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Loyalty Programs For Your Customers and The Domino Effect

After having just endured Black Friday and Cyber Monday, and with the holidays right around the corner, there has been a renewed interest in seeking ways to improve the retail shopping experience. Customer satisfaction and retention are important concepts within all industries, especially within the Retail sector. Customer satisfaction is directly linked to Customer loyalty, which, in turn, generates revenue and profitability. Small margins, fierce competition, technologically- savvy shoppers, and an economic environment on the brink, are making it very difficult for the brick- and- mortar retailers to survive; let alone to thrive.

In the past, the main focus of a retailer was to concentrate on the product and merchandise, hoping that if the product was of superior quality or particularly useful, and the brand strong enough, the people will flock to acquire it. Retailers have realized that excellence of a product or brand is not the only determinant in these competitive times. The real benchmark that has emerged is customer satisfaction and advocacy. Think-tanks and Fortune 500’s have mulled over this dilemma long and hard, to figure out how to outshine their competitors, especially when their products become commoditized.

Countless studies have been carried out, in which the level of [pre-sale/after-sale] service was shown as the main success factor in terms of whether a customer would recommend an product or service to another or – decide to abandon the product. A study by top management consultancy Bain and Company states, that a customer is 4 times more likely to defect to a competitor,  if the problem stems from poor  or unsatisfactory service, rather than related to the  price or the actual product.


In light of this, there was a frantic dash by retailers to improve customer service.  Companies started trying numerous tactics to enhance service –  such as concierge facilities, free lattes, implementing multi-channel CRM systems, ubiquitous and easily copied customer discount cards, and loyalty programs – in order to help assuage irate customers, and keep them from defecting to a competitor. They realized however, that costs increased dramatically, and the small margins grew even smaller (yet the level of service did not indicate any improvement).

Another issue was creating a constant culture of service in the retail industry was very difficult to maintain, especially with front line staff. Companies realized that happy staff equals productive and helpful employees – which in turn, translates into consummate customer service – and eventually  into satisfied customers. Still, companies in the retail sector see a huge turnover in staff – by some estimates – over 110% attrition. This high turnover can lead to additional costs and difficulty to promote a service culture, plus the constant need to hire, train and retrain staff.

Retailers tried to promote employee loyalty in a number of ways such as flex-time, higher commissions, recognition awards, occasional gifts, employee discounts.  One clothing retailer even tried a retirement and pension fund. The industry still saw a very high level of turnover and a general lack of loyalty among their front line staff. The traditional loyalty methods were not very effective in driving employee loyalty- or subsequently good customer service and satisfaction.

One has to understand one’s employees to know what motivates them. According to a study by the Families and Work institute,  Gen Y and younger, making up 39% of the Retail workforce, are the ones surveyed as having the shortest tenure within the retailers. Additionally, a large percentage of these Gen Yers are  : Late teens, college student, and those looking for supplementing their  incomes.  Salary or commissions  as well as the various incentives, which promote loyalty, do not necessarily promote key behavior which is linked to creating a customer service culture within the organization. In order to create such a climate and to incentivize desired behavior, there has to be a clear cause- and- effect linkage between desired behavior and associated reward. Employee discounts, and other such incentives may go a long way to reduce turnover, but do they impact how a retail store employee will deliver customer service?  That is still unclear.

One of the most effective methods of driving or encouraging key customer behavior is the loyalty program. The travel and transportation industry, as well as some high-end retailers have been able to drive customer behavior and retention, through the use of loyalty programs.  It would then make sense, that a similar strategy could be adopted by retailers for their employees. Companies should develop a loyalty program, based on points for key behavior, deemed to encourage increased customer satisfaction by employees.

Every time there is evidence of such behavior, the sales assistant or store clerk will receive loyalty points akin to frequent flyer points. For example, if a sales assistant at a clothing store or boutique chain really expends a great deal of effort to help with the selection of the right products or merchandise for a particular customer, the customer will rate the assistant on a scale of 1-5 and points, which will be credited to the store assistants’ loyalty account. Various technological tools can be used for such an assessment.

The Loyalty program itself will be created through the use of a loyalty software solution – ratings by customers will be assigned using devices such as mini-kiosks or LCD screens or even tablet PCs carried by the sales assistants placed around the store or at the cashiers. The customer will just have to note the name of the assistant, and pull it up from a drop down list of values.  Retailers could take a page out of the travel industry’s playbook and come up with innovative methods to encourage key behavior among its front line staff. In order for the customers to participate in this exercise, loyalty points will be credited to the customers’ account as well in order to incentivize them to rate the staff member. As far as redemptions are concerned, the store employees can opt for gifts, gadgets, food and beverage concessions, even trips and hotel.

Loyalty points may not necessarily reduce the turnover at retailers, but by rewarding staff who carry out customer- oriented behavior in an immediate and tangible manner which elicits similar behavior, results in satisfied customers – and eventually into loyal-spending customers. The inculcation of such an internal loyalty program can go beyond the retail industry and can apply to any service industry – commercial aviation  hospitality, and more.

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