All the advances sound great in theory. But do the programs really work? Can you really make customers more loyal? Given the cost of managing such a marketing program, what can a company hope to get back? Gary Hawkins has had time to ponder the issues and arrive at some meaningful answers. In fact, not long after there were tangible results to point to at Green Hills, large grocery-store chains started calling for advice on how to launch or fix their own frequent-shopper programs.
Before Hawkins could help anyone else, though, he had to puzzle through what was playing out on his own store floor. The frequent-buyer program's launch, in March 1993, was a nonevent. A blizzard blanketed Syracuse with three feet of snow, and hardly anyone showed at the store. Still, it wasn't long before Hawkins had reams of data at his disposal, thanks to the bar codes on Green Hills' frequent-buyer cards. But he had no idea what to do with the data. "I found myself staring at the numbers on the computer screen at all hours of the day, trying to figure out what was happening," Hawkins says.
Even so, the program appeared to be catching on -- about half the shoppers immediately started using their cards. By year two, 70% of them were. For the first time, Green Hills had the means to identify the majority of its 15,000 or so customer households by name. That was no mean feat. "You think you know everyone," says John Mahar, director of operations and a 21-year Green Hills veteran, "until you see the reports. There were people spending lots of money whom I didn't know, and 'regular' customers who weren't high spenders."
But Hawkins was hoping for more. Like perhaps a spike in sales.
The importance of the data didn't come into clearer focus until the fall of 1994. That's when Green Hills launched its first Great Gobbler Giveaway, an initiative that was as daring as it was scary for the little store. In order to be given a turkey, customers were required to commit to spending at least $500 at the store over the 10 weeks leading up to Thanksgiving. "The biggest fear," says Hawkins, "was that people would not do their shopping with us." What was shocking was just how many customers did. In fact, Hawkins says, the number of customers spending at the $50-a-week level increased approximately 25% over the number from the previous Thanksgiving season. However, overall sales did not increase substantially. What's more, Green Hills lost some customers during the 10 weeks. But there was good news: the store's gross margins went up.
What was happening? It was actually pretty simple. The turkey thieves went elsewhere, while the loyal customers spent more than usual. The result? Higher profits on the same level of sales.
What loyalty is and how you get it
As the CEO struggled to make sense of the data spewing out daily, he had to get his arms around some pretty hairy questions. Like, What does customer loyalty mean? From that first Great Gobbler Giveaway, he learned a bushelful. For one thing, Green Hills had customers capable of spending much more than he'd imagined. Some asked why they hadn't won two turkeys! There were other customers who couldn't increase their spending and yet were loyal to the core. Senior citizens on a fixed budget, for example, asked if they could be included in the promotion. So Hawkins kept tweaking Great Gobbler each year until he arrived at four levels of rewards. Now customers spending as little as $30 a week for 10 weeks still receive something.
By studying when, how often, and what people buy, Hawkins has gained a handle on degrees of loyalty. The way he sees it, there are two kinds: deal loyalty and relationship loyalty. Companies, he says, should appeal to customers on both levels. Deal loyalty is simple if not pure -- you essentially "buy" a customer for the length of a promotion. When customers give you their business for reasons other than price or prizes -- for your customer service, say, or special privileges -- you've got relationship loyalty. While some customers simply live for the next promotion, others have warm feelings toward your business. "You learn which customers are which," says Hawkins.
Green Hills has gotten a lot of mileage from the warm-and-fuzzy kind. Despite a rather strange L-shaped structure that has been added on to "God knows how many times," says Hawkins, there's comfort in a store that hasn't changed much since the early 1970s. The meat department sits incongruously around the corner from a row of candy because, well, that's how it worked out. You do what you have to with just 22,000 square feet. But the customers go back three generations. Mothers and their daughters have worked the same cash registers. (There are 16 registers, which makes checking out of the small store superspeedy.) The hot-cross buns are still iced by hand in the bakery, and the produce comes primarily from local growers in season. The 10 managers have worked at the store for 5 to 39 years and know hundreds of customers by name. Even the PC monitors installed at each register greet you by name. For some customers, the intimacy of the small store cannot be beat.
"I won't go anywhere else," declares Carol Cranston, a schoolteacher who moved to Syracuse 20 years ago and has been shopping at Green Hills ever since. She doesn't think twice about spending $250 on groceries in one sweep.
Hawkins is not nave, however -- he knows customers like Cranston are exceedingly rare today. In Green Hills parlance, customers are categorized as Diamond at the top of the spending scale, followed by Ruby, Pearl, and Opal. Cranston is like a double Diamond. Few reach that level; about 300 customers qualify as Diamonds, consistently spending at least $100 a week, while about a thousand more are Rubies, spending on average $50 to $99 a week.
