"A good place to begin is to decide what you hope to gain from having a loyalty program"

Bringing it Inside

Warren Zunino

Whether the economy is roaring or whimpering, the popularity of loyalty programs never seems to fade. Although often thinly disguised as a reward plan, customer appreciation program, VIP card, or contest, it's now common for many of the biggest players in retail and food service industries to have a frequency system. Their popularity is due in part to the widely accepted fact that it costs six to eight times more to get a new customer than it does to maintain an existing one.

With such benefits, it's a wonder that every company doesn't already have a program in place. What may be holding some back is that there is a very unique skill set needed to plan, implement, and run such a program. There are companies out there who are more than happy to take these tasks on and run things for a price, but there are drawbacks to taking this route.

Many companies which offer loyalty systems have a one-size-fits-all mentality. They may sell the same program to everyone—sometimes even using the same generic membership card or keytag. This can be a red flag to any company that prides itself on being unique and recognizes that the boxed systems can't possibly deliver the features and brand identification they need. Still other companies offer tailored systems but the cost of having a program custom designed can be prohibitive. The answer—DIY. In this industry Doing It Yourself is called "Bringing It Inside."

Can you go it alone?

All Do It Yourselfers have to take stock of their skills. Recognizing that not everyone can run a band saw or a tile cutter is the same as recognizing that not everyone can plan or run a loyalty program. More than a couple of large chains—who thought they had all the expertise they needed—failed miserably when they brought loyalty systems in-house. In spite of obvious and enviable business skills, these giants ran their own thriving loyalty programs into the ground.

There are fundamental differences in conducting a successful frequency program and running a successful business, but that doesn't mean you can't learn to do both. A good place to begin is to decide on what you hope to gain from having a loyalty program; however, before you can do that you need to know what gains are possible. Most people perceive frequency as a way to instill customer loyalty, but there are many more benefits available if the program is carefully planned and the data accurately mined.

For example, using zip code information it is possible to see how far customers are traveling to reach a store or restaurant . This can: point out promising locations for expansion, track customer activity in locations near competitors, and be useful in planning strategies. Lost customers (those who have not visited in, say, 30 days) can be targeted for a direct mail campaign, and new items and promotions can be test-marketed and with results plotted and tweaked for maximum result before release chain-wide.

Hardware Is Easy Software Is Hard

Once you know what you want, and can hope to get in terms of results, it's time to get the tools and workmen together to make it happen. While identifying what hardware to use can be an easy—and sometimes even an obvious— choice there is a world of minutia and logistical effort involved. Installing a host, running multiple rotary phone lines, LAN connections to database, customer support computers, and connecting UPSes can be daunting, but it pales in contrast to design and implementation of the software.

This code must run the host communication, perform database lookups, make the data accessible to your customer service personnel and, perhaps, your Internet site.

The in-store or front-end section of the system is similar in many ways. Whether you are integrating with an existing cash register or credit card authorization system or planning a stand-beside card-swipe system, your work is cut out for you. The in-store piece is no less important than the host and the software can be as complicated as the host software. Most importantly, they must run together smoothly and reliably.

The host must be able to feed information to a database in some form for the results to have meaning—and the customers to receive their points or prizes. You may decide to let your customers access their accounts via the Internet or you may need to have data available to a staff of customer service personnel. All of these require well-planned software. So where do you get it?

If you don't have a staff of software engineers at your beck and call, you can hire them just as you would contractors to build a house. You wouldn't expect a group of carpenters and electricians to build a house with nothing, but a vague plan scribbled on a napkin but people often expect software engineers to work with a verbal description made over the phone.

While many programmers can help you with this, you may find, that in loyalty, the host and front-end programmers are rarely one and the same. Therefore, you will need a detailed blueprint of what you want in the form of a specification and give the same specification to both host and front-end programmer(s).

A specification lays out the exact ways in which you want the hardware to behave and communicate. To get your specification written, you can roll up your sleeves and DIY. But—and this is the big one—this is the step in the process where it is very important that you have your ducks lined up.

Many software engineers break projects into parts, writing the specification, meeting with their counterpart programmers, possibly rewriting the spec and finally writing the program. If you don't know what's possible and practical, it might be best to go the consultant route. Mistakes at this point can be costly to repair.

Putting It All Together

After the host and front-end systems have been spec'd, written, tested, and installed, there are still tasks to be done. If you have decided to hire and train a group of Customer Service representatives, you will need to provide a way to train and continuously update them on changes in the system, track customer complaints and resolutions, and communicate with the customer database. If you have chosen to put it all on the Internet, there is Internet and database software to be written, etc. Additionally, Programs have to be maintained. As odd as it sounds, software requires maintenance and repairs from time to time (remember Y2K? ).

So, is it all worth it? Is having a loyalty program worth all the trouble and expense of hiring contractors and consultants, buying computer hardware, hiring and training more people?

Empirical data screams, "YES!" Otherwise the smart money wouldn't be betting so heavily on it and the bean counters would have dropped these programs in a heartbeat if they weren't earning their keep. In these lean economic times, keeping good customers is always a bargain. ♦

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