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Creating loyalty
With drivers looking for the best deal, retailers need to develop ways to make them come back
By USHA V. NATHAN
With businesses in scores of industries nearly screaming to their customers about yet another unique loyalty program, is it any wonder that independent fuel retailers would turn an appreciative ear to their blaring pitches? Increasingly, many are.
Even small retailers acknowledge they need to cultivate greater marketing savvy. They have to, they say, if they are to survive competitive pressures from “big boxes” like Wal-Mart and Costco, who some claim are able to sell fuel at prices lower than independents can purchase it.
Aiding small operators to run profitably have been their c-stores, which add hefty profits where fuel sales provide the thinnest of margins. However, getting customers to keep returning to a particular gasoline station, and then into its store, is growing harder.
As a consequence, retailers appear to grant that they need to be more than “operationally focused” if they are to survive competition not only from fellow gasoline marketers but also the Goliath retailer who has sprouted blocks away.
Often egging them on in this view is a growing cadre of marketing consultants who point to the benefits of loyalty program, chiefly customer retention.
Remember when your motoring parent would gas up only at a favored filling station? Now, that behavior is as quaint as gasoline at 19 cents a gallon. Price is the driving motivator for today’s car owner who has no loyalty to any brand of gasoline.
Marketing consultants note that fuel buyers will shop at least three different retailers during a week: one on the way to work, another on the trip back home and a third on the weekend.
To the service station owner already inured to his customers’ fickleness, relying on itinerant traffic for year-over-year revenue growth is like drawing on sand. It’s a picture that washes away when the true reality emerges: that profits are built from heavy users who, when they fill-up, also purchase non-fuel goods and services. Their consistent behavior is coveted among retailers for whom repeat business from a loyal customer adds more to the bottom line than the buyer who makes a single transaction and might never return.
At Kick Back Points, a Twin Falls, Idaho-based loyalty consultant, the lessons in customer retention were learned only when behemoths Costco and Wal-Mart, soon followed by department store Fred Meyer and grocery retailer Albertsons, entered their backyards starting in the late 1990s. Kick Back’s CEO Pat Lewis is a veteran retailer who runs c-stores under the Oasis Stop ‘N Go label.
Operating in a 40-mile radius of Twin Falls, a southern Idaho town of 35,000, his trade area encompasses a population of about 100,000.
Lewis recalls the plump days of steady growth before regular customers defected for a few dollars of savings on their weekly gasoline bill. “We owned 30 percent of the market share prior to the entrance of the ‘Big Box,’” he said.
The impact mega-retailers had on local gasoline stations was felt almost as soon as their signs went up. Fuel sales fell 30 percent at Lewis’ stations. The effects of lower customer traffic also were seen inside the c-stores where business dropped an equal amount. Then, there was the car wash side, usually a highly profitable component of a service station, where sales again plummeted.
“The hypermarts were a huge trouble for a company like us,” he said. “We spent a couple months playing defense, trying to figure out where we could cut expenses — could we reduce our hours of operation, renegotiate purchase contracts? Then, we found we couldn’t find enough fat to trim. We didn’t have an inefficient operation.”
It’s then that the light bulb turned on, explained Lewis. “We mistook our operational effectiveness as a strategy for growing our business. We started in earnest to look at the big picture: How are we going to stop them from taking our customers?”
The true meaning of the 20-80 rule taught in marketing textbooks emerged for Lewis and his team as they realized that 20 percent of their customers provided 80 percent of all profits. “We then knew that we could not afford to give Wal-Mart the customer who comes to us two to three times a week,” he said.
Today, Lewis’ attempts at “controlled defection” through a loyalty program that rewards repeat visits has led to a side business as a consultant for about 100 businesses as disparate as restaurant chains to car dealers and even a law firm. It’s a unique niche he occupies because there are few loyalty marketers who target the small-business owner.
The lessons he learned going up against the “Big Boxes” have all been plowed back into his consultancy. “We realized the value proposition,” he said. “It’s what makes a customer choose us over another business. They are convenience, quality, service and price.
