Properly managed loyalty programs are becoming increasingly common in today's retail landscape. Most Australians are members of a loyalty program, and usage is going up.

Understanding Point Expiry Mechanics

Point Expiry in Loyalty Programs: A Smart Strategy for Your Retail Business

You're likely familiar with loyalty programs, you cannot get away from them today. You may have seen their power to keep customers coming back. Today, let's dive into a crucial aspect many small business owners overlook: point expiry.

Why Point Expiry Matters

Point expiry isn't just about managing your books, although it helps there as large numbers of unused points can be financially troubling, as some of my clients have found out.  It is a powerful tool for driving customer engagement. Customers are much more motivated by the possibility of losing their rewards than they are by the possibility of gaining new ones. This psychological trigger can significantly boost your program's effectiveness.

Setting Up Your Expiry System

Choose the Right Timeframe The sweet spot for most Australian retailers is 12 to 24 months. This gives your customers ample time to earn and redeem points while keeping your program manageable. We tend to recommend 12 months. 

Clear Communication: Your POS system should automatically track point balances and send timely reminders about expiring points. Your POS System makes this process seamless, as it handles everything from:

• Point balance tracking
• Automated expiry notifications
• Redemption monitoring

Making It Work for Your Business

Clever Program Design: Your loyalty program should offer multiple redemption options to prevent point hoarding. Consider including:

• Essential rewards that are easily attainable
• Premium rewards for higher spenders
• People love charitable donation options for unused points; remember to select a few non-partisan charities they can pick from. 

Managing Customer Expectations

The key to success is transparency. Your POS system should provide clear visibility of:

• Current point balances
• Upcoming expiry dates
• Available redemption options

Measuring Success

Your POS analytics should track crucial metrics like:

• Redemption rates
• Customer engagement levels
• Revenue impact

Remember, a well-managed point expiry system isn't about taking away value from your customers - it's about creating a dynamic program that keeps them engaged and returning to your store.

Want to learn how a modern POS system can help you manage your loyalty program more effectively? Let's chat about finding the right solution for your business.

There are two kinds of customer loyalty programs in the loyalty program marketing in our market space.

- An upfront reward or discount voucher program

- A point-based loyalty program.

Our POS Software can implement both with flying colours. The shop selects the appropriate method based on its particular requirements and objectives.

Since I have worked on many occasions with reward programs, I can say that they are good tools for business owners. 

How Upfront Reward/Discount Vouchers and Point-Based Loyalty Programs work

Upfront Reward/Discount Voucher Program

An upfront reward or discount voucher program provides customers immediate discounts or rewards upon purchase.

How It Works:

1. Distribution of Vouchers: Retailers distribute vouchers at each sale in the receipt; sometimes, they issue them free as advertising offers.
2. Customer Usage: Customers receive these vouchers and can use them instantly to get a discount on their next purchase. 
3. Instant Redemption: The reward is applied at the point of sale, giving customers immediate benefits.
4. Tracking and Analysis: Retailers track the redemption rates and sales generated from the vouchers to evaluate the program's success.

Example: A newsagent offers a 60-cent discount voucher on a purchase. Customers can now use this discount on their next purchase. This encourages them to return to the store.

Strengths of the Voucher Program

The upfront reward/discount voucher program is straightforward and effective. Here's why:

• Low, upfront technology/integration costs: This program requires little effort. A retailer with our POS system can have it up and running in less than 30 minutes.
• Simplicity: It’s easy to implement and to understand by customers and staff.
• The immediacy of rewards: Customers receive instant gratification, which drives quick sales and makes it ideal for creating spontaneous transactions
• Keep customers: They encourage customers to come back.

Weaknesses of the Voucher Program

However, there are some downsides to consider:

• Limited customer data/insights: There is no tracking of customer purchases.  
• Perceived value: A voucher is generally a minor amount, so it is often dubious as a motivation.
• Margin erosion: Offering discounts can significantly impact your profit margins, especially with lower revenue.

Opportunities for Vouchers

Despite their limitations, vouchers present several opportunities:

• Appeal to price-sensitive customers: Drive immediate sales.

Threats to Vouchers

However, be aware of potential threats:

• Race to the bottom: Excessive discounting can lead to a race to the bottom, harming your shop’s perceived value.

