Sunday, December 23, 2007

Loyalty Programs

Friday turned out to be our best day ever, with Saturday a close second. Our sales are up 66% from last December. This can be attributed to a lot of luck. Three game stores and the local Games Workshop store closed recently, and we've picked up a lot of those customers.

Hey, lets look at loyalty cards!

Customer Loyalty Programs

Game stores simply cannot afford to discount. They cannot offer 10% or more off on product like you see online or even at some of the bigger book store chains. Margins continue to shrink and small stores just can't afford to do this. So what can you offer customers? Besides the obvious perks of game space, cold drinks, occasional freebies and your expert advice (yeah right), customer loyalty programs are a way to retain customers without giving away the store (literally).

The concept of customer loyalty is that when customers shop with you, over time they will get a reward based on the money they spend. All things being equal, and this is important, a dollar spent with you is more valuable than a dollar spent with your competitor. If they have a loyalty program, it's the store they're more likely to spend the most money with that gets the benefit.

Our program works with our point-of-sale machine. Each customer is given a "Paladin Club" card with a sequential number. It's funny handing these out sometime; I've noticed younger customers give me the nod because a paladin is the cool character from World of Warcraft, they're only exposure to the word. I chose paladin because of our knight logo.

When scanned, the club card looks up the customer in our POS database. We've gathered an extensive mailing list of about 500 regular customers through this program. This is one of the key values to me as the retailer, I can send mailings to my customer base.

Once customers have a club card, they present it before making a purchase. For every dollar they spend, they get a point. After 200 points, they get a coupon that prints out after their receipt. The point value and the coupon value are variable, but we give a 10% off coupon. We used to give a $5 gift certificate, but our system doesn't track these little slips, making it an unknown liability sitting in hundreds of peoples wallets.

Customers get a 10% off coupon after spending a bunch of money. It probably comes out to a 2% or so discount overall. We're still discounting, but it's not as severe as say, a 10% across the board discount for every customer. We've got about 500 club members, which only includes our regular customers, probably 70% of our total customers.

When we were doing the $5 GC's, we gave our nearly $1000 the first year, or roughly $500 in costs. This is a lot of money, and the only way to justify it is to consider it part of your marketing budget. Most game stores don't do any advertising (which is why they tend to fail), but the rule of thumb for me, according to books I've read and experience, is to spend at least 2% of you gross sales on advertising. An average store doing $200,000/year in sales should be able to swing $500/month in some form of advertising. This would be less than 10% of that.

This small token of appreciation may not seem like much, but if you have the option of shopping at a competing store on something for the same price, or building up your paladin club points, you'll likely want to shop with us.

We have our club cards printed by Duracard and the software add-on is from a company called ADI.

7 comments:

  1. Of course, if you spend enough each visit, you could rack up a ten percent discount every other visit!


    Kind of like that old Steve Martin routine where he's figuring out how much he can make if there are x number of seats at the concert at y dollars per seat...

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  3. Now for THAT customer, I wouldn't mind going to 10%.

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  4. So why didn't you? (I know I came close to that a few times... :-P )

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  5. If a customer came to me and said they would make purchases in $200 increments at a 10% discount, I would entertain that idea.

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  6. Don't tempt me :)

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  7. I've negotiated such things with Gary before.

    Of course, I could just claim the "teacher's discount" by lying and telling Gary that I will use everything I buy in my classroom.

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