Winning Customers as Members

A customer is a person who buys goods or services, especially on a regular basis. A member is a person who belongs to a group or organization. This is the story of how Dayton Hudson, a major retailer in the Mid West, enrolled their best customers as members in a loyalty program called Regards. The stores included Daytons, Hudsons and Marshall Fields. The goal was to reward these best customers and to transition them from being simply customers to being advocates.

Forty years ago Abraham Mazlow described a hierarchy of needs which included belonging as an important step. Customer loyalty can be increased by giving customers a feeling of belonging. Winning customers’ hearts is a step beyond winning a percentage of market share. As Martin Levine, General Manager of Chrysler’s Jeep Division said, “We want to own consumers’ hearts, not just their pocketbooks.”

In the early 1990’s I was Director of Customer Development for the Department Store Division of the Dayton Hudson Corporation. I received approval and a budget from the CEO of the company to begin a customer loyalty program that we called “Regards“. The program was directed at the top ten percent of our customer base – about a half a million customers in all. This is the story of how we went about it.

We began with the customer. We did primary research on our own customers which involved phone surveys, store exit surveys, and focus groups. One of the keys in the focus groups is to know who you are talking to. Are you talking to your best customers, your middle tier customers, or your look alike best customers? Then we verified with our customer database to see, how people were really behaving, not only how they saw themselves or described themselves as behaving.

We had good customer data on more than half our customers: those who used the stores proprietary credit cards, and those who used other credit cards who had registered their card number with us. We could not track cash or check customers. Using this data, we identified who our top tier customers were. We found that ten percent of our customers gave us forty five percent of our sales. Dayton Hudson had never looked at customers as being different before. This was a huge eye opener. It was a big hurdle for the organization to realize that there was an economic reason to treat some customers differently from other customers. We found that the top tier customer spent on the average five times as much as the average customer, and shopped twice the number of categories. Their demographics were quite attractive. Twelve percent more of the Regards group had household incomes over $100,000 than did the average customer. Their median age was 3 years older, and eleven percent more were white collar.

This demographic information was fine, but none of that told us how to win these customers as members. We had to go far beyond simple demographics to understand that. To get this knowledge, we began to listen to these customers’ needs and wants. A lot of the opportunities in a loyalty program and to win customers as members is to listen to what people really want when they come in to a store. Everyone wants fast service, but a lot of them are looking for appreciation, recognition, for that sense that they really matter to your business. Marshall Field’s motto is, “Give the lady what she wants.”

We wanted to find out what these best customers wanted, and to deliver it to them in a disarming way. A lot of what we heard in our focus groups did not make us not very comfortable. We heard what they liked and then we heard all of the ways that we fell short. When we got through, we categorized these customer desires into:

Appreciation - for being a good customer

Beckoning – reaching out to invite them to belong to the store

Communication – interesting communications that challenged them

Dialog – a simple way to have two way meaningful conversations

The Regards program was sub-titled “The art of appreciation”. We launched this program with oversized mail. Being a Minnesota based company, our sense was that our customers were very interested in the environment, and therefore we should use recycled paper that looked as if it were recycled and had big print on it that said that it had been recycled. We used subdued colors. This was a mistake. There were a lot of people who threw this package away because they didn’t know what it was, and didn’t open it. Then they found out at bridge club the next week, what their neighbors and friends had gotten. So we learned that we had to have that Regards name prominently enough on the envelope so that people knew that this was their Regardsmailing.

To create our Regards membership database, we used the credit files that we had been mailing to for the past ninety years. The primary name on the credit file was often the husband. We had never gotten any complaints on that. The primary buyer was usually the woman. She did not mind that we had been sending the bills to the husband all these years. But now that we sent this mailing out full of certificates, freebies, we love you, we appreciate you, we got so many complaints that the hot line brought down three blocks of downtown Minneapolis offices’ telephone lines. Fortunately, we had a special Regards Customer Hotline in place. We had three days time to change the addresses for the next mailing so we didn’t make the same mistake again.

