How to Craft an Award-Winning Loyalty Campaign (case study)

SpaWeekBlogThumbLooking to leverage your loyalty program to drive more sales, boost margins, and enhance your brand? Then you’ll definitely want to take a look at the award-winning loyalty campaign from Spa Week, the health and wellness brand whose loyalty program, MyWellness Rewards, recently won the Loyalty360 Award for Best Creative Campaign in Loyalty Marketing.

With its goal of engaging shoppers throughout the year across multiple channels, Spa Week rolled out a yearlong campaign with seasonally themed installments. Starting with January’s “Resolve to Relax” and ending with December’s “Shop to Unlock,” Spa Week used these campaigns to increase brand engagement while luring in shoppers with real added value. For example, the Thanksgiving campaign, titled “Thanks-Giveaway,” feautred a 1,000 Wellness Point giveaway, with entries granted as a reward for social referrals via Twitter, Facebook and email. Spa Week also made a charitable contribution for every new loyalty program enrollment.

“The cause marketing component fit the spirit of the Thanksgiving holiday and increased cohesion for the campaign, helping our message go viral,” said Spa Week Program Manager Anne Hanson. “Also, explicitly rewarding advocacy aligns with our brand positioning that encourages individuals to give and enjoy the gift of wellness.”

For a full inside look at creating an award-winning loyalty campaign, download the new Spa Week campaign case study:

GET THE SPA WEEK CASE STUDY

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Loyalty Makeover: Abercrombie & Fitch

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In this installment, we look at the loyalty program at Abercrombie & Fitch, the $4.1 billion fashion retailer with over 1,000 stores, and brands including Abercrombie Kids, Hollister, and Gilly Hicks. 500friends Loyalty Makeovers offer suggestions to retail brands for making the most of their loyalty initiatives.

What Abercrombie & Fitch’s loyalty program looks like today

Abercrombie & Fitch’s loyalty program, known as the A&F Club, distinguishes itself from cookie-cutter loyalty programs by embodying the brand’s tone and effectively addressing core customers. Benefits include free streaming of A&F music playlists, the chance to skip lines at events, and members-only birthday offers. Limited-time promotional offers keep the program fresh and relevant.

First impressions

Abercrombie & Fitch is attempting a turnaround, with revenue dropping 12%, to $4.1 billion, and profit falling 77%, to $54.6 million, during fiscal 2013. To counteract sliding sales and rising expenses, Abercrombie & Fitch’s reorganized management team will need to leverage the A&F Club loyalty program to retain and grow the brand’s most profitable customer segments (without increased discounting). We think A&F Club is on the right track, but we offer a few ideas we think the Abercrombie & Fitch team should consider.

Makeover ideas:

  1. Leverage loyalty to drive mobile engagement
    Given Abercrombie & Fitch’s young customer demographic, mobile experiences will be important for reaching and engaging the brand’s shoppers. While responsive design of the company’s website is a positive, opportunities remain to thoughtfully leverage A&F Club via the brand’s mobile app. For example, members could unlock an exclusive sweepstakes entry upon completion of the app’s style quiz. With geo-fencing or mobile beacons, Club members could receive personalized, limited-time gift-with-purchase offers while shopping in stores.
  2. Power Cross-Brand Customer Views
    Abercrombie & Fitch can increase its share of wallet by offering A&F Club members an exclusive offer or benefit in partner brands. While delivering more value to members, such cross-brand promotion would create a more unified view of customers, allowing Abercrombie & Fitch to target relevant opportunities through follow-on lifecycle marketing.
  3. Clarify the benefits of loyalty
    While we think A&F Club’s focus on insider benefits is right for its demographic, the company currently does a poor job explaining those benefits to customers. The dedicated A&F website page lacks details, and when we called a customer service representative to learn more, she directed us back to that page. The challenge is that most benefits are tied to limited-time campaigns, so it’s difficult to describe them clearly. Adding tangible benefits — along with clear, consistent messaging — is an opportunity to make the program more compelling. For example, early access to new styles and collections or special access to limited edition items wouldn’t burden the program with incremental rewards costs but would still complement the A&F Club’s positioning.

Zach Woith is Head of Loyalty Strategy at 500friends, which helps retail brands maximize the value of their customer relationships. Email him at zach@500friends.com. 

