Visible Results News - Article

LOYALTY REDUX - November 2003 - National Petroleum News - www.petroretail.net

In November and December 2002 NPN took a look at a variety of new loyalty programs that were being marketed to retailers. The technology was hot, fresh (at least for the petroleum/ convenience store industry) and had been the buzz of industry meetings and trade shows for months. Virtually any company that had a product that remotely touched the consumer in any way were promoting a loyalty angle. A variety of the more firmly established players were contacted to see how their programs were structured and what progress was being made in the field. Many approaches looked promising, but they were just in the trial stage, or had limited deployments. The Outsite tags help reinforce branding and can even be co-branded with a product vendor to help offset costs. With the better part of a year under the belt, NPN is taking another look at some of the companies featured in the initial articles to see how the technology has panned out in the field. So far, the results have generally lived up to the initial enthusiasm. Outsite Networks Outsite Networks, Inc. based in Norfolk, Va., offers Fidelis, an audio-based marketing tool that helps market and expand the loyalty program and direct customer buying patterns once they sign up. The system includes audio speakers at the dispenser, RFID customer identification tags (not payment tags), and a Web-enabled customer database that allows the retailer to easily track customer buying patterns and establish general or individually targeted promotions. The system immediately recognizes each customer, offers a brief welcome, notes any reward updates and announces store promotions. The system is tied to an in-store coupon printer. A customer identified as a good fuel customer (based on preset criteria) but a poor store customer can be enticed into the store with an appropriate store-based reward. Likewise, a strong store customer can be enticed to start filling up more frequently if that is desired. If a customer is found to have little gasoline price sensitivity, then promotions can even be geared to entice him or her to purchase a premium grade. The past year has seen a significant increase in business for Outsite. "The progress of the company, the product and its applications has been phenomenal," said Anton Bakker, Outsite president. "The stations that we have had participating for close to two years now have taught us a lot. Today, we're at 10 million transactions and over 100,000 loyalty customers. There are 70,000 to 100,000 transactions per day using our systems." Outsite's 2003 sales quadrupled those in 2002, and the company is expecting its 2004 sales to quadruple its 2003 sales. Significant retailers testing the program or rolling it out include Travel Centers of America (looking to bring automobile customers into the store and increase repeat customers), Tetco, and Mac's Convenience Stores Inc. in Canada. South Pacific Petroleum Corporation is one customer that is sold on the system, an independent petroleum marketer on the Island of Guam with a population of 130,000. With 10 stores, South Pacific Petroleum operates a third of the convenience stores on the island. "We have taken things to the next level here with our PowerPass program," said Klaus Kokott, VP Marketing. "Although we're in a smaller market, our competitors here are basically ExxonMobil and Shell and we're just a small independent oil company. For the past couple of years we've been looking for a loyalty system -- something that would put us ahead of the competition and give us information on key performance indicators. The data that's available with Fidelis can provide us with that information." Kokott noted that the Fidelis has generated some significant results in the five months he has been using the system. The average fill up for a non-loyalty customer is about four gallons, but for a loyalty customer it is over 7 gallons. The average loyalty customer making a store purchase has about a $1.25 increase in spending over a non-loyalty customer. The percentage of combination purchases increases between 28 percent and 33 percent during