I grow my business? Print Advertising Coupons Direct Mail Marketing Word-Of-Mouth Punch Cards
- 3. Marketing options are exploding
- 4. • Larger companies can afford to pursue tactics like direct mail, print, and TV because they have the advantage of scale • Larger companies have full-time marketing managers who can spend months optimizing online marketing spend You have some disadvantages
- 5. What should your focus be? • Highest return for your limited time • Highest return for your limited marketing budget • Marketing that is fun & easy to execute
- 6. Red Robin partially attributes its turnaround to the success of its loyalty program. Red Robin: Red Royalty Through revamped advertising efforts, cost cutting and BEEFING UP OUR LOYALTY PROGRAM, the company has accomplished a full year of profitability.” In the third quarter, Red Robin swung to a profit of $2.1 million, as revenue and margin rose from improving same-store sales, guest traffic and average check. Shares rose 9.2%, representing nearly 35% growth last year. An article published on November 4, 2011 in the Wall Street Journal stated: “ ”
- 7. In its 2012 10-K report, Panera's CEO shared that their MyPanera program had grown to more than 13.8 million registered members. Panera Bread: MyPanera Stockholder letter, April 16, 2012 “ ” In 2011, we benefited from our investments in a few key areas: quality of our food, our increased marketing expenditures, and THE ROLLOUT OF OUR MYPANERA LOYALTY PROGRAM.
- 8. Retailers with loyalty programs, on average, are 88% more profitable than competitors who do not. It is 6 to 7 times more costly to acquire a new customer than to retain an existing one. Opinions on Loyalty Marketing Experts agree that loyalty is the most effective and highest return marketing “ ” “ ” “ ” Customer loyalty is the single most important driver of growth and profitability.
- 9. Lifetime Value of a Customer “ ” Increasing Lifetime Value of Customers: the key to running a successful, long-term business The development and retention of profitable customer relationships is VITAL TO THE HEALTH OF EVERY BUSINESS... Companies need to be concerned with the future revenue & profit streams associated with the ongoing satisfaction & retention of their core, profitable customer bases. The companies that FAIL TO RECOGNIZE THIS TRUTH overspend in marketing to acquire & retain less profitable, or even unprofitable customers and DO NOT SPEND ENOUGH ON KEEPING PROFITABLE ONES.
- 10. Loyalty for Small Businesses Loyalty marketing is more relevant today for small businesses than it has ever been • Your biggest asset is your existing customer base and foot traffic • Data shows that loyalty programs can increase customer visits by 20 percent or more • With social media, each of your customers can now share your brand with hundreds of others • Technology can now automate most of your loyalty marketing needs. It’s marketing that’s fun and makes sense!
- 11. Driving ROI from Loyalty Loyalty marketing ROI is traditionally driven by increasing visits, spend, and response to promotions
- 12. Increasing Visits Once a customer becomes engaged with your loyalty program, you will begin to see them come back more frequently
- 13. Increasing Visits: Coffee & Tea Frequency Compression for Coffee & Tea
- 14. Increasing Visits: Tpumps Case Study: Tpumps After FiveStars: Customer Visits Before FiveStars: Customer Visits ADDITIONAL VISITS FROM FIVESTARS Gross Profit ADDITIONAL PROFIT PER MEMBER Number of VIPs ADDITIONAL PROFIT WITH FIVESTARS 2.5 visits/month 1.85 visits/month 0.65 visit/month $4 per visit $2.60 X 4,000 $10,400 X
- 15. Increasing Spend Per Visit Revenue per Customer Visit (Illustrative) Only possible if you have rewards based on spend
- 16. LOYALTY PROGRAM MECHANICS: Instead of giving one point per visit, give one point for every $5 to encourage more spend per visit. Increasing Spend Per Visit Ideas to encourage customers to spend more per visit CROSS-SELL: Starbucks gets customers to spend more by promoting their baked goods and other food items at the point of purchase. BUNDLING: Create compelling bundles - buy entrée, dessert, and drink for $12. Or create compelling packages for groups - buy a large pizza and get an additional medium pizza for half price.
- 17. Use Text Messaging to Drive Loyalty • Brings your best customers in the door immediately • Customers prefer getting timely messages from places they already go to, especially places they frequent • Text message promotions can reach customers throughout the day, they don’t need to be in front of a TV or computer • Good text message campaigns can complement your other marketing efforts. Driving Promotions 91% of people keep their phones within 3 feet of themselves 24/7 People look at their cell phones 150x per day
- 18. Driving Promotions PROMOTIONS SUCCESS STORY Soulman’s BBQ had a 4 percent response rate from texting a timely, relevant promotion to its customers One of our Client Success Managers convinced Jim, a FiveStars business owner in Texas, to send out a Valentine’s Day text message to their customer base using our Merchant Toolkit. Jim had never used our texting services before, and wasn’t convinced it was going to bring people in the door. “Got 3 already. One within 5 minutes!” ACTUAL COMMENTS RECEIVED FROM OWNER AROUND NOON THE SAME DAY: “Well, you have convinced Don and one of my staff. I actually did get $107.40 in sales. I will have to try it again sometime” LATER THAT DAY: Text Sent: 11:15am Feb. 14, 2013
- 19. Driving Promotions: Soulman’s BBQ Campaign Profit Total Revenue Generated Cost of Goods Sold Cost of Text Campaign Profit from Text Campaign — — X Total Loyalty Members Price Per Text Cost of Text Campaign Soulman’s BBQ achieved Revenue/Cost Multiple of 18x from its promotion to loyalty program members $107.40 $32.22 $6 $69.18 400 1.5 ¢ $6.00
- 20. But we still have a disconnect
- 21. Loyalty Automation Platform WE TAKE CARE OF EVERYTHING • Customer information right on the POS • Never slow down your line • Built in fraud control Point-of-Sale Relationship Manager FiveStars Card Merchant Toolkit • Simple technology everyone can use • Impossible to lose • Hundreds of thousands of card members • Simple customer segmentation • Text message & email campaigns • Social media integration
- 22. Thank You To learn more about how FiveStars automates loyalty, visit http://bit.ly/fivestarsloyalty To get more free resources on small business marketing, visit http://blog.fivestars.com Chris Luo chris@fivestars.com
- 23. Q & A