 

Improve Your Email Marketing with Loyalty: Cardstore’s Schedule-Ahead Promotion

cardstore_loyalty_promo_closeupOne of the greatest benefits of running a loyalty program is the positive impact it can have on your email marketing. In fact, 500friends customers report that loyalty-powered emails can generate up to 50% higher response rates versus regular emails.

A great example of how loyalty and email marketing can best work together is a new campaign by our client Cardstore, the online greeting card site owned by American Greetings. In the promotion (creative below), Cardstore offers customers double points for trying out a schedule-ahead feature that makes sending cards more convenient. The campaign is really smart for a bunch of reasons:

  • By offering bonus loyalty rewards for using the schedule-ahead feature — but for a limited time only — Cardstore creates an appropriate sense of urgency.
  • Cardstore is using its loyalty-powered promotion to interact with its customers during a non-holiday period, when its shoppers are less likely to visit and purchase.
  • With a loyalty reward, Cardstore can offer customers value that enhances the brand, unlike excessive discounting.
Here’s what the email creative looks like:
cardstore_loyalty_promo
At 500friends, I encourage all of our retail brand clients to think about using incentives to engage members for relevant, valuable actions like this. For example, an apparel retailer could use loyalty to incentivize members to add items to a wish list in advance of gift-giving seasons. A cosmetics brand might run an email campaign inviting customers to fill out personal profiles in exchange for extra loyalty rewards. No matter what activities you choose, using loyalty instead of discounts and sales to stimulate action will have a better impact on your brand, your customer relationships, and your financial performance.

Zach Woith is Head of Loyalty Strategy at 500friends. Contact him at zach@500friends.com. 

Retailers with Private Label Credit Cards Also Need Loyalty. Here’s Why.

???????????????????????????????In his new post on DMNews, 500friends Director of Strategy and Development Arif Damji talks about how retailers with a private-label credit card (PLCC) can reap big benefits from also having a robust loyalty program. The major points Damji makes are that:

  • Loyalty programs make PLCCs look more attractive
  • Loyalty programs positively impact churn and lifetime value of mid-tier customers
  • Loyalty programs allow for direct, flexible communication with program members

Read the FULL post on DMNews here:
http://www.dmnews.com/got-plcc-what-it-is-and-3-reasons-you-also-need-a-loyalty-program/article/338520/

Ashley Bienvenu is a Customer Retention and Loyalty Analyst at 500friends. Email her at ashleyb@500friends.com.

Spa Week Wins Best Creative Loyalty Campaign Award

I’m happy to announce that our client Spa Week has been named winner of the Loyalty360 Awards’ Creative Campaign in Loyalty Marketing!

Spa Week integrated its rewards program into a series of seasonally-themed creative campaigns that drove loyalty program acquisition and engagement. The campaigns complimented Spa Week’s core positioning, which promotes a healthy, well-rounded lifestyle 365 days a year.

Read the full story here:
http://loyalty360.org/resources/article/spa-week-takes-home-platinum-in-best-creative-campaign-in-loyalty-marketing

Congratulations to the Spa Week team!

Revving Up Loyalty at Cruiser Customizing

loyaltyleaders_cruiser_brian(2)Leaders in Loyalty shares the insights and experiences of executives who run loyalty programs. In this edition, Brian Moreno, Marketing Specialist at motorcycle parts and accessories retailer Cruiser Customizing, explains how loyalty-fueled email marketing boosts the mileage of his customer retention investments.

Why did you launch Cruiser Customizing Rider Rewards?

Moreno: Motorcycle parts and accessories is a competitive industry, and we were looking for ways to stand out. We’re not willing to kill margins just to attract customers, so we can’t always play the price game. A loyalty program was a great way give our customers an extra bonus. Since we’ve launched, most of our competitors have followed suit and set up their own rewards programs.

What benefits are you seeing from Rider Rewards?

Moreno:  I can’t share all the numbers because we consider our loyalty program a strategic asset, but I can tell you that the per-visit value of our members is much higher than that of our average visitor, so the program is helping us understand our best customers. Also, we have been using our loyalty program to power many of our promotions, and we’re seeing huge uplift on those versus our standard promotions.

Can you talk about how the loyalty-powered promotions pay off?