In that first mailing, we put in a survey. One of the things that we learned was that every time we got a chance to get feedback from our customers, we went for it. Everything that we sent them provided some opportunity for the customer to talk back to us. We asked our customers what their interests were. This was in the early nineties. We asked, “How interested are you in shopping?” Eighty seven percent of our best customers were very interested in shopping. They liked to eat out, to read and to garden. They did not like needle point.

We asked which of our services they liked. We were shocked at the response. Some of our core services had very low awareness ratings even with our best customers. Once we learned this, we followed up in subsequent mailings with information about those services. For example, one of the highest awareness ratings was our bridal registry with eighty five percent awareness. But our 1-800 number to order bridal gifts was recognized by less than twenty percent of our best members.

We wanted to launch the program with something tangible to show that Regards members were enrolled in something different. So, we reissued our credit card in a gold version with Regards on it. One important feature was to put “Customer since 19XX” on it. We found out from focus groups that unless we put that on the new credit card, customers who had been carrying their cards for thirty or forty years would not want to give them up. They took a great deal of pride in their longevity with the store. We also provided Regards stickers that they could stick on to their regular credit cards. Thousands used these stickers.

Once the program was launched, the front line sales people in the stores could immediately identify whose these Regards customers were. Within the first week, we had hundreds of customers come in and identify themselves as Regards customers. That is a brand managers dream. But it was not a store manager’s dream. My voice mailbox filled up with complaints from store managers, because they would get paged, come to the floor, and a Regards customer who had not had a good experience would identify themselves, “I am a Regards customer, and…”. From a marketing standpoint, that is a great opportunity, to help a best customer. We didn’t realize, however, how important it was to brief our employees on the program. At first, the store managers were caught off guard.

In the initial mailing, we wanted to have a reason for the customers to come in to the store. The mailing had a certificate for a quarter box of Frango Chocolates free. The key to success is to be able to give your customers something that costs you much less than the perceived value to the recipient. The Frango Chocolate was a Marshall Fields private label. I had to wheel and deal with the candy buyer so that I could afford to get this in the program. It was an item that sells for $4.75 in the store. The candy buyer said, “Well, we can do this, but we will do it with the raspberry chocolate, because that is the new flavor that I want the consumer to know about.” That was Ok with me, because I was desperate for something to put in the envelope.

We had a forty eight percent redemption on that Frango bounce back which was much higher than our budget. What we also did not anticipate was that there are a lot of people that don’t eat raspberries. What do you think that the candy sales people told our best customers when they came in with a Raspberry Frango Certificate and said that they wanted a Mint Frango? “No, you can’t have that. It says ‘Raspberry.’” We had letters to the CEO from fellow board members – about 25 of those. “I am one of your best customers. I cannot eat raspberries. I asked for a different flavor, and was told no.”

It was very painful. We had to communicate to 63 stores and all the part time candy sales staff that it was OK to give them some other flavor. “Give them anything.” What we learned is that the success of any loyalty program, is determined by the choice given to the customer. The more choice you can give your members, and have it work economically, the better.

We heard in our focus groups that people were very interested in inside information. Consumers think that the buyer is some sort of hero. They hang on every word that a buyer will say. How do you get a buyer to talk to a half a million customers? We used this idea to create some special events that were different from our typical special events which feature celebrities, fashion shows, or fragrance launch.

We took major themes, ideas, merchandise trends and developed insider information events which were much more educational in nature. Our first one centered around workday casual. This was a couple of years ago when workday casual was new on the business scene. Our customers told us they were uncomfortable with what to wear. They needed expert advice. So we put in place for Regards customers only, a series of workday casual seminars. We didn’t know if they would fill. We did not know how big the need was. What we found was that we needed about 2 ½ times as many seminars as we had scheduled. They filled up in 24 hours. It was a wonderful indicator of where the rest of our customer base would be on this trend. One great benefit of the loyalty program is that you can use it as a laboratory, a leading indicator for where the rest of your customer base will go. You should share that learning with the rest of your organization.

The next time we did one of these seminars, the Garden Theme was the focus. Once again, we found ourselves adding additional seminars. As much as possible in a loyalty program, you want to position yourself so that you can say “yes” to the customer. You don’t know how many seminars you need, but you have a plan B so that you don’t have to say no to any of your best customers. People called the Regards hot line. If you have to say no, you are almost better off not having a loyalty program.

