How loyalty programmes create value and returns on capital employed

Posted on: 10th January 2019

Liquid Barcodes, the loyalty marketing expert, has become the go-to source for retailers in the convenience industry who wish to make O2O (online to offline) a strategic business imperative.

Headed up by Mats Danielsen, a former Circle K executive, Liquid Barcodes is focused on digital marketing and loyalty and on an international basis. 

“We are studying the competition and what different retailers are doing in digital marketing and loyalty around the world,” Danielsen says. “We are now sharing that point of view and not just our own case studies but with a global perspective.”

To that end, Liquid Barcodes recently launched its own blog featuring two types of articles: a series of CEO interviews, entitled “What I Know for Sure About Loyalty’; and a rewards programme review, titled “All You Need to Know About”. Both have now been included in a new book.

Danielsen recently shared many of these insights to a NACS UK/Ireland CEO roundtable in Dublin, showcasing how loyalty programmes create value and returns on capital employed (ROCE). He also presented global best practice case studies and provided recommendations for future loyalty programme success.

Danielsen highlights the Circle K Hong Kong CEO, Richard Yeung, as a champion for developing a digital business strategy.

Yeung, who will host the NACS Insight study tour in Hong Kong, ahead of the NACS Convenience Summit Asia in March 2019, has stated that building a true O2O business is his number one priority. “My convenience business must reflect customer priorities in the 21st century,” Yeung says.

Danielsen suggests many convenience retailers may have an app but that it’s not an integral part of their business in the way Yeung envisages.

However, c-stores are perfectly placed to build their own online channel because they already have customers walking into store, unlike pure-play online retailers, he adds.

For Yeung, every offline visit provides an opportunity to recruit and activate customers online: recruit new customers and activate existing ones. There should always be reason to open an app before and after a store visit, he maintains. The app may not necessarily play a role in-store but the experience must be easy, fast and simple, Yeung says.

According to Danielsen, there are a number of ways in which online can drive value for convenience stores. These include customers topping up prepaid accounts, buying a subscription, participation by supplier brands in financing promotions, driving brand awareness, increasing traffic to store and data collection.

Some of these drivers, such as retailer prepaid accounts and selling out of store, are more direct than others. Prepaid accounts reduce accounts receivables and payment transaction fees, for example; while order & pay – moves the purchase decision out of store and to the online channel. Others, such as data collection, are more indirect value drivers. For Yeung at Circle K Hong Kong, creating his own, rich communication channel to engage with customers is a central value driver since it creates cost reductions and reduces the retailer’s media dependency. All of these value drivers, however, impact a retailer’s ROCE, Danielsen adds.

For Liquid Barcodes, the execution is also key in order to create a customer connection cycle where retailers recruit customers, engage with them, promote to them to get them into store and then encourage trading up but in a frictionless manner. They then must reward shoppers to win their return business, analyse the data and operate. Maintaining a strong active member base is also critical. “Only active members can represent value for your business. This means you need to recruit members and continuously keep them active,” Danielsen says.

In his Dublin presentation, Liquid Barcodes highlighted three world class loyalty programmes – Starbucks, 7-Eleven in the US and Circle K Hong Kong. None of them are Liquid Barcodes customers but their loyalty programmes all demonstrate three key facets: they are clear, compelling and consistent.

Starbucks rewards is a very clear and simple programme with two tiers – green and gold. Stars are points and customers earn two points per dollar spent. The gold level is achieved for a 150 dollar spend. According to Danielsen, the most compelling feature of the programme is “jump the line”. It is also a very consistent programme – it’s been largely unchanged for years, featuring stars, two tiers and the wallet. For Starbucks, the wallet is the most important value driver here, Danielsen says.

In terms of the customer connection cycle, jump the line does a lot for app recruitment, Danielsen says. “Howard Schulz talked about creating a theatre in store with the baristas making coffee, but now there is a new theatre in-store – it’s when you are in line and app users jump the line. It creates such a strong motivation to download the app,” he says. Danielsen reports that Starbucks rewards is probably the programme that gives the least to the customers in terms of discount out of those he has reviewed. “It’s the premium brand that allows them to do that. And with the two-tiered program they’ve created an even more exclusive or premium feeling. The wallet drives ROCE for Starbucks and it makes even more sense for their customers now with order ahead,” he says.

7-Eleven’s 7Rewards in the US is also a clear programme, although it has more features than Starbucks. Again, customers earn points on all purchases. It also includes a broad stamp card across all cups – coffee, slurpee and fountain. “It’s compelling as all purchases matter,” says Danielsen. It’s also consistent – 7-Eleven has kept its seventh cup for free unchanged for several years. “The important value driver for 7-Eleven is the reward shop that gives them margin control for redemption of points,” Danielsen says. “Another key point here is that if you don’t have transactions in-store within 90 days your points expire,” he reports.

In terms of the customer connection cycle, 7-Eleven is doing many more promotional activities with its programme. It uses instant sign-up rewards to recruit and it has double-points products. It has also introduced streak periods – a concept copied from Snapchat – which is all about driving frequency and habits. It’s a four-tiered program focused on the in-app shop where customers spend their points. In-store, it is a one-scan solution – users scan their member’s ID presented in the app.

Circle K Hong Kong’s app is called Stamp it and features 12 different stamp cards. “It’s very clear,” Danielsen says. “There’s no points.” On top of product specific stamp cards there is a main stamp card that gives customers a stamp for every day they make a visit – and if they make 30 visits in 90 days they reach gold level, which entitles them to VIP offers. According to Danielsen, that’s compelling. “Yeung is thinking long-term with his O2O model,” he says. “The important value driver here is owning the channel of communicating with his customers. There is more marketing communication and two-way interaction going on in this app than at Starbucks and 7-Eleven,” he reports. “You can share coupons or stamps with friends and you can ‘favourite’ content and play games.”

Across the customer connection cycle, Circle K Hong is making the online to offline connection. “There is always a reason to open the app after a visit,” Danielsen says. This could be a new coupon with a short time to expiry or a game the customer can play. It’s a simple, two-tiered programme and, while a customer can scan their app code in-store, they can also use their Octopus prepaid cards, which are omnipresent in Hong Kong. “This is coming back to Richard’s point – the app does not have to play a role in-store if there are other ways that are easy, fast and simple,” Danielsen says.

Liquid Barcodes, which launched a number of significant new partnerships with retailers in global markets in 2018, provides a number of recommended features for convenience loyalty programmes such as jump the line, tiered programmes, personalised offers and rewards on all purchases. However, Danielsen stresses that one size does not fit all.

“You need to decide where you want to start and what value drivers you want your programme to cover over time. Keep your eyes on the ball – ensure that you and your team agree on how you want your programme to create value for your business,” he says.

Liquid Barcodes also recommends retailers track four KPIs to measure their convenience loyalty programme success. These are: net promoter scores, loyalty share, number of interactions and shopper frequency.

Danielsen also cautions retailers on believing it’s just about loyalty. “Digital solutions can also remove friction,” he states. The ability to pre-order and pay at Starbucks, for example, improves the operational efficiency for both customers and employees alike. And, it’s delivering on that O2O strategic business objective too.

See more perspective from Danielsen from the latest NACs Show:

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