Point-Based Loyalty Program

A point-based loyalty program rewards customers by issuing loyalty points on each purchase. After a certain number of points, they can redeem them. Generally, a cent equals a point. 

How It Works:

1. Enrollment: Customers sign up for the loyalty program, usually providing some information to create an account.
2. Earning Points: For every purchase, customers earn points based on the amount spent.
3. Accumulating Points: As the customers accumulate points over time, these are tracked in their loyalty account.
4. Redeeming Points: Once customers reach a specific threshold value set by the shop, they are hopefully incentivised to redeem their points for rewards, typically a discount, free products, or special services.
5. Ongoing Engagement: The program encourages repeat business by offering ongoing rewards and benefits for continued purchases.

Example:
Once a customer has earned enough points, a pet shop might offer them a $10 discount on their next purchase.

Strengths of the Point Program

A point-based loyalty program offers long-term benefits:

• Long-term loyalty: Delayed rewards foster long-term customer loyalty without an upfront investment, as unused points cost nothing.
• Tiers: It allows your customers into a different tier 
• Meaningful rewards: As they grow over time, they can be something of substance. 
• Credibility: This proven model is trusted and has credibility
• Customer data collection: Enables personalisation and better understanding of customer preferences.
• It allows customer communication: A shop can send monthly customer loyalty statements that advertise the shop. This is an excellent way of increasing your customer experience with your shop.

Weaknesses of the Point Program

Yet, there are also some drawbacks:

• Management overhead: It requires an advanced POS System like ours to run effectively
• Long-term:  It takes time for the program to be meaningful to the customer.

Opportunities for Points

Points programs also offer significant opportunities:

• Loyalty development: Building a loyal customer base early can provide a strong foundation for growth.
• Unique rewards: Differentiating your program with unique, memorable rewards can enhance customer engagement.
• Future CRM integration: As your business grows, you will benefit from our free retail CRM and loyalty tools.Threats to Points

Threats for Points

• Competition: Keeping up with larger competitors' loyalty programs can be costly.
• Reward expectations: Struggling to provide aspirational rewards might disappoint customers.
• Operational distraction: Managing such a loyalty program can take time.

Return on Investment (ROI)

Measuring its return on investment (ROI) is vital to establishing a successful customer loyalty program. Never forget that we are dealing here with price cannibalization.

Here are key performance indicators (KPIs) that I have seen used to track them:

Both of them

Cost of the program: You are giving away a lot of discounts, so you need to calculate the amount

Time of the program: Conducting such a program will take time, so you must add it up.

KPIs for Voucher Programs

• Redemption Rate: The percentage of distributed vouchers that are redeemed. A higher rate indicates strong customer engagement.
• Incremental Sales: You must establish sales generated directly from the voucher program. This helps measure the program's impact on revenue, but it is very difficult to do.
• Customer Acquisition Cost (CAC): The cost of acquiring a new customer through the voucher program.
• Average Transaction Value: The average amount spent by customers using vouchers. This metric helps assess the program's impact on spending behaviour.
• Repeat Purchase Rate: The percentage of customers who make subsequent purchases after redeeming a voucher.

KPIs for Point-Based Programs

• Enrollment Rate: The percentage of customers who join the loyalty program. This indicates the program's attractiveness and reach.
• Active Participation Rate: The percentage of enrolled members who earn and redeem points. High participation suggests strong engagement.
• Customer Retention Rate: The percentage of customers who continue to shop with you over time. This metric measures long-term loyalty.
• Lifetime Value (LTV): The total revenue a customer generates during their relationship with your business. This helps evaluate the overall effectiveness of the loyalty program.
• Points Redemption Rate: The percentage of earned points that customers redeem. This shows how valuable and attainable the rewards are perceived to be. What you should closely monitor is the point when these are redeemed.

Calculating ROI

To calculate the ROI of your loyalty program, use the following formula:

=(Net Profit from Program) - (Program Costs) /  (Program Costs)  x 100%

• Net Profit from the Program is the additional profit from the loyalty program.
• Program Costs include all expenses related to running the program, such as discounts, rewards, and administrative costs.

Conclusion

Choosing between an upfront reward/discount voucher program and a traditional point-based loyalty program depends on your specific needs as a small retailer. Both strategies have their pluses and minuses and be effective. Like everything, you have to use some intelligence to make an informed decision. 