Moreno: Our loyalty email campaigns have a much higher conversion rate than our standard emails. We typically send three to four loyalty-powered emails each week, and it’s low maintenance for us, since these automatic emails not only alert members when they earn a gift card, but also send the actual card. (Our members love our gift cards, which they get by redeeming Riders Rewards points.) That motivates shoppers to come back and buy more, so it really is a win-win.

What advice would you give to others looking to launch or optimize a loyalty program?

Moreno: Leverage your program everywhere — on your website, in your promotions, and on the phone with customers. We mention Rider Rewards in our all of our email campaigns and in any content that we publish. One of our challenges has been to educate members about actions outside of purchase that can earn Rider Rewards points, such as leaving a review or connecting to their social networks. Our demographic is around 45 to 65 years old — not necessarily the most Internet-savvy folks — so we’re always thinking about ways to communicate this information.

How do you see Rider Rewards evolving in the future?

Moreno: Now that we’ve celebrated the program’s one-year anniversary, we’re focusing on analytics. We finally have enough data to start getting a better idea of the true value of Riders Rewards members and how we can make the most of the program. We’re also doing more on the personalization front to better target our member segments. We did some testing with this when our member base contained around 15,000 customers, and we found that the inactive members who received a more aggressive style of promotional email tended to interact at higher rates — and make more purchases — than similarly active members who received gentler messages. Now that we have nearly 3x as many members, there is much more we’ll be doing around personalizing our loyalty promotions.

How has 500friends helped?

Moreno: 500friends’ solution has allowed us to easily implement our loyalty program and all of the analytics. Without it, we wouldn’t have had the manpower to do it so quickly. Communication with the 500friends team has been really open and easy, and once the initial set-up was done, the program could really run by itself. It’s bringing in hundreds of thousands of additional dollars with very little additional investment from our end, and that’s ideal.

Ashley Bienvenu is a Customer Retention and Loyalty Analyst at 500friends. Know someone you’d like to see featured in Leaders in Loyalty? Contact Ashley at ashleyb@500friends.com.  

Loyalty Makeover: Office Depot

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office_depotIn this installment, we look at the loyalty program at Office Depot, the $17 billion office supplies retailer with 1,900 stores that recently merged with Office Max. Loyalty Makeover offers suggestions to retail brands for making the most of their loyalty initiatives.

In late 2013, Office Depot completed a $1.2 billion merger with competitor Office Max. In this Loyalty Makeover we’ll look at both programs, and we’ll examine the opportunities in merging them.

What the Office Depot and Office Max loyalty programs look like today

Office Depot Rewards lets members earn rewards for purchases of ink, toner, paper and copy/print/ship services. Members can also earn rewards for recycling used ink cartridges and completing member profiles. Members who spend at least $200 in a calendar quarter achieve Choice status, which allows them to earn extra points through purchases, made either in-store or online, for products in up to 5 categories they choose. (Choice status is revoked if spending falls below $200 in a quarter.) For every 1,000 points earned, members receive a $10 rewards certificate applicable towards future purchases.

In contrast, Office Max’s MaxPerks program is more straightforward. Members get 5% back when they spend at least $500 in a one-year period. Recycling ink and toner earns members $2 for each cartridge brought into the store, up to a limit of $20 per calendar month.

First impressions

Expenses from the merger of these office supply giants, coupled with weak gross margins, led the combined company to declare a $205 million operating loss in 2013. Critical for the combined company’s future success will be boosting gross margins, which fell to 23.4% last year (vs. 26% for Staples), and a strong, unified loyalty program could play a major role.

Makeover ideas

Merging programs on this scale will be a huge undertaking for Office Depot’s executive marketing team. We humbly propose some ideas that could be helpful:

