Here’s a story - and a warning - about customer loyalty. You may be tempted to assume that because you don’t run a retail outlet, it doesn’t apply to you. It does. Being able to count on customer loyalty is the key to success in any field.
The First Popular American Loyalty Program
Some of you may be old enough to remember - or have family members who told you about - trading stamps. Grandma (or great-grandma!) got her toaster with trading stamps. So what were trading stamps and how did they work? I’ll give you a quick rundown.
For about fifty years - from roughly 1930 through 1980 - trading stamps were popular. When consumers purchased goods (usually groceries), they were given stamps. By the 1970s, stamps were distributed at a rate of roughly one stamp per five or ten cents of purchases. Grandma carefully collected them - enlisting the help of the kids, who were assigned to glue the stamps into “books” - and redeemed the stamps (roughly 1,200 in each book) for items listed in a catalog. She kept a watchful eye on how many were in the books, making sure Grandpa didn’t forget to get trading stamps at the gas station (you could earn them there, too!) and she made sure that the neighbors and friends who didn’t want their stamps gave them to her.
So, loyalty programs are not such a new idea.
Trading stamps may have been the first popular American loyalty program, beginning as early as the 1890s as a way to get customers to make purchases for cash instead of buying on credit. But back then credit didn’t mean what it does now - credit cards were only beginning to make their appearance in Europe in the 1890s. It wasn’t until the 1920s that a few American oil companies and hotels began issuing their own “charge cards.”
In the 1890s, groceries and feed stores allowed customers to charge their purchases. The merchant would then bill them at the end of the month. That meant the merchant carried the expense of the tab until he got paid (and there was no assurance he would get paid at all). By giving stamps to those who paid cash, he recognized and rewarded the cash buyer and eased his cash flow difficulties.
Later, trading stamps were used by chains such as oil companies and grocery stores to bring in customers and engender loyalty. It worked because of an economic principle - the law of substitution.
In simple terms, the law of substitution means that although people want all kinds of things, they have limited resources to satisfy their wants and needs. As a result, when all else is equal, people will choose the item, product or service that provides the greatest value in satisfying a want, need or problem.
Trading stamps were a big success because merchants who distributed more stamps for every dollar a customer spent built followings of loyal customers. Merchants were also competing with each other on the basis of price, so shoppers got the benefit of sale prices, plus the stamps that they could redeem for additional goods, at no added cost. That was very appealing to shoppers.
The beginning of the end for trading stamps came in the 1970s when oil companies - during the gas crisis - quit issuing stamps (gas stations accounted for 25 percent of all trading stamps), and grocery chains decided to stop buying the stamps from distributors like S&H Green Stamps and Blue Chip Stamps and instead spent the money promoting low prices.
The concept of trading stamps also declined for other reasons. Almost every retailer gave out stamps, so stamps were no longer a distinguishing feature of any one store. Moreover, redemption items had previously been priced at a discount - sometimes significantly - but now they were not bargains anymore. Consumers decided the savings were not sufficient to make them worth the effort of being loyal. When this realization hit, trading stamps lost their appeal as a reward.
Nowadays, consumers carry a stack of loyalty cards in their wallets alongside their credit cards. Loyalty cards were hugely popular when they were introduced. And, they accomplished the two major goals of marketing - customer acquisition and customer retention. However, since almost every chain offers them, it may be that these cards are heading toward the same saturation that did in trading stamps. When all your competitors have a loyalty card, consumers stop being loyal to any of them.
White Noise
The first lesson trading stamps teach is about “white noise.” White noise is used to mask sounds; for example, you may sleep with a machine that emits white noise so that the sound of airplanes taking off and landing at the nearby airport will not disturb you. But white noise can also be the result of being exposed to a sound for so long that you don’t hear it anymore. If your best friend lives close to a freeway, she may not even notice the traffic any longer because it has become white noise to her.
The same can be true of loyalty programs. A loyalty program that starts as a huge hit can fade into white noise, where your customers come to expect and assume the rewards you offer and may even take them for granted, to the point they may even make demands about them.
Take Its Temperature Regularly
The second lesson can be learned from the age-old fable of the frog that lands in a pot of cool water, which is placed over a small flame. Slowly and gradually, the heat creeps up, so slowly, in fact, that the frog is not aware of the temperature rise. It is not until too late that he realizes what is going on - if he had only had a thermometer!
The lesson? You need to constantly take the “temperature” on how your loyalty program is working. If you take its temperature regularly, you’ll know if it’s cooling and can make adjustments before it’s too late. Otherwise, you might not realize the program is losing its effectiveness.
Today, trading stamps are passé; although, interestingly, a few companies are still in the business, assisting small, independent grocers to use stamps to entice customers away from the big chains. Whether the trading stamp program could have been revived if consumers had stopped paying attention to it is hard to know. But one thing’s for sure - it is certainly worthwhile for you to survey your loyal customers and keep your eye on the metrics to take the temperature of how your loyalty program is doing.
About Delancey Street
Delancey Street is a premier, and award winning, business debt settlement company that helps business owners nationwide. Our goal is simple: help you escape debt in a safe and legal manner. Based out of New York, we can help in 49 of 50 states. We tell you how it is; because your business and future is on the line.