Traditional loyalty programs based solely on points have hit a plateau. This has been the subject of a webinar I attended, and I have read several articles about it. The problem is that almost every business now in Australia is doing it, so the problem is that a business program is now competing with so many companies that it is struggling to make its program noticed. 

For some businesses, points work brilliantly, and we have no reason to believe that a traditional program of buying eleven cards/coffee and the 12th is free would not work well in the future. 

However, many businesses need differentiation, which is why many loyalty programs are moving into personalisation! Its called CRM.

"Mass marketing is dead. Personalization is the new frontier for loyalty programs." 

Now, I am worried about this in my client base:

The Challenges of Personalization for Smaller Retailers

Many of my clients are not huge and will face the following problems.

• Limited Data: Unlike large corporations, they might not have vast troves of customer behaviour data.
• Experts: Access to sophisticated consultants is lacking; they are often too busy to attend the many conferences that discuss this to get ideas.
• Scale: It's tough to match the "wow" factor of rewards programs offered by big brands with extensive resources.
• Time: Large brands are willing to run at a loss for ages to establish their program.

Overcoming the Obstacles: Practical Solutions

We have what we have; we can only play the hand we have, so we need actionable strategies for small retailers to personalise their loyalty programs:

• Focus on Key Data: Your POS System collects the most valuable data points, e.g. purchase frequency and spending habits.
• Simple Personalization: Often simple ideas work well, e.g. birthday discounts and email alerts for new products based on previous purchases; if a parent buys back-to-school products from you, what is wrong next year sending the parent an email that you have back-to-school products?
• Local: Emphasize the genuine connection you have with the local community.
• Local SEO: Make sure you appear in the local Google search high up.
• The Human Touch: Enhance personalisation with handwritten thank you notes on your packing.

Affordable Tech to Boost Your Program

• Your POS as a CRM: Your Point-of-Sale systems include built-in customer relationship management tools that allow you to track data, send targeted promotions, and build customer profiles.
• Social Media Power: Please interact directly with your customers on social platforms such as Facebook (consider it free advertising).
• Email Marketing: Use email newsletters to tell people you exist. Let me know if you do not know how to do this, and I will point you through it.

Additional Tips:

• Be Adaptable: Don't be afraid to experiment and refine your rewards program based on what works for you.
• Are you an expert in something you sell?: If so why not run a short course? 

Conclusion

"Personalization is the heart of every successful business. Treat every customer as a unique individual, not a number."

Personalisation doesn't require breaking the bank or having massive amounts of data. You can start with meaningful steps and gradually build on them. Remember, genuine connection is the ultimate competitive edge! Take the first step, experiment with personalisation, and watch your loyal customer base grow.

Woolworths, one of Australia's largest supermarket chains, has recently introduced member-only pricing in its stores. I'm quite interested in this new strategy, how it may impact my clients' businesses, and whether it provides any good ideas for them. Our POS System can handle it, so it is relevant to our clients.

How the Member Pricing Works

The member prices seem to be based on Woolworths' standard shelf prices. The member prices are marked with special shelf tickets or symbols on the Woolworths website.  Only some products are given a discounted price that only members of the Woolworth Rewards can use. So their customers need to join the supermarket's Everyday Rewards program which is free and then scan their registered loyalty card at checkout to get that discount.

This Strategy Isn't New 

Woolworth did it about a year ago and then gave up on the idea, so I am curious why they are doing it now, particularly as none of the other supermarket chains copied it. That said, this type of loyalty program is used by other major retailers in Australia, such as Dan Murphy, which has 90% of its customers using it.

The Potential Benefits for Woolworths

Here are some benefits that I can see with Woolworths trying this member-only pricing:

• It provides a real need for their customers who want that product, and those people who use it get a discount.

• The offers are open to a small percentage of shoppers (37%) who shop at Woolworths, so it's hard for other retailers to compete on those specific products as the majority, 63%, do not shop at Woolworths.

• The discounted products keep changing rather than being permanently reduced, so the products on offer are hard to track.

• Woolworths wants more customer data. Industry-standard claims this data can be worth around 1% extra revenue.

How It Compares to Loyalty Points Programs

There are some key differences between member pricing and points-based loyalty programs:

Points Programs

• It feels more rewarding psychologically as points accumulate. Studies show most Australians want points.

• Much of the cost of the points never happens, as many points are not redeemed

• Points can work on the total sales, not just on selected items. 

