Retailers throughout the country are aware that with the current economic downturn, customers are often trying to find the most cost-effective deals. But industry leaders are relying on innovative solutions aimed at getting their customers decent deals while creating brand loyalty.
Fuel retailer loyalty programs work similar to loyalty programs in other industries, according to Rick Ferguson, editorial director of Colloquy, a leading marketer of loyalty products for the retail industry.
The store swipes a customer’s loyalty card and the customer will receive discounts on merchandise. Just like in other industries, repeated purchases let customers earn points toward discounts and prizes.
With high gas prices that continue to rise, chains are offering fuel discounts of up to 10 cents off per gallon to reward loyal customers. More chains are doing this to get repeat business, but fuel retailers rank low on the number of customers enrolled in loyalty programs, according to a recent Colloquy survey.
One idea launched by Oasis Stop ‘N Go, a Southern Idaho-based chain of 13 convenience stores, has become very successful, so much so that other companies call on the chain to help with their loyalty programs.
The company first began looking into loyalty programs in the late ‘90s when gasoline prices were still lower than $2 per gallon in most parts of the country. It has since been honed into a system that other retailers are catching up to. The company eventually decided to create its own system for customer loyalty.
That system eventually became its own company called the KickBack Points Customer Rewards System, according to Pat Lewis, its CEO. The company now handles Oasis Stop ‘N Go’s loyalty program as well as programs for more than 100 companies across North America.
Most of the programs work by giving customers points. For a certain amount of money spent on gasoline, customers are offered discounts. Some companies also work the other way: For a certain amount spent on other non-fuel items, gasoline discounts are offered.
"Over five years, we’ve been able to reduce the attrition rate of those using the card by about 30%, which has a compounding effect over time," Lewis said. "We can get a 15% increase in ticket averages among those using the card, and we have about an 18% increase in average frequency of visits over time."
Companies have had recent success with similar programs.
The Kroger Co., for instance, gives customers a 10-cent-per-gallon discount on gasoline for every $100 spent at any of its stores. The Cincinnati-based supermarket chain recently saw profits rise 15%, partially due to its gasoline discounts, according to David Dillon, the company’s CEO and chairman.
The Mirabito Fuel Group, a 58-store retailer, started its loyalty program in 2002. The Sidney, N.Y.-based company has grown its membership to nearly 100,000 in 2008. Customers earn one point for gas purchases and two points for home energy and c-store purchases.
When the program was first starting out, Rich Marabito, the company’s CEO, said that the real value of the point system to the company is how customers spend the points they earn at partner merchants. Customers could get discounts of more than $20 at local restaurants or other participating merchants if they gathered a certain amount of points.
"It’s hard to put a value on the point system because it depends on what customers redeem them for," Marabito said. "What’s great is that it costs us half as much to redeem the points because they’re often spent with our partners. Even better, most of the points are earned in our stores."
KickBack points work by allowing c-store customers a certain rebate, decided on by the merchants who participate in the program. Customers can also get rewards if they buy specific items or visit a particular retailer a certain number of times.
While customers do not have to register if they are participating in the program on a limited basis, full benefits are only offered to enrolled customers.
The company has seen 85% of all issued points being used within the system due largely to merchants creating rules that encourage customers to use the point systems.
Several obstacles remain that make it difficult for fuel retailers to start loyalty programs, according to Colloquy. They include discount fuel operations, a high cost of entry, meeting higher volumes and competition from big-box chains like Costco and Wal-Mart, which sell fuel and high credit card fees that eat into retailers’ profits.
In addition, the economic downturn has customers driving around for the cheapest gas prices. Gas prices have gone up just as food prices have, which has gas and fuel retailers teaming up.
In Virginia for instance, Ukrop’s Super Markets Inc. and Uppy’s Convenience Stores Inc. announced that they were teaming up to get more customers.
For every $50 spent using a Ukrop’s Valued Customer card, customers will get a 10-cent-per-gallon discount on gasoline at a select few of Uppy’s 40 locations throughout the state.
The amount of the gasoline discount rises depending on the amount spent at a Ukrop. For every $100 spent, there’s a 20-cent discount. If customers spend $500, they get $1 off per gallon, a company spokesman said.
The discounts are good for up to 20 gallons of gas and for up to 90 days from the grocery purchase. Customers can get more information through the website www.10centsoffgas.com.
Taking the KickBack system lead, many companies offer Internet-based support for customers participating in loyalty programs. Customers can check the number of points they have accumulated and find out where they can spend their points.
The comprehensive KickBack Points site is www.kickbackpoints.com.
Because of the technological support for loyalty programs, costs for merchants to enter into such programs can be high. Sometimes it may cost up to $15,000 or more for equipment, installation fees and backend support.
But options exist for every budget. The starting cost for some KickBack programs, for instance, is $500.
The Reward Marketplace program, offered by loyalty program provider Excentus, costs about $3,000 per site, according to Scott Wetzel, the company’s marketing director.
While many reward or point-based loyalty programs help the bottom line, they might also provide a benefit that isn’t immediately rewarding: information. Merchants can determine who their fly-by-night customers are and who are the ones that keep coming back. This way, they can market products a certain way to some while concentrating their efforts on keeping the loyal ones.
Economy Creating Disloyal Spend-Thrifts
With gasoline prices in most markets now well above $4 a gallon it’s becoming exceedingly difficult for customers to get lured away from bargain hunting. And there are many critics of reward programs who say the cost of finding cheaper gasoline far outweighs any points earned.
Esso in Canada was one of the first fuel retailers to offer loyalty programs with its Esso Extra and Aeroplan points that could be used for travel and other rewards.
The company also offers a Speedpass program that acts like a credit card on a customer’s keychain.
"But those points don’t cut it any more if you have to pay higher prices for gas," said Rob Carrick, a personal finance consultant. "It takes a minimum of 15,000 points to earn a flight on Aeroplan. In that light, you could well be better off by seeking cheap gas rather than earning 20 points on a fill-up."
One thing these economic times proves is that it is an uphill battle for customers looking to save money at the pump. Retailers, though, might be able to help with savings by offering discounts in other places, because the times are equally rough for them.