  1. Personalize rewards. The Office Max loyalty program provides the same level of rewards for everyone, regardless of spending (above the minimum threshold), whereas Office Depot recognizes high-spenders with premium (Choice) benefits. The combined company should maintain the premium tier as an incentive for customers to spend more, but should carefully analyze the spend of its mid-tier customers to see if $200 per quarter is the right threshold. (It should be just higher than the average spend of those mid-tier customers, so that it effectively encourages them to spend more.) The chain should also send personalized, automated loyalty offers (“Double points if you shop this weekend”) to members who have not purchased for a while. 
  2. Expand earning opportunities. Today, Office Depot members who have not reached Choice status can only earn points for purchases in certain product categories. This provides little incentive for these shoppers to buy other products at Office Depot. The combined company should allow points earning across all product categories to capture a higher share of wallet. For strategic product categories, Office Depot could offer bonus rewards. Office Depot could also use its loyalty program to engage with shoppers between purchases, by rewarding actions such as reviewing products, browsing strategic categories, and linking social accounts. Similarly, the chain could reward people who always buy online for visiting a store, or vice-versa, to boost omni-channel engagement. 
  3. Expire rewards based on inactivity. Office Depot gives members a calendar quarter during which they can earn rewards and only 60 days to redeem rewards coupons. Office Max’s reward cards expire 90 days after issue. Office Depot should switch to an expiration policy triggered by inactivity — for example, rewards could expire some number of days after last purchase. This way the chain can send personalized, automated rewards expiration notices and offers (“Your rewards expire at the end of the month. Buy now to keep them and get an extra point reward.”)  This structure better promotes long-term loyalty and can be used by sales staff to upsell (“You’re just 10 dollars away from your next reward level.”) An  effective expiration period should be just shorter than the average purchase frequency of mid-tier customers.
  4. Merge programs for cross-brand loyalty. It appears that, for some time anyway, both the Office Depot and Office Max brands will live on under the Office Depot corporate parent. If that’s the case, Office Depot should launch a unified loyalty program that promotes spending across the brands. One example of a company that does cross-brand loyalty well is 1800Flowers.com, whose Fresh Rewards spans brands including The Popcorn Factory and Cheryl’s (sweets).

Ashley Bienvenu is a Customer Retention and Loyalty Analyst at 500friends, which helps retail brands maximize the profitability of customer relationships. Is there a loyalty program you’d like to see featured in a 500friends Loyalty Makeover? Send her a note at ashleyb@500friends.com.

Should Your Loyalty Program’s Rewards Be Higher? Lower? This Key Metric Has the Answer

Arif DamjiTo evaluate the success of a loyalty program, many marketers look at its impact on revenue and profit growth. But a huge factor in loyalty program ROI is the cost, the bulk of which is determined by investment in rewards costs. At most companies, marketing and finance departments use budget limitations to set an “acceptable” level of rewards, but like any investment, the right way is to look at the return. Do higher — or lower — rewards levels make more sense? To simplify the answer this question, we’ll use a loyalty metric know as Reward Cost Efficiency, or RCE.

RCE tracks incremental dollars generated for each dollar spent on rewards. To see it in action, let’s consider a simple example. Say I run a loyalty program for 7-H Stores, a fictional specialty retailer, and I’m evaluating whether to increase my rewards level. Currently my program has a 4% funding rate, but I’m considering upping that to a more generous 7% funding rate. I judge the profitability impact of the 7% funding rate over the 4% rate to be promising. What should I do?

Here’s the formula for calculating RCE:

RCE = frac{Incremental Revenue from Loyalty Program}{Total Cost of Rewards}

Simply put, RCE takes revenue lift from the program and divides that by how much you’re paying out in rewards. To measure incremental revenue for existing programs, you can do a pre/post comparison of member spend. For a new scenario, you could run an experiment with test and control groups. Generally speaking, the total costs of rewards should exclude fixed costs (administrator costs, SaaS loyalty platform subscriptions, set-up fees, etc.).

Now, let’s calculate RCE for 7-H Stores. With the current 4% funding rate, let’s say I drove $30M in incremental revenue over 1 year at a total rewards cost of $5M. However, let’s say that an experiment shows the 7% funding rate would generate $36M lift in revenue for $9M in rewards over the same period. Calculating the RCE for each, I get an RCE for the 4% funding rate of 6, and an RCE for the 7% funding rate of 4. The 7% funding rate generated higher sales, but at a lower return on rewards.

The breakeven point for RCE is determined by a business’s gross margin. Specifically,

RCE_{breakeven} = frac{1}{GM%}

Let’s say the gross margin at 7-H Stores is 50%. Then my breakeven RCE is 2. This means that, in order to break even on my reward costs, I need to generate at least $2 of revenue for each dollar spent on rewards. Looking back at RCEs for the 7% and 4% funding rates of 6 and 4 respectively, we see that the 7% funding rate getting closer to not breaking even. We can do more to understand the risk of not breaking even through sensitivity analysis for different increases in member frequency, as well as a year-by-year breakdown of the RCE.