Pricing Discounts

• Provide clear savings upfront on purchases which customers can relate to as they are real discounts

• Only items that can be discounted are discounted. With points, it is hard to justify to customers why these items are given points and these items are not.

• Customers will only scan their loyalty card if an item is discounted to members.

The Bottom Line

Loyalty programs are said to be worth 1% to 2%, my studies suggest closer to 1%, but your shop might be different.

If you are considering selective member discounts in your own business, well your POS software can handle it.

If you do so the primary purpose of a loyalty program is to get you more customers and get them to spend more. Is it? So you do not just have to check the sales totals but also the basket size, profitability, etc. We have a whole section in our software that helps you do that.

Pre-membership vs. post-membership spending

What do you need to know that it is working?

The figures can be found here.

​Use data!

Loyalty programs are on the rise in Australia. Most major retailers now offer a loyalty program, which most Australian consumers use. Most of our clients have some loyalty marketing.

However, loyalty programs are only a solution for some retailers. Besides requiring careful planning and investment, they may not make good business sense for some retail situations. Here we'll outline a few key reasons why in my experience people do not use them:

Financial

As a rule, loyalty programs give about 1% more sales. If a shop has a $500,000 turnover with a margin of 30%, then we are looking at a gross profit of 1% x $500,000 x 30% = $1,500. This may not justify the work of running such a program; even though the software is free with our POS Software, it still requires work to run it.

Low-Frequency Purchases

Loyalty programs work best when customers make frequent repeat purchases. For example, grocery stores, newsagencies and coffee shops see regular business. Frequent interactions give customers opportunities to earn and redeem rewards. 

But retailers like bedding shops only see customers occasionally. A typical consumer will buy maybe every ten years. With limited opportunities to earn rewards, loyalty programs are less enticing. These retailers may be better off using **referrals**, **reviews** and **social media** to maintain relationships between big purchases.

Tight Margins

Some retailers operate on very slim profit margins. For example, lotto shops can average a few percent profits on sales. For them, the discounts and rewards required to run a loyalty program would wipe out margins entirely.

> "We calculated the cost of rewards would eliminate our whole profit margin. Loyalty programs don't work with our tight margins and high costs." - a Lotto shop owner told me.

I have spoken a lot about it here under the heading price cannibalization.

Small Customer Base  

Loyalty programs require upfront and ongoing costs. To benefit, retailers need at least 150+ active members in their program. Without enough customers, costs outweigh rewards.  For example, say you get a 1% response rate, which is pretty standard nowadays in advertising. If you send out 150 newsletters that took you an hour to write, that is now 1 or 2 extra sales. Was your time worth it?

Lack of Interest

Some retailers are passionate about their niche, not just profit maximization. Loyalty marketing will backfire if the owner, even if interested, lacks the skill. Unless there's someone else enthusiastic to run it, retailers may be better off focusing on the in-store experience rather than loyalty programs. 

Conclusion

The bottom line is loyalty programs are only sometimes applicable to Australian retail. Carefully evaluating your situation first. 

What are your experiences with retail loyalty programs? Let me know your thoughts below!

I think it's worth looking at what is happening with Woolworth's Everyday Extras program to anyone looking for or running a loyalty program in their shop.

Woolworths introduced the Everyday Extras program, which offers faster point accrual and higher discounts than the regular rewards program. However, there have been recent changes where the cost of joining the program has increased, and benefits have decreased. Many customers are unhappy with these changes.

To be fair to Woolworths, it was a new program and with new programs, changes are only to be expected. The reasons for the changes are unclear, but I think we can reasonably guess that it is at least one of two reasons or maybe both.

Scenario 1: It is possible that the cost of running the program was too high

The University of Newcastle found in a 2021 survey found the average supermarket grocery bill was A$98 per week for a single person, $145 for two, $168 for three, $187 for four, and $255 for five or more people 

If we say that is about $150 average for a shopper, assuming a shopper only brought at Woolworths and plugging in the benefits as a first-level approximation, we get this.

That means to say the program cost them 3.1% of sales. It is too much, loyalty programs should be about 1%, and 2% is the maximum. Even now, at 2.4%, it is too high. Reviewing your program and seeing if it is paying for itself is crucial.

Scenario 2:  Woolworths is price gouging.

