At first Hawkins thought he could move lots of customers up the ranks. Now he knows better. Some customers patronize the store every two or three months; some of the very top spenders come in three to five times a week. The gap is too wide, and it's just too hard to convert price shoppers. Director of information services Lisa Piron agrees. "There aren't a lot of things you can do to get lower-spending households to spend more," she says.
Instead, the store decided to lavish far more attention on the big spenders. A few years ago Green Hills even threw a black-tie party in the store to meet more Diamonds and Rubies, and 200 attended. Not surprisingly, Diamond and Ruby revenues have increased while, predictably, Pearl and Opal revenues have not. But what the store may have lost in sales from the latter two groups it has made up in revenues from its top customers. The Diamonds and Rubies also have consistently been more profitable for Green Hills -- not because they're getting gouged on price but because their baskets include both marked-down and full-price items. Hawkins says there's a 10-point spread on gross margins between the top customers and the bottom customers. He declines to reveal his net profit, but in an industry where 1% net is considered good, it's safe to say the store has doubled that. "At the end of the day," he says, "the goal of any loyalty program is to improve the bottom line."
Today Green Hills is dedicated to ensuring that all customers get the rewards they deserve. As the resident database guru, Piron monitors whether the very best customers are truly receiving their rightful share of discounts. If they're not, she simply creates a new promotion exclusively for the big spenders. She is empowered to right other wrongs as well. For example, last year the store switched to a less expensive grade of Black Angus beef. After a few months Piron noticed that the lower-spending customers were consuming more of the meat but higher-spending shoppers less. She quickly responded by getting the old grade of Black Angus back and appealing to the slighted customers with a letter and a coupon.
How you measure loyalty
Several years ago Green Hills learned that two new competitors were moving into its neighborhood on the same day. (There are now six rival supermarkets close by. One is just across the Green Hills parking lot.) The event could have spelled disaster for the little grocery store. But Hawkins and his managers knew just what to do. They appealed to their loyal customers for support.
By then the store knew not only who the customers were but exactly what they liked to buy -- beef or chicken, deli salads or doughnuts. Turning to the database, Piron generated a list of best customers by department. Then she composed a letter thanking each of them for being a good customer. She also enclosed a gift certificate that the customer could redeem in the store. Each certificate was for a gift basket tied to the customer's favorite department; department managers personally handed the baskets out. Hawkins reports that the store not only held its own against the new competition but even gained sales and a few new customers.
While most stores look at product shrinkage, or how much inventory the store loses because of theft or damage, Green Hills looks at customer shrinkage. It retains better than 96% of its Diamond customers each year. The overall year-to-year customer-retention rate is 80%.
Such loyalty provides leverage in negotiating better prices from vendors. Coca-Cola was so impressed by the sales numbers generated by the Great Gobbler Giveaway that last year it piggybacked on the rewards program with a special promotion of its own.
Green Hills also doesn't measure the effectiveness of its promotions the same way that other stores do. In the old days, Hawkins would judge a promotion a success or failure depending on the redemption rate (percentage of customers who participated) and the rise in sales. Simple measures, used by most retail stores. But once he started his loyalty program, the old marketing constructs didn't work. What's important now is who redeems the offer.
Knowing that, Green Hills took another bold step a few years back. The store drastically cut back on costly hit-or-miss Sunday newspaper circulars. Before launching the loyalty program, Green Hills spent upwards of $6,000 a week on advertising, primarily in newspaper flyers. Hawkins now spends less than half that by distributing flyers only in the zip codes where the better customers live. With such savings, the loyalty program pays for itself.
Redistributing the "wealth" is crucial, says the Green Hills CEO. Many loyalty programs fail because companies try to have it both ways -- appealing to mass-market price shoppers as well as to big spenders. It takes discipline to stick to the program. "If you're not focused, it's a real expense," says operations director Mahar. "What are we here for? We drill it into each other."
How far can you go with loyalty?
On a chilling March day Hawkins pays a visit to his arch rival, the local Wegmans store that's part of a regional chain. As he strides through the entrance, he stops to admire the view. The 128,000-square-foot store -- completely rebuilt in 1995 -- seems to house multiple stores and restaurants. Gourmet eateries occupy a food court next to a gigantic produce section. One could use a bicycle to get to the other end of the store, where household goods in oversize packaging reach practically to the rafters. "This is what I have to compete with," Hawkins says. No sooner is he through the doors of Wegmans than he bumps smack into one of his own customers, a middle-aged man, who nudges Hawkins and says, "Hey, I didn't know you shop here." Hawkins pauses only for a second. "I don't," he replies. "I was looking for you."
For all the success of its loyalty-marketing program, Green Hills inevitably loses some customers. Still, it's a testament to Hawkins's savvy that little Green Hills can go head-to-head with this giant and still hold its own.