Of course, to choose between the 4% and 7% scenarios, you would ideally consider other factors. For example, is the RCE higher than return you’re seeing on dollars spent for other forms of marketing? If so, there’s a strong case for investing those dollars in rewards costs. And we’re only scratching the surface here on how RCE can be used. For example, you could calculate RCE to evaluate changes in rewards structure, the addition of premium status tiers, and so on.

If there’s a simple takeaway, it is that rewards costs are investments, and should be treated as such. RCE can help ensure that your funding rate and program structure yield maximum return on your marketing dollars.

Arif Damji is Director of Strategy & Development at 500friends, which helps retail brands maximize the profitability of their customer relationships. Email him at arif@500friends.com

Loyalty Makeover: Fanatics

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In this installment, we look at the loyalty program at Fanatics Inc, the $1 billion sports merchandising online retailer that also provides e-commerce services for professional teams. 500friends Loyalty Makeovers offer suggestions to retail brands for making the most of their loyalty initiatives.

What Fanatics Rewards look like today

Fanatics’ Fan Cash rewards are essentially discount credits applied to members’ future orders. For each purchase between $50 and $100, members earn a future discount worth 5% of the total; for purchases over $100, they get a future discount worth 10% of the total. Fan Cash is automatically credited to members’ accounts and doesn’t expire as long as members make at least one purchase per year. Members also get free three-day shipping.

First impressions

At #43 on the IR 500 list with sales of around $1 billion, Fanatics is becoming a major e-commerce player. However, after its key acquisition of Dreams in 2012 and $170m in new funding last year, Fanatics will increasingly be looking to power growth from its existing properties, and a more robust loyalty program could play a huge role in achieving that goal. As it stands, Fanatics Fan Cash is essentially a cents-off rebate that Fanatics is paying to many customers who would have bought anyway.

Makeover ideas:

  1. Personalize loyalty rewards: To increase the likelihood that Fan Cash drives incremental revenue and engenders long-term loyalty, Fanatics should create a premium status tier that recognizes cumulative spend. The tier’s spending threshold should be just above the annual spend of Fanatics’ 2nd and 3rd decile customers, which will incentivize these customers to buy more. Fanatics should also send personalized, automated offers to members who are close to achieving the higher status tier (“Buy $10 more to get more benefits”) and to those who have not purchased for a while (“Double Fan Cash if you buy this weekend”).
  2. Leverage Fan Cash to boost engagement between purchases: Currently, customers receive Fan Cash only for purchases. Fanatics could deepen its relationship with customers by issuing Fan Cash to reward behaviors between purchases, such as product reviews, referrals, or even just visiting one of Fanatics’ properties. Offering Fan Cash for these types of actions creates additional motivation for members to engage and increases the likelihood that they’ll eventually make more purchases.
  3. Rethink the expiration period: Fan Cash currently expires after one year of purchase inactivity. However, given that many Fanatics customers are probably engaged for the length of a sports season, the period when the bulk of lapsed customers stop purchasing is probably far shorter than that. With a shorter expiration period, Fanatics could trigger the kinds of expiration notices (mentioned above) more often, which can be extremely effective for generating sales and reducing churn. The expiration period should be set just shorter than the average time between purchases for priority customer segments.

Ashley Bienvenu is a Customer Retention and Loyalty Analyst at 500friends. Is there a loyalty program you’d like to see featured in a 500friends Loyalty Makeover? Send Ashley a note at ashleyb@500friends.com.

 

Spa Week named Loyalty360 Award finalist

I’m happy to announce that Spa Week, a 500friends client, was recently named a finalist for the Loyalty360 Awards‘ Creative Campaign in Loyalty Marketing. Spa Week integrated its rewards program into series of seasonally-themed creative campaigns that effectively drove program acquisition and engagement. The comprehensive creative campaign directly complimented the company’s core positioning, which promotes a healthy, well-rounded lifestyle 365 days a year.

Congratulations to all of our friends at Spa Week!