For us, it was thrilling to sell Santa Bears in August. Our customers told us that they wanted first crack at something. It was up to us to figure out what it would be: information, or merchandise. They wanted the feeling that they were on the inside. The Santa Bears were really an icon at these stores. Customers knew that they sometimes sold out because ten years ago when they were first introduced, they sold out in a week. The day after Thanksgiving, the bear goes down 25% in price and becomes a purchase with purchase. We decided to test the early access idea with the Santa Bears. Early in August we sent out a mailer that said, “If you buy a Santa Bear at full price now, you are guaranteed you will have one, and we will ship it out to your house with free delivery.” The cost of the free delivery was less than the cost of the twenty five percent off after Thanksgiving. The store thought this was a really stupid and crazy idea. Who in their right mind would buy a Santa Bear in August? The fact was that tens of thousands of customers bought Santa Bears in August. The other obstacle was that we weren’t bringing customers into the store. We were sending the merchandise to their homes. In retailing, you will always have this obstacle. Retailers always have this one objective: drive the customers into the store. We had to persuade them that it’s OK that we can ship these Santa Bears to their homes. These were already our best customers. We were showing them appreciation.

Other examples of appreciation, were birthday cards, and Valentine’s day cards. For our very very best customers, which were one half of one percent, we sent out Valentine’s Day Cards which were wonderfully disarming. We had two different levels. We sent out Watermen pens to some people, and we sent out a crystal Waterford objects to other people. We got handwritten notes back from people who were very busy and very high spending, who were charmed by being remembered on Valentine’s day. We learned not to get into a rut. You have to keep your loyalty program fresh. You have to constantly approach your program as if you were just starting it today. Ask yourself, what can you do that your competition is not doing?

My college introduced another example of this type of reward. They have a Freshman Reading Week in which every freshman reads the same book. One year, the book was The House on Mango Street by Sandra Cisneros. The university sent the book to us alumni along with the notes from the lecture. It was a fabulous way to get us to feel close to the University after so many years out of college. It made me feel very very connected. I read the book and the lecture notes. The following years, I waited in vain for similar books. The first one made me want to give more to the college. But the subsequent books never came. Finally, the college sent out a survey. They asked me how I felt about communications with alumni. I told them of my disappointment with the book. We will see if they do anything about it.

To further the idea of members being on the inside, we created special member events. The idea is to take what you are going to do anyway, and turn it into a membership-only event. The best customers love it.

To do this on one occasion, we opened the store two hours early only for our Regards customers. One of the very surprising things that we learned was what the best customers looked like. We had this idea that these people would be very well dressed, all wearing Ralph Lauren and Polo, all look like a double page spread. I visited three of our stores in the first two hours. The upper management were shaking their heads, saying, “These aren’t our best customers. You must have sent the invitations to the wrong list.”

“No, it was the right list. This is what our best customers look like.” It is important for management to see what they actually look like. Start shattering some stereotypes. As a store manager, I had CEOs and CFOs come to the store in cut offs and tee shirts. They looked like everybody else. We heard from our best customers that they got treated differently depending on how they were dressed. If I come in in a suit after work, I get treated better than if I come in Saturday morning straight from the garden. If I am pushing a stroller I don’t get treated as well. If I come in with my Mother I get treated better than if I come buy myself. If you have a loyalty program, you should ask yourself and your staff, “What are the conceptions internally of who your best customers are, and how does that affect how they are treated?”

Beckoning means to attract, to be enticing. Beckoning is about how to magnetize a best customer. It is about disarming surprises. We put together some of the most popular salad recipes from the Deli. These cost 17 cents each to put in the mailing. We got one hundred percent consensus on these cards in the focus groups. All of the customers loved getting these recipe cards. They were unexpected. The consumer did not expect to open a letter from a department store and find a recipe card. So, our goal was to find, what will be the next recipe card idea? These ideas are not so easy to find. We sent out a tea bag in a May mailing. It was unexpected. We sent out an offer to order for live bugs for your garden, which was very trendy. As a reward you got little chocolate ladybugs, and little insect ornaments for your Christmas tree.