Everything else has gone up. Little went up during COVID, and now everyone is catching up. We all have problems now with our supply line. Maybe Woolworths decided they could get away with charging more and giving less. I am sure someone in Woolworths can and does count these costs. Are you counting your costs?

What can we learn from Woolworths' Everyday Extras program?

• Loyalty programs can be expensive to run.
• Reviewing your program regularly is vital to ensure it's still paying for itself.
• Customers are sensitive to changes in benefits and costs.

If you're considering starting or running a loyalty program for your business, carefully weigh the costs and benefits. And be prepared to make changes if necessary.

Today almost every retailer offers customers a loyalty card to encourage shoppers to return to their store. About 88% of Australians are enrolled, of which 46% are classed as active users as they use four or more programs.

This is a lot of shoppers. The problem is that many people who think they will be only infrequent shoppers will ignore your loyalty program because they feel it is worthwhile. Well, a trusted and tested solution is to give your members an option to use their points to donate to charity. Studies show that 40% of Australians are happy with that.

So you have the same product as someone else, but if they buy from you, you will donate x points to charity. So offer them a chance to contribute their points to a charity. Most of my clients are local businesses, so select a local charity. Make sure it is apolitical. I recommend something to do with medical or kids from a registered charity. Stay away from anything controversial. You are not in business to campaign for causes.

If you need some ideas, click here.

The most popular loyalty program used by retailers today is probably stamped rewards cards. See some samples above

What it is, that a person comes into the shop and buys something. Every time they buy, they get a stamp, and after several purchases, they get something. It is an excellent method if you’re looking for a way to increase repeat customers and sales.

We suggest ten (10) stamps to the goal.

Here is a step-by-step approach that works.

1) Look for items with a decent margin and high demand, e.g. greeting cards, pet accessories, perfume, etc.

However, you can use it for anything. If you are stuck for ideas, consider using all purchases over $10. One problem here is if you try to knockout departments because they are low margin, you are advertising that the other departments are high priced. 

2) You need a design for your cards. Most printers can show you samples. Make sure you keep your brand image in mind, as each card is a simple and effective marketing tool that your customers carry. Select a design that is unique to your shop.

We suggest that it has twelve (12) spots to stamp.

3) Make a use-by date line. Unused points can be a real legal problem for a business. This line will be handwritten on the card.

We suggest a year

4) Select a simple, unique self-inking stamp that fits onto the squares of your loyalty card. This also has been shown to reduce fraud.

- Now, it is up to you if you integrate it into your POS system. There are some significant advantages to making it integrated.

-- It reduces fraud

--- It allows you to track your customers’ spending habits and collect valuable insight into improving your business.

--- Knowing their details, you can market your business to them.

5) When someone buys something on offer in the shop, offer them a card. If yes, they get one stamp for joining the item and one for buying. So everyone starts with two stamps. This gives them the feeling that they are closer to their reward as now they are 17% there (2 stamps out of 12).

We suggest you read it here.if you want to know the scientific reasons why we suggest this:

6) Once the reward is redeemed, they get a new card with one stamp credited for rejoining the program. Then they get another stamp for the free offer they redeemed. This overcomes this problem of them starting with zero as now they are at 17% again.

Give it a try and see how you go. Then let me know.

Ideas people consider:
a) Consider offering a smaller reward on the sixth (6) stamp. In practice, we have not found this to work well. 
b) People that buy on their birthday get an extra stamp. Never seen this idea used, but I think it will work.
c) Big purchases get two stamps. Since the purpose is to get people to buy, this idea seems self-defeating.  
d) Slow days get a bonus stamp. I can see it working well in many retail environments but not in others. Maybe have a chew on this one.

I was reading this article THE OVERSATURATION OF POINTS PROGRAMS: ARE YOU TOO LATE TO THE POINTS PARTY where this expert on loyalty programs answers states, "Therefore, the simple answer is, no, you're not too late. However, one mustn't neglect the core elements that make a loyalty program successful when designing a points-based program."

I agree with him. Retail loyalty is not exclusive; customers can sign up for many customer loyalty programs; no reason why you cannot be in their group. Customer loyalty programs are now a popular way to keep customers.

The core element of modern retailing is DATA, DATA and DATA! The industry standard is that this loyalty data is worth 1% of turnover to a business. This covers a loyalty program's cost as it increases customer frequency of purchases, basket sizes and retention rates.

