Know-How Exchange : Other

Hi Firas

I was just thinking about old gas station promotions yesterday. I remember when they'd give away tableware with a minimum 8 gallon purchase. You could get plates, glasses or utensils, each time you filled the gas tank. I think some of the premiums offered were mugs and/or shot glasses, to appeal more to men.....but I don't recall, exactly.

Not sure if that's the type of promotion you had in mind, but I liked it because it built brand loyalty as the customers pursued a goal of getting a complete set of matching tableware.

James

Why not borrow from the airline frequent flyer programs? Collect points based on past purchases. Have different level of gifts based on accumulated points. For example: 100 points is $10 off next purchase. 10,000 points is free petrol for an auto for 6 months, etc.

Hi Firas

The first part I hope you're looking at is whether to acquire new customers or keep existing ones. Both are very important and yet have different context of perceived value equation by the customer.

Having previously managed a loyalty program that has a fuel partner, the value equation designed was very simple and had very low overhead - and worked very well. Our coalition model was tied to a consumer membership where customers would receive 1, 2 or 3% of purchase value as stored reward (ie $100 spend = $1 stored value) and then customer could bank dollars to redeem later for travel, insurance, merchandise or other member benefits.

Setting up your own program will have substantial design, start-up and maintenance costs...and risk as you try to ensure your offering is compelling to those customers. I'd recommend you look at potential partnership opps with entities like AAA or other retail coalition partnership where there is strong fit to desired customer base and effective reward offerings that are relevant to consumers (look at program redemption stats)

hope that helps

Arthur

Dear Arthur

I did a bit of a study into this for a CRM customer who wanted to execute a loyalty operation and to run it themselves. They were dissuaded from doing so.

The Tesco scheme referred to above is run by Dunnhumby who initially set up the points scheme with a loyalty card and POS access to the customer database. Tesco have a major stake in the business and helped to finance the set-up but it is independent, earning a fortune for the owners (Ms’s Dunn and Humby) Therein is the problem with doing your own scheme – the set-up costs and the infrastructure needed to run it efficiently without denting profits.

After initially ridiculing the loyalty card as “The new version of Green-Shield Stamps (Down-market savings stamps) Tesco’s rivals were astonished at how their competitor mined the information gathered for marketing purposes and just how seriously customers took to collecting points. Notably, rather than set up their own cards, most, such as Sainsbury have opted into a transferable loyalty card which has specific benefits in their stores but can also be used at other outlets to gain points. The main reason for this was the cost and time needed to set up their own scheme and a growing realisation that customers would not wish to wander around clutching 100 loyalty cards for each and every thing they buy.

In the UK the card to adopt is Nectar, which offers loyalty benefits and access to the data for analysis, but it has the disadvantage of being capable of being used, to the customer’s advantage, in competitor’s stores. Other major retailers have actually gone for their own card and suffered in the start-up phase, taking up to 3 years to work profitably.

In petrol (gasoline to you!) retailing, the use of a loyalty card is constrained by thin margins. Typically, only 4-5% of the sale price is gross profit – the net profit depending on how well run the petrol station is. That’s a small percentage from which to take a share of redeemable points unless the supplier chips in with some of their margin. As almost all Oil companies claim to lose money on petrol sales that is a hard bargain to strike.

Out of interest, given the number of up-stream things they claim to lose money on, how come anyone gets round to buying oil from their one profitable area – drilling and extraction, if all they are going to do with the raw product is to lose money on it!?

Your best bet is therefore to join in with an existing scheme – Dunnhumby sell their services to third parties, including supermarkets, but notably not where they compete with Tesco. Nectar which is used by rival Sainsbury and Oil Company, BP use Nectar points.

One option which needs a license to operate legally is to use points accumulated to pay for entries into a prize draw. Scratch cards with a maximum £10,000 prize were very popular in the UK in the 1980’s and were given out for every £5 spent on gas. They have the disadvantage that whilst engendering loyalty they also engender frustration and give the retailer no marketing data in return for the promotion.

Another scheme was to hand out half of a redeemable coupon made to look like a banknote. The idea was that the customer would keep on collecting halves until they got a matching pair. The idea fell apart when people started to advertise for the other half of a bill – say offering £400 for the right hand part of a £1000 bill. The profusion of adverts for a right hand half of a £1,000 made a largely innumerate customer base realise that the value was actually in the right hand bit and that they were very rare indeed, whereas left hand halves were plentiful. Again, this scheme does not give the retailer any marketing or spending data.

The two greatest reasons for not doing it yourself are start-up costs and roll out times. In addition there is the disadvantage of trying to get the customers to accept yet another loyalty card.

Best wishes


Steve Alker
Xspirt