By  on September 7, 2007

NEW YORK — Conventional wisdom is that loyalty programs can help lure shoppers not currently frequenting their respective stores.

But that's not the most effective use of money, according to Larry Aronson, a former Revlon executive who has cofounded Cartwheel LLC, a company specializing in loyalty programs. His take sounds confusing, but actually makes sense.

"If you have 10 percent of your shoppers doing 51 percent of your business and spending $750 on the front end and 30 percent producing 37 percent of the business spending $190 with 60 percent doing the remaining 12 percent and only spending $30 a year, you might think you need to go after the bottom group," said Aronson. "But that group spending $750 in your stores are your shoppers who have made your store their primary store. We would make the case they are already shopping your stores so you can get more of their business."

It is harder to change shopping behavior, he suggested, than it is to encourage customers to increase the number of times they frequent a store they already like and support. "It is time to start thinking about spending against your best shoppers and reward them," he added.

Aronson's work with chains and loyalty programs reveals customers really like rewards — especially easy-to-use cash deals. An example is a newly created program for Drug Fair Group Inc., based in Somerset, N.J., called WE CARE. This program rewards shoppers every time they use their card to make a purchase. They get one reward point for each dollar spent at Drug Fair or Cost Cutters. When $150 is tallied a $5 coupon is printed on the receipt to be used on the next visit.

Duane Reade has had a loyalty program in effect for some time and former senior vice president of marketing and merchandising for the chain, Gary Charboneau, said there was "immediate" response to the coupon. In particular, persons who were pretty loyal already to Duane Reade as much as doubled their visits.

Charboneau was named earlier this week to the advisory board at Cartwheel and will use his vast retail experience to help Cartwheel serve its partners. "I believe there is great untapped potential for retailers across channels to more effectively use the shopper information generated by loyalty programs to build their business," said Charboneau.Instant rewards aren't the only benefits to loyalty programs, said both Aronson and Charboneau. More needs to be done than just offer the discounts. Further digging into the data can help retailers market specific items, services or new products to shoppers who frequent those categories. "It is like scan data. You have to do more than just let it accumulate. You have to use it," suggested Aronson.

Chains can determine how they best want to reach out to shoppers, be it life stages, illnesses — such as persons with diabetes — or even those who always buy the latest new beauty item. Customers can be reached again via the register or in direct-mail activity. For example, when a new mascara is launched, a chain could direct mail to heavy users to let them know and give them a coupon.

"Much of marketing is difficult to measure," noted Aronson. "The beauty of this is it is easy to measure. You can specifically see how many more people your dollars bring in." The coupons typically have a short-term expiration date so shoppers are driven quickly into stores.

Loyalty programs, he added, can be important with cosmetics — especially since failures in beauty can be so costly. Loyalty strategies can even be used to micromarket brands to a desired audience. Manufacturers can also use retail programs to help target more of their "best" customers, too. That was a point brought out by Tim LaBeau, chief executive officer of Drug Fair Group Inc., who said the loyalty program would give the chain the "opportunity to work closely with our suppliers in the development of new ways to communicate with our shared customers."

Down the road, Aronson thinks loyalty programs could be one of the factors separating one chain from another across the street. He pointed to the success of Tesco plc in building its frequent shopper program. In the U.S., food chains have been way ahead of other channels. However, drugstores are quickly catching up. Aronson added that loyalty programs are among several efforts retailers should use and that top management needs to be on board to make the efforts pay off.

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