Building loyalty in retail without cutting the coupons by Alan Goldstein of Aimia

In Loyalty & CRM, Marketing and Sales by Simon Crompton-Reid

Guest blog from Alan Goldstein, Managing Director – Retail, Aimia.

Building loyalty in retail without cutting the coupons

For retailers, couponing presents a familiar conundrum. While coupons are a proven driver of store traffic and topline sales, they focus your customers' attention on price, and create an environment where it's difficult to provide differentiated offers or service levels based on customer value. In any retail sector, there can be only one "low price leader"—and if you aren't that leader, then you face a difficult challenge in building loyalty to something other than the deal. The danger is that the behavior exhibited on such reality shows as "Extreme Couponing" becomes the norm, rather than the exception.

The ideal customer value proposition is one that provides a compelling blend of hard and soft benefits. Here are a few more tips on blending coupons with an effective customer loyalty strategy:

  • Deploy introductory couponing: Instead of flooding your customer base with coupons made available to everyone, deploy them to encourage customer identification. When an invisible customer redeems a coupon and then walks out the door, still invisible, you've lost the opportunity to build a relationship with that customer. Specialty retailer Sports Authority, for example, offers $5-off email coupons that customers can redeem after they register for the retailer's loyalty program. Once you've captured the customer's identification, you can now market to him as part of a customer segment, or even on a
    one-to-one basis. As a result, your discount dollars make a real impact on marketing ROI.
  • Go Mobile: According to eMarketer, consumers will redeem 20 million mobile coupons this year. In 2013, they'll redeem 40 million. There's a land-grab going on in mobile marketing, and it won't be long before share-of-wallet evolves into share-of-phone. Aimia's own Millennial consumer survey reveals that mobile users are often your most valuable customers: they're tech savvy, highly educated, and display more loyal behavior than the general population. Deliver value and relevance through targeted application of mobile coupons, and they'll respond with profitable behavior.
  • Connect the data dots: Coupons can help you connect offer response to other interactions that provide you with a more complete picture of customer behavior. Sports Authority, for example, can connect coupon redemption activity with customer value as filtered through loyalty program activity. American Express allows online and mobile coupons to be connected to card transactions, so coupons can be processed at checkout. Earlier this year, Visa ran a test with Gap that allowed Gap shoppers to receive discount offers when they purchased with Visa card products. Your options are limitless—so long as you deploy coupons not in isolation, but rather as a way to deepen customer insight.
  • Mix tactics: By relying solely on coupons as your value proposition, you're deploying your marketing dollars inefficiently. Mix in true hard benefits, such as promotional currency or cash vouchers, to provide the optimum blend, and then alter the mix based on segmentation by value, potential, or likelihood to churn. Focus your hard benef its on those customers who have the opportunity to spend more, and focus your discount dollars on high value customers to keep them happy and engaged with the brand. It's the difference between wielding a scalpel, or wielding a sledgehammer.
  • Deploy smart coupons: Even as you deploy coupons to target soft benefits to your best customers, you have a further opportunity to target discount offers based on customer value and relevance. There's no reason that every customer targeted for a coupon offer should get the same coupon. Should your top-decile customer get a deeper discount than a new customer who just joined your loyalty program? Should you base coupon offers on customer lifetime value? Should you deploy coupons to encourage cross-sell and up-sell? Amazon has pioneered smart discounting, while the New York Times reports that 70 percent of Kroger customers who receive targeted coupons redeemed at least one of the offers. Your marketing strategy provides a perfect laboratory to test and learn.

It's understandable that retailers tend to default to a coupon-only marketing strategy. Coupons are easy and cost-effective to implement, and they work. Customers love them. But success in today's hyper-competitive retail environment requires that you evolve coupons from a blunt instrument to a surgical tool that can focus those discount dollars where they have the greatest impact. It's not rocket science; all artful couponing requires is that you deploy coupons to
identify, understand, and influence your best customers. Your customers will still enjoy the thrill of the deal, and you'll enjoy bigger profits and long-term, sustainable customer loyalty. In this scenario, everybody wins.

To read more, see "The Art of the Deal" – How to blend couponing, customer relationships & loyalty.
By Alan Goldstein,
Managing Director, Retail – Aimia