Saturday, May 24, 2008

Just a date or serial monogamy?: Loyalty programs in an economic downturn

Here's a follow-up to ongoing stories about consumer behavior during economic slowdowns (as a stress-reducer, I’ll still avoid using the R-word): The key question for retail sales right now is, of course, how to keep spending steady? Or, in other words, how do we know you love us if you don’t come back for more? Right now spending is unquestionably heading down and as those tax rebate checks begin rolling out, the necessities (food, gas, and love?) will come first. Surveys say we should expect to see people using that small boost to fulfill daily needs and bring down personal debt.

Some reports suggest that technology sales are still good: people continue to see televisions and cell phones in the category of "needs" rather than "luxuries" (and in a perfect world, my economic stimulus package would prove my love for Apple in the form of an iPhone). But aside from that, most analysts suggest that even adjusting for housing and car sales, personal consumption is shaky. As Mike Mandel of Business Week points out, it's also a bit hard to define:

What the government calls "personal consumption" is actually a grab bag of items, some of which don't really fit the usual notion of consumer spending. For example, the nation's current annual personal consumption of $10 trillion includes about $1.8 trillion in outlays by Medicare, Medicaid, and private health insurance providers... In fact, once medical outlays... are set aside, it turns out that the rest of personal spending has actually fallen since November, adjusted for inflation. The decline is pretty much across the board: inflation-adjusted purchases of food, clothing, furniture, and motor vehicles are all down. The part of health-care spending that individuals control most directly—prescription drugs—is down as well.
Although spending on clothing and household goods looks tight, Kohl's and Aeropostale posted some gains. But what are they doing that might make a difference? Kohl’s has a two-way romance going: one is a longstanding relationship with its credit card and frequent customers. The second is a flirtation with the regular crowd. The retail giant counts on a strong loyalty marketing program, with a pre-existing direct mail coupon and deeper discounts for credit card holders. At the same time, fliers offer regular deals for "walk-ins." Even teens are spending less, and their loyalty is like a high school crush: the retail love story with Aeropostale will probably be short lived. The clothing company didn't rate a mention in a recent list of "Top 15 Brands for Gen Y Trendsetters."

Where does that leave everyone else in the retail dating game? There’s no question that tempting consumers to spend will depend on incentives such as in-store deals, bargains, and coupons. It also doesn’t hurt if it’s a relationship with perks. Consider the success of grocery store loyalty programs that give regular customers money off at the gas pump for every dollar spent.

In general, loyalty programs might want to increase their flexibility at a time when customer relations are no longer like serial monogamy. Programs where consumers stop getting coupons if they don’t purchase on a regular basis will quickly lose viability. The concept of "unprofitable loyalty" may be worth revisiting so that regulars get more incentives but infrequent customers still feel as though there might be a better bargain in returning rather than seeking out a competitor.


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1 comment:

ro said...

This is a clever post. We have covered gift cards through the holiday season in our blog http://cem.blogware.com. Your comment is telling:
“Where does that leave everyone else in the retail dating game? There’s no question that tempting consumers to spend will depend on incentives such as in-store deals, bargains, and coupons. It also doesn’t hurt if it’s a relationship with perks. Consider the success of grocery store loyalty programs that give regular customers money off at the gas pump for every dollar spent.”
We have to think about your comment: “loyalty programs might want to increase their flexibility at a time when customer relations are no longer like serial monogamy.”