Do loyalty programs work?
C-stores are the least liked category of retailers, yet the industry is on the rise. Loyalty programs have fueled this growth, but what opportunities are you still missing out on?
According to PDI's recent C-Store Shopper Report, 43% of c-store shoppers choose a specific store because it offers a loyalty program, just behind the 44% who decide where to shop based on location and 31% because of gas prices.
64% of loyalty members join a loyalty program for the opportunity to save on fuel, making cents-per-gallon rewards the most popular rewards currency, preferred even more than cash-back.
If you run a loyalty program, you already know customers want them, and you benefit if you have it. You also know this is not the full story.
Why do loyalty programs work?
The principle is simple: loyalty programs nudge customers to repeat their business by giving them more value if they do. A customer may buy ten soft drinks a month, and honestly, they can buy it anywhere where it is convenient. However, by awarding them some points, you can tip the scale and have them buy those ten drinks from you instead of your competitors. The details of programs differ, but all of them give the customer some value for their repeat business.
Nowadays, most loyalty programs include the use of an app. The app has many advantages for the customer and you, the c-store, alike.
For the customer, it makes redemptions easier. Progress is easier to keep track of. It's less of a hassle than physical systems. 84% of millennials use apps for in-store assistance (2018 State of the Industry: Mobile Offers in Convenience Stores by Koupon Media).
For you (the operator), it gives you a way to better track purchases to customers and so understand customer behavior. Data allows you to personalize your offers, marketing, and rewards.
Perhaps most importantly, it gives you another communication channel right in your customer's pocket. When you have a promotion, you can tell the customer about it!
Why use promotions?
Promotions quickly and directly influence customer behavior, such as driving more visits, encouraging bulk purchases and getting people to buy at a time they usually wouldn’t. (Source: Essential Building Blocks of Convenience Store Reward Programs by Paytronix).
Promotions are especially important in influencing the first few visits of new customers. As Paytronix describes in Discover the proverbial gold mine after the fourth visit, you should make a special effort to get customers to their 4th visit. Customers are only 50% likely to return after the first visit, but after the 4th visit, the customer is 85% likely to return within 6 months. (The data is for quick service restaurants, but as offering better experiences and high quality food is becoming increasingly important for c-stores, the same logic applies.)
You can therefore use promotions to get more people to visit the store four times; after that, you have a loyal customer.
But do customers use your loyalty app?
Here is the sticky point: not as much as you'd like.
We wrote about this in an earlier post (Why aren’t customers using your loyalty app?), but the bottom line is that your soft drinks and fuel are vastly less exciting to your customers than what their friends are doing on Facebook (where your ads may even cause a flash of irritation) or what Chiara Ferragni is doing on Instagram.
Almost half of loyalty-app users had a negative experience with their loyalty app in the last six months. The number one issue is that redemptions don't work, ironic since this is supposed to be the most important benefit of digitization for the customer. (Source: Is it time to rethink your loyalty programs? by KPMG.)
(Fun activity: read the app reviews of your competitors.)
Customers sacrifice the little value a loyalty program offers easily for 5 minutes extra on YouTube or for 80 MB extra space on their phone. Goodbye loyalty app!
All is not lost. One solution is to integrate a payment system. Zipline reports a 33% increase in the number of visits and gallons of fuel bought. (Source: Payment-Powered Loyalty: Insights from the 2017 zipline purchase lift model study).
Another solution is to integrate a game.
Why does using a game work?
Let's start with vendor-funded incentives. Usually, the buy 2-for-1 schemes tend to benefit the vendor but not the c-store. A better alternative is to give these rewards as winnings in a game (such as sweepstakes). This is better for you, and the customer: 80% of loyalty users would prefer surprise deals or gifts as opposed to information on sales, special privileges, or time-saving opportunities. (Source: Is it time to rethink your loyalty programs? by KPMG.)
There are some math and psychology at work here: instead of a certain $10 cash-back, customers prefer 1/10 chance to win a $100 prize. It is the same cost, but the latter is more attractive to customers.
We cover this in more detail in a previous post (see If you want to bribe your customers, do it right), but the bottom line is by making winning more fun, you add value to the prize. You add the emotional thrill of winning and losing to the system, and suddenly a discount or a free product is not just an award, it is a trophy for the player's journey.
Users are less likely to uninstall an app that includes a game. In one of our projects, adding a game increased the 28-day retention by 1000% — translation: less money spent on user retention and re-acquisition.
But games are more than retention engines. They also drive downloads, and if done well, positive reviews. Of all retail types, c-stores are the least liked by their customers (see your comments on Facebook or the graph below), and the least likely to win-over advocates.
Customers don't like c-stores as much as other retailers. (Source: The real news about global grocery loyalty, Second Edition.)
Games give you something more interesting to post about on social media (see: What to do if your brand or products are too ugly for Instagram).
Games give you a different way to tell your brand story. (How many of your employees have watched your brand videos or follow your company on social media? Probably not a lot, and you pay them.)
Games bring magic to the world, and with the shadow of the retail apocalypse looming, we can all do with more magic.