The loyalty program's value today is access to your customers' email (and SMS) accounts. You can use this to market to your customers. Think of it, it costs nothing to send emails, and the returns can be high. When we measured a simple birthday offer, it had a success rate of 25%. 

What is the problem with telling customers that you exist frequently?

The first point is customer loyalty software. This is essential for running successful reward programs. Well, you have a really good one in your POS Software here. You have various options in choosing programs in your software.

Please give it a go, and let me know how you travel.

Maintaining a strong customer relationship can give your business a solid base.

While having a customer loyalty program is beneficial to your business. You should be aware that somebody will always be looking to take advantage of the perks in your system. Often they do this without realising that their actions count as fraud. So if you run a loyalty program, you should know that it is not immune to fraud.

There are two types of loyalty systems we actively support:

Points: Where someone gets points for each purchase, and they can use these points to get benefits in your store. I have never heard of this fraud in our system. I would know as many of our clients are small to medium businesses who know their regular customers and would report if something goes wrong with these points. It is much harder to commit fraud if customers are verified and their purchases tracked.

Note: It would be highly worrisome if it happened as it would need to be internal as our system is secure using SQL used by banks.

Yet if you buy a business, I cannot emphasise enough how important it is that you address the issue of unused loyalty points with the previous owner.

Discount vouchers: they get an instant credit on their next purchase, say $2 off on their next buy for a $25 purchase.

Now, this I know has caused problems.

A customer leaves the shop and often throws the receipt in a bin nearby. Another person comes along, grabs the receipt, shows up in the shop, and buys a $3 item claiming the $2 discount voucher. One quick fix is to put the receipt in the bag. The problem is that the retailer wants the shopper to see the voucher to encourage them to buy more instantly, so they give it to them in hand. If you question it, his friend, acquaintance, etc., gave it to them.

A similar problem is when a person comes to the shop to buy two things. They buy the first item, collect the discount voucher and use that voucher to buy the second item. This is interesting as it's questionable whether it's fraud or the retailer's stupidity.

Loyalty programs are a great way to build brand loyalty and encourage customers to return to your business but must be reviewed. Check your shop information for suspicious behaviour.

A standard measure is that a loyalty program should cost the retailer about 1% of turnover, although I have seen 2% used. On a million-dollar turnover, you are looking at $10,000 to $20,000, it is worth checking. Also if you are over that, it's certainly time to review what is happening without supplier support, I doubt it's worth it. 

Whenever I talk of loyalty marketing, I almost first hear the public is overwhelmed by the major loyalty programs! If so, why does nearly everyone else do it? Can they not count? For example, I went to a small car parts shop today and was told of their loyalty program. The same happened when I went to a homeware shop. The homeware shop was in a big shopping centre. You might think they do not need a loyalty program as the major loyalty program brings customers in the centre, but they were keen to sign me up too. They even offered a $10 discount to sign up on my first buy.

Loyalty marketing works. That is why retailers use it.

The most successful technique in loyalty marketing is *Birthday Marketing*.

It is so simple to do with our loyalty program. Put in the customer's birthday when entering them into the loyalty program. Although it is much better to use their actual birthday if they do not tell you, make it an anniversary date with their joining date. You can always correct it later if they point it out. Do not worry if it's the wrong date. It will work almost as well anyway. Once done, they enrol on your customer's birthday program. This will allow them to receive special offers and discounts on your products and services on their birthday.

Several years ago, when we did a calculation, we saw about 25% success with our clients in our clients. Here are some figures from  Experian which show a higher figure.

) People buy on birthdays

) Birthdays are all year round

To do Birthday marketing, you must send a simple 'Happy Birthday' message. It will be appreciated and read. Almost everybody reads these emails. To start, here is a simple email to send, which I am sure you can improve to your needs with little effort.

Happy Birthday Email

Happy birthday, <name of customer>

Thank you for being with us. We want to make your birthday as memorable as possible. To celebrate, we're are <something>.

We appreciate everything you do for us and hope you have a wonderful day and year!

Wishing you all the best,

The friendly crew at <your shop>

Set up here.

​For many years, the study "For the love or money" has been the best study of Australia's customer loyalty and loyalty programs. The 2022 edition is now released. You need to pay for the study itself, but the executive summary is free and accessible here.

It is worth a read if you are a retailer thinking about a loyalty program. 