“It’s a balance of these four things that’s important to the customer,” said Lewis. “Once we saw this, we had a spark of hope. We knew we could beat our competition on convenience — we had the best locations. We could beat them on quality. On service, we thought we had them beat because we had long-term employees and we had developed them. Our only weakness was price.”
Of the many efforts that encourage repeat business in his program, such as a free cup of coffee, a sandwich or a car wash that can be redeemed as points accrue, Lewis is particularly proud of ways his firm has tried to institutionalize the personal touch. As he sees it, to build true loyalty a business must create an “emotional connection” with its customer.
“We want to get to the point that our customers would be embarrassed if we see them at a Wal-Mart,” he said. In an effort to make his clients stick to his stations, Lewis employs a unique ploy: He cherry-picks customers to serve as “mystery shoppers.” When that patron enters a store and a clerk addresses him by name, the employee receives a permanent $1-an-hour wage raise. Said Lewis, generating a good feeling among his best customers through efforts that include calling a customer by name creates an annuity-like effect: The client is motivated to keep coming in over his lifetime.
Such is the breadth of his loyalty program today that Lewis annually awards a “grand prize” trip for four to Hawaii for the winning person whose loyalty card number is drawn from his database of registered users.
For George Stevens, the Kansas City, Mo.-based general manager of marketing consultant Visible Results, the key to gaining customers is to engage people. To do this, block customers from heading toward the lowest price through incentives that motivate them to always choose your brand, he said. Such loyalty can be developed even for faceless commodities like gasoline, said Stevens.
The trick is to know who a retailer’s buyers are and then increase the frequency of their visits with tactics that gain their attention and, in turn, retain their loyalty for the business. “It’s really about developing relationships with your customer so that they always look for your brand,” he said. Stevens has enlisted various retailers, each of whom own 25 to 50 c-stores, and given them a piece in his loyalty branding efforts.
For the most part, fuel-retailing managers are skilled at growing the business base, but do not understand marketing strategies, he explained. “We help them identify what percentage of customers are their best customers and create incentives to make these folks come through the stores more often.” While nothing beats greeting a customer with a handshake, technology gives c-store merchandisers novel ways to connect with customers.
Visible Results provides the mechanisms for tapping into a customer base. At one level, it is done through a card a customer swipes at the payment counter. Once swiped, an area of the card reveals text that is personalized for the cardholder. These messages could include informing the customer of the number of loyalty points accrued, an interesting fact of the day, or an announcement that he now is eligible for a free gift from the c-store.
“Our goal is not so much to have customers spend more money in a store,” said Stevens. “It’s to make sure that they always come in to our store — make them more loyal to our organization. It’s really about building relationships by encouraging customers to look for your brand.”
Anton Bakker, president and CEO of Norfolk, Va.-based Outsite Networks, knew nearly 30 years ago that loyalty programs could make a difference in station profits. A former manufacturer of gasoline pumps, Bakker saw the dawn of the mega-retailer era, in which, he said, giant marketers would discount gasoline as a loss leader. Bakker decided then to help independent operators provide incentives that would keep their customers from drifting to the “Big Boxes.”
Today, Outsite Networks installs onto gasoline pumps retrofit devices that communicate wirelessly to customers. It happens when the customer places a keycard on the device, activating it to play messages, much like an MP3 player. Customers receive the keycard once they complete an application form.
The pump literally speaks to the customer, encouraging him to visit the c-store for a hot cup of coffee on a cold day; receive a merchandise coupon; or, alert him that he has earned enough points to pick up a reward. The messages all point the customer in the direction of the store.
“When a customer is at the pump, we have a captive audience,” said Bakker. “We can talk to him because he cannot change the channel.” More than 1,000 service stations around the country have installed about 10,0000 of Outsite Networks’ loyalty machines. A million customers monthly access these devices.
The system’s additional functions include encouraging customers to pay by cash, which earns double points and saves the retailer up to 3 percent in credit-card transaction costs.
Retailers have the incentives inside their stores that provide rewards, such as free bags of chips, a newspaper and even large giveaways such as monthly cash prizes, said Bakker. His job is to provide the means to attract the customer, keep him engaged and make sure he returns to the station over and over again.
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