On another mailing, we had the dragon fly theme. We had a dragon fly jewelry pin. Any Regards customer could get the pin for $15. We ordered thousands and thousands more than we thought we would ever sell. We drove traffic into the store in February, and were sold out in a week. It was unusual, and unexpected.

Northwest Airlines sent out a Christmas ornament to their most frequent flyers in early December. It worked. For two weeks I wasn’t mad at Northwest. But the good feeling soon wore off, due to my dissatisfaction with the airline’s service. It is important to recognize that loyalty programs are the vitamins. They are not the main course. If the main course isn’t good, all the loyalty programs in the world will not make up for it.

Introducing the Communications in the Regards program was a tough sell at Dayton Hudson. Retailers are not used to the idea of spending money on a lot of letters.

It takes resources and dollars. It was a hard sell internally.

We wanted to have the information valuable. We tried to get feedback. We tried different themes in our newsletter, which were tied in to the store theme at the time. Some customers didn’t want newsletters. They wanted post cards. It is tough to get customers to read these days. How can you communicate with your customers? We learned to sweeten the information with rewards. The newsletter always included appreciation certificates. They were never coupons. They represented some kind of value to get the customer to open up the newsletter. The Saks newsletter always includes some bounce back. Niemans newsletter has offers wedged in spots throughout their newsletter.

We wanted to make the newsletter really interesting. One company that is particularly good at this is Amazon.com. You can click on their Website and fill out an interest survey. They will let you know when books come out that you are interested in. They give inside information. This is hard to do, but it was part of our objective at Dayton Hudson.

We did not put our newsletters in the credit card bill. Over the years, we had trained our customers to look for vacuum cleaner offers with their bills. This was the wrong place for a Regards newsletter. Also, we did not want to have the newsletter be associated with the bad news. A bill is bad news. It sends a mixed message.

One form of communication that we did not use was telemarketing from store managers to the best customers. It didn’t work. It is harder to reach people at home today. Too many of our best customers have unlisted phones.

Finally, we wanted to make sure that we had a dialog with our Regards customers. So many companies disseminate information in one direction only. Customers typically don’t know how to communicate with you. For our best customers we had to set up a two way dialog process. If you ask for feedback, you have to be prepared to respond and to make changes. If you can’t respond, don’t ask. We created a special hot line for Regards customers. Of course, there is always the question, “Who is going to pay for this? Why would customers want to call us anyway?” We found we got 65,000 calls a year on this hot line. What do they call about? Everything.

As our dialog program evolved, we learned to put the best people in the call center into our Regards hot line. We had to show the hot line staff the packages before they were mailed to the customers, so they would know what the customer was talking about when they called. We learned the importance of investing time and effort in our hot line people. We learned to share with our hot line people what was working and not working, and to take their suggestions on ways to make the program better. We made many changes in the program based on the feedback from the hot line operators.

One area of dialog that did not do as well as others was to treat Regards customers better in the stores. Overall, retail is a high turnover operation. It was easier to get a few operators in the hot line on board than it was to educate thousands of retail sales people. Many of these front line troops felt that if you treated someone in line better than the others, it might hurt sales. So, in some respects, we did not do as well as we wanted to in reception of our best customers at the sales clerk level.

Results

What were the results of the Regards program? The results were increased retention, increased profits, increased customer lifetime value. While it may seem soft and squishy, it changed behavior of our best customers and changed our bottom line.

To prove that the money spent on the Regards program was paying off, we had a control group. The company had never had one before. It is difficult to measure a program unless you have a control group. When we set up the control group, we made sure that no store executives were in it, no board members, no employees, but we did not have a smart enough database to tell us who was the next door neighbor and best friend of the President of Merchandising’s wife. She was in the control group. We got some angry calls from people who were in the control group. We didn’t tell them that they were in a control group, of course. We just told them that there had been “a terrible mistake”, and shifted them to the program. They were tagged as the “out of control group.” Others called to complain about being left out who were not qualified for the program. We explained that you had to have spent this much to qualify. Most said OK, but for those who were adamant we made exceptions.

In summary, I feel that we really learned something valuable in the Regards program that is applicable to similar programs everywhere. Treating your best customers better is good for business and makes customers happy.

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