About 88% of Australians enrolled in at least one loyalty program. The average is 4.3.

About 46% consider themselves active, which is up on last year. That is a lot of people, about 40% of Australia active.

Have a read. I am confident you will get a few thoughts.

What is commonly done is to measure a customer's spending in a loyalty program in a retail shop. Then compare these figures to the average customer.

I am sceptical.

The spend is not profit.

Yet many so-called retail experts quote this as a critical measure of how successful the loyalty program is as they rarely get profit figures. So this is the best they can do.

The other issue is that one supposes that members of your loyalty programs are already spending more in your shop. So, in most cases, they are spending more with you already. The extra problem here is that they do it to gain more rewards in their purchases, so you are often discounting your products to people who are buying them anyway.

If you are running a loyalty/VIP program in your shop, here are some KPIs; I recommend looking into them.

In my experience, even vague figures are better than none.

Budget

A professional marketer will budget a loyalty program's cost at 1% of sales. Sometimes they will take it to 2%, but it is too much to do anything higher without the suppliers' help. If you are doing a million turnover in your shop, you are looking at about $10,000 cost maximum. 

You need to know whether you are getting $10,000 back in profit.

Membership

Examine your membership. How big is it? Is it growing or declining? Where are the members coming from? Existing customers or new customers? If it's existing customers, then your program is dubious.

To determine this, you need names.

Are you just giving a discount to existing customers?

Email list

The email addresses are said to be worth 2%. If you are not collecting these email addresses, your loyalty program is down 2%. In today's market, you must communicate with your customers. You have to find a way to get your customers to come back. This is the key to profitability.

Usage

How many are using it, and at what frequency?

Member spending vs. non-member spending

The primary purpose of a loyalty program is to get you more customers and get them to spend more. Is it? So do not just check the sales totals but also the basket size, profitability, etc.

Pre-membership vs post-membership spending

What do you need to know that it is working?

The figures can be gotten here.

​Use your data, not the seat of your pants.

If you’re a retailer not running a loyalty program, what does it cost you?

Let us do a guesstimate.

Say you collect a 1,000 email addresses of your customers.

Say you send out a monthly email newsletter to them. This costs you nothing.

At a super conservative value of 1% effectiveness, say with $20 profit per hit. That is a $200/month profit on 1,000 members of your loyalty club.

In one year, you have about $2,500. Its paid its way.

Plus, it puts your name out in front for no cost.

A card promotion advertised through a loyalty program resulted in

-No of transactions increased 20.7%

-Total average weekly increase (overall) on cards was 44.5%

-Average card basket size increase 19.8%

Plus, there were extra purchases as customers bought more than cards.

Read more here.

The current report of probably the best loyalty analysis in Australia is now out at For Love or Money™ 2021. It is in its 9th edition. 

If you want, a free and quite detailed executive summary is available there too. One point for sure if you get it, it will give you much to chew over. It did me.

Looking through the report, I noticed that the active participation rate is down. This is not a COVID thing, as it's been going down since 2015. In 2015, 59% of Australian shoppers used a loyalty program. Today it is down to 43%. Also, transactional loyalty programs, where the customer gets money, are down in 2019. Then, they comprised 76% of all loyalty programs; now, in 2021, they are down to 69%. I am not surprised as these schemes often end out giving away margins with little reward to the merchant. 

Far too often, the customers in loyalty programs will often buy the items anyway. Hold this thought as important later.

Still, after going over these reports plus what I know, here is a guestimate of a budget of what a modern loyalty program would cost you.

Your customer's name and emails addresses, buying history and their permission to use the information in your loyalty program are considered to be worth about 1%. So most loyalty programs tend to hover about this figure. If they go much over this, it is generally because of suppliers help. For example, you promote a supplier product in exchange for them giving you a lower price during the sale. 

So if we are looking at million-dollar sales in a shop, your budget   (1%)  is $10,000. Say your expenses of running the loyalty program is $2,000. Then we have about $8,000 worth of product discounts to give away. 

Now based on the report, only about 48% of the people using your loyalty program are buying because of your loyalty program.  

So if your margin is 30%, to cover your $10,000 expenditure, you need to get about $70,000 of turnover in your loyalty program. 

The formula here is (Turnover required) = (1% of turnover)/((margin%)x48%) 

In this case, the discount you would be offering your customer =$8,000/$70,000  about 10%. 

