John Outlaw
11/14/2012
Principles of Retailing
Dr. Banerjee

2 Points!

Customer rewards keep your customers coming back to you. A customer deciding between whether to stop at your business or another business, will choose the one where they are rewarded on their purchases. An additional benefit, is the fact that they can attain rewards without carrying around a card specific to your business, because if they have left that card at home, or left it somewhere they've lost that reason to come to you.
Purchases you make at any of the chain's stores will be translated into reward points based on the store membership policy. Once you cross a minimum threshold of points, you can redeem them for discounts or gift vouchers. It's this threshold and the proportion of their conversion into discounts that determines how beneficial membership might be.
`The new rewards programs up the ante for such customers, particularly at the highest spending levels. Nordstrom, for instance, has long used a single formula to dole out points for everyone: Shoppers got one point for every dollar spent outside of Nordstrom on one of the retailer's cards (which include Visa cards), and two points for each dollar spent at a Nordstrom store. While it still offers points toward Nordstrom Notes, the retailer hopes shoppers will see the extra rewards offered at higher tiers as an incentive to spend more.
I agree with this reward format. This reward system is benefits the consumer and also the business. Most customer rewards programs are offered by large chain store companies who spend hundreds of thousands, up to millions of dollars on their reward management systems. By offering their customers a 'card' to carry and use to collect and redeem points, they also collect data from their customer's purchasing habits. While this detailed data is valuable, it is costly to manage.
Serving the heavy spender represents a huge opportunity to gain competitive advantage. The company that overinvests (by industry standards, anyway) in heavy spenders and makes it expensive for them to switch to a different brand (there are many ways to accomplish this) can increase its share of this group and enjoy a revenue gain significantly greater than that of competitors that average their offerings across spender groups. The company can also increase purchase volumes to the point that its costs go down, relative to its competitors. Such customers seek consistency in terms of value for money, quality, service, selection and a good purchase experience. In return, they become brand zealots - eager to spend their dollars and share their "find" with other heavy spenders in the same category. The heavy spender will, when served appropriately, spend more per visit, visit more often and "creep" into adjacent categories.
The kind of program varies depending on your type of business, but experts say some general tips apply to everyone. They advise against limiting your rewards program to just discounts, because discounts don't have a lasting impact on customers' memories. Physical prizes or earned bonuses like frequent flyer trips resonate much more, if you get a discount, it's kind of over and done with.
Shoppers will change their buying behavior in response to a reward if they judge the value of that reward to be higher than its cost -- the obligation to make a future purchase or to give out an email address,