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Experiences – Not Coupons – Create Loyalty

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Which stores do a great job of creating loyalty? How do engagement and experience play into that? These are questions I found myself asking as I went on a hastily planned shopping experience to the local upscale mall.

We at Loyalty 360 believe the idea of loyalty is changing. We speak of the “bigger picture” of loyalty that includes not only the point and transactional-based elements of a loyalty program, but also the engagement and experience side. The engagement and experiences you have with a merchant help create the mindset of if, how and for how long you will interact with them.

To set the stage, I am the Keynote speaker for Hewlett Packard’s 2011 HP Card and Payments Innovation Forum. The conference is being held in Hawaii and I realized that I probably should get some new shorts (Express), sandals (was going to look) and a new pair of dress shoes (Ecco) for the show.

For those who do not know me personally, I love shoes (well, clothes in general) and I am a LOYAL Ecco fan. There is really nothing else I will wear when it comes to dress shoes. They are moderately priced and the MOST comfortable dress shoe you can own. I choose comfort over looks, yet with Ecco you get both.

Throughout my 10-year relationship with Ecco, the customer experience in their shops (online, offline and phone/catalog) has always been top notch. These varied interactions, coupled with the high quality of the product, have continued to reinforce my loyalty to Ecco.

Although Ecco periodically mails coupons and sends catalogs, neither of these really influence my shopping behavior. With other brands (such as Staples, Express, OfficeMax, Kroger’s, Macy’s, my local Mexican restaurant, etc.), I rarely ever make a purchase without having a coupon, discount, or offer in hand. Why is that? Is the loyalty I have with Ecco different than the loyalty I have with others? Or have the interactions with the others been conditioned on my expectation of a discount?

Have these brands conditioned their others customers (or is it just me?) to only purchase when there is a coupon or an offer? And if so, does it make sense to influence /create that shopping behavior from the inception? It is difficult to change the “coupon” mindset. I rarely will make an office purchase without a coupon; it is a behavior that is hard set with me. I’m not sure the large three office products players have created an engagement/loyalty strategy that enhances the value for their shoppers. Is the loyalty of their customers any different from the troves of people who use the daily deal sites? 

As I pose that question, I consider yesterday’s shopping experience with my six year old daughter. I had my coupon (25% off my next purchase at Express) and was ready to make a few quick stops at one of the malls in Cincinnati and get on with our Saturday activities. The first stop was Ecco Domain where I only planned on buying the dress shoes. But the service—“Yes sir,” “Would your daughter like a pair of footies to take with her?”—made the shopping experience amazing. What made it even more interesting was that I had just come from Tae Kwon Do so I was in Nike deck shoes, my do-bok (Tae Kwon Do outfit) and didn’t look like I should be spending $250 for a pair of shoes. Yet when I left that store, I had not only purchased the black dress shoes I wanted, but the very overpriced sandals I needed as well—leaving Foot Locker or others without the Nike sandal purchase I anticipated making that day.

After leaving Ecco Domain, I went with coupon in hand to the Express store, only to find out the store was closed. I did not know the store was closed, and didn’t bother looking at the other stores (for which I had no coupon) to buy the shorts. So, I have a degree of loyalty to Express when it comes to shorts, but 90% of the time will only make a purchase with a coupon.

The next two stores and their approaches to loyalty were interesting. My daughter mentioned a store called Justice (one I had never heard of) and that she wanted to “buy something.” I figured that I would indulge her since she had gone with me, yet I had NO idea what the store was.

On the way to Justice (my daughter got “turned around” a little bit); we ended up walking past the Apple store. As we walked by, my daughter grabbed my left hand and stated, “WE ARE NOT GOING IN THERE DADDY, you have enough of those ‘COMPUTERS.’” Good point! So we ended up walking past the Godiva chocolate store and since my wife is pregnant I thought I would buy her some dark chocolate, which she loves. The counter clerk asked if I wanted to sign up for their loyalty program and I said yes (since it DID NOT include a card and was tied to your email address and could be tracked by your phone number).

One of the perks of Godiva’s program is a free piece of chocolate each month. What an engaging strategy. Once a month, when the patrons are in their local mall they get a free piece of Godiva chocolate (sans a couple of limitations) and that experience will create unmeasured engagement and, therefore, loyalty to a brand that I would never have considered before. So each time I am in the mall, it will trigger a reminder that I have a complimentary piece of chocolate (surprise and delight) for someone in my family. Getting me, and others into the store for that “free” piece of chocolate will lead to huge incremental purchases even if I have three kids with me, as one piece of free chocolate will inevitably lead to purchases of at least two others. Amazing experience and creative engagement—versus giving me a 25% off coupon—resulted in loyalty that should be quite valuable over the long run.

After leaving Godiva, we found Justice. As I mentioned, Justice was new to me. I had no idea what to expect, and as we entered the store I realized it was a tweener temporal clothing store with loud, bright and somewhat inappropriate outfits (for my daughter’s age). Yet, it was NOT the clothing that she was interested in, it was the trinkets—some small pencil eraser top collectibles—on display in the middle of the store she wanted. I was willing to buy a larger package that she could share with her sister at $18.00 (16 per packet), but she did not want to share, so we decided on three smaller packets for $9.00 (6 per packet) for my three girls.

While in line, I noticed that a woman had a 40% off coupon, and I asked her if I could have the coupon. She was nice enough to give it to me, which led me to uptick my purchase to the $18.00 packets for my girls. The incremental revenue was $1.80 or 20% for a much larger product. I also purchased two shirts on the way out the door that I probably would have without the coupon, but it cost the store 40%. First off, I realize the margins on their products are probably quite substantial, yet it did create in me (and others) a behavior, an expectation that is set going forward.

This behavior, to shop only when there is a coupon is not healthy from a loyalty perspective: the switching costs are lower and the lack of differentiation, the lack of engagement, is all at risk. I would have made a purchase of $63 without the coupons, but I spent $54 with the coupons. Interesting to me. Not that this is a high end purchase, yet when I compare it to the Godiva and Ecco experience (yes, there is huge difference in product), I realize the experience was quite different and set my expectations from my first shopping experience to only purchase with coupon—not a strategy that will engage me in the brand and drive my loyalty.

So my question is one that Fred Reicheld, in the Ultimate Question, asked: “Why do companies get addicted to bad profits?” Would it have not been more effective to create an engaging shopping experience not predicated on coupon usage that would have created loyalty? Remember, I have three daughters under 6 and I am sure I will make several more purchases there over the year and that I will be “dragged” to the store time and time again over the several years. Engagement would have been better if Justice would have structured a loyalty program that GAVE AWAY “a free piece of chocolate.” Free monthly pencil erasers, bracelets, silly bandz, etc. would have created SIGNIFICNANTLY greater engagement and I would have three children BEGGING me to go to the store each month to get their “free piece of chocolate.”

I would have made the purchases without the coupon. Was it wise to create that dependency so early in the relationship? Loyalty could have been extremely enhanced without the coupon addition. In this day and age of “deal of the day” sites that create one-off purchases, they are NOT creating engaged, and loyalty brand advocates. This is what all brands want and need for long term prosperity.

 

Comments 0 comments

  1. Evan wrote: (on 05/18/2011 @ 4:33 pm)

    Nice piece…enjoyed it and shared it!

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