Loyalty Rewards: Not All Customers Deserve Them

in Nov 23, 2018

Loyalty programs surround us. We live in a world filled with keychains on which multiple little plastic mini loyalty cards dangle. There aren’t many places where we spend our money that don’t offer a rewards program or, at the very least, track our purchases via a quasi-rewards program that only allows us to purchase items at the “loyalty” price, versus the normal price (think grocery stores). While adding a loyalty program into your offerings is certainly something you should consider, keep in mind that not all customers are created equal. Blanket offers to everyone enrolled in your loyalty program could actually cost your dealership some business. Let me explain.

Almost every business has their own version of a “best customer.” These customers typically continuously visit the business and generate most of the revenue. They may not be the most frequent visitors, but bring the most profit with their visits. In all marketing, segmentation is key. It is certainly not the best move to spam your entire DMS with the same offer. That would be a waste of time.

Is that customer that only visits your dealership to take advantage of an oil change coupon worth the same reward as the customer who regularly services and accepts service upsells?

Identifying who your best customers are in terms of profitability can reap benefits in two ways.

1. It allows any rewards and/or specials to be precisely targeted to those customers who deserve it most and who bring the most promise in terms of upset opportunities. It’s fairly common to throw out a $20 oil change coupon in the hopes that some additional service business is earned when that coupon is redeemed. That being the case, what percentage of those redemptions are accompanied by service upsells? By blanketing your customers with discounts and coupons, you simply attract those customers who only patronize you if they have a coupon and, in most cases, decline any service recommendations you may present to them.

2. Identifying that group of your “best” customers will allow you to find patterns, characteristics and behaviors that exist within the group. Once you know what qualities your “best” customers have, you can start identifying customers who have similar qualities or behaviors that aren’t quite at that “best” status yet. Then, you can tailor your marketing or rewards to that second tier of customers in an attempt to elevate them into that “best” customer category.

Rewards programs are dynamic. Members should be segmented and marketed to in a personal way designed to maximize the outcome. Any marketing should either encourage existing behaviors or nurture customers into adopting the attributes of your “best” customers. Don’t use a set-it-and-forget-it blanket reward for members. If you do, you’ll find that your reward program could actually cost you money as all those loss-leader oil changes come into service with no upsells.

Identify your most profitable group of customers. Then leverage your loyalty program to instill in that second tier of customers the qualities from your most profitable customers. In this way, the base of customers that are generating the most income for you will grow and help to create a more solid foundation for your dealership’s future.

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