If the margin you are pushing is 50%, then you need about $40,000.

The discount you could offer your customer much better, about $8,000/$40,000 or 20%.

So push a higher margin item in your loyalty program.

Note few professional marketers get profitability figures. Only only transaction amounts and they work on average industry needs. Your views might be different on this as you have detailed financial figures and specialised needs.  

Also, consider that a loyalty program is a minor factor in your customer loyalty. It is minor. A factor far more important is your relationship with your customers. 

Still, this gives you a starting point.

For four hours on Friday evening, many Coles supermarkets had to close. This was because they had technical issues with their POS Software processing payments at the point-of-sale. 

If Coles had our Multi-Shop POS Software with replication, this would not have happened. Which highlighted one interesting observation made by Xero CEO to me that often "small business today has better technology than big business".

Still, this outage would have cost a lot, plus Coles would have suffered a  loss of goodwill. What happened is what we call in business - a pain point. So we can see how they used their loyalty program in response to this pain point. The very next day they offered their customers "triple flybuys points...purchases" also free delivery to online shoppers who spend $50 or more.

It shows the flexibility of loyalty points, that as required, it is easy to adjust. I have also seen it to encourage shoppers on slow days when they offer something like "double point on...."

If you have not yet got a loyalty program, I can assure you that it works well in all business sizes. So check out this quick video.

Then take a look at the free loyalty program and free CRM offered by our POS software.

This highlights the problems with loyalty rewards that do *NOT* have computer auditing to the account.

Yesterday the Woolworths receipt hack received comprehensive coverage.

What it is that a person collects receipts from the bin or trolley in this case. Using these receipts, they then claim the benefits of the shop's loyalty program. 

Here, the person did not even think she was stealing, nor did many in public. 

The result is that the retailer pays the person who may not even shop at the store the benefits. This payout can be very high. For example, merchants are advised on discount vouchers to set the payout at 50% of the profit. Here you would be giving half the profits to someone who does not even shop with them.

It goes much deeper than that. 

Loyalty rewards programs do not get much in the way of scrutiny. Security is often very lax as the rewards are not cash. That makes it open for abuse. This lack of oversight attracts thieves.

What you need to do is examine your loyalty programs for any such potential loopholes. 

Then Make Your Reward Loyalty Program Secure

One of the most popular and successful loyalty programs in our software is issuing stamps. 

Here is a typical offer. A person comes into the shop and buys something. Every time they buy, they get a stamp in our case an electronic listing too so here after ten (10) visits on the next trip, they get something. 

This sort of offer works for anything, greeting cards, coffee, pet food, haircuts, etc.

Now follow where the problem arises. 

At first, the customer comes in and buys a product. They are notified of the offer, so they get a card. One item stamped so they are 10% into it (1 stamp out of ten), and they work their way to ten. But here is the issue, once the person has their free article, they start again from zero. Starting from zero does not motivate people much.

So here is a better way to do it.

Make program active on the 12 visits. 

Here is how it should be done.

- When the person first comes into the shop and buys something, they get one stamp for joining. They then get a stamp for their first buy. So they are starting with two stamps. This gives them the feeling that they are getting closer to their reward as now they are 17% (2 stamps out of 12) through it. 

-Once they redeem their free item, they get a new card with one stamp credited for rejoining the program. They get another stamp for the free offer they redeemed. This overcomes this problem of them starting with zero as now they are at 17% again.

Give it a try and see how you go. Then let me know.

What is clear now that many retailers immediate and top priority in their loyalty programs is customer retention. Any increase in sales by upselling and getting them to buy more often is now all secondary. 
Not surprising as customers are up for grabs now. 

People are now buying brands that they never purchased before. They are buying from people that they never dealt with before. 

This is the kicker; they have been doing this for months and will continue to do this for more months and something done for months is a habit creation,

We are in the middle of a retail transformational period. 

Questions:

Are those people you lost, going to come back to you?
New people coming to you now are they going to stay with you? 

I have clients who are shut. I see that they are on pushing their store to their former customers on social media. Telling them, they intend to re-open.

Why? 
Answer because they do not want their customers to forget about them.

The first step at the front of the shop like here,

when they are buying, at the point of sale, make sure they know you have a loyalty program.

Then make sure that they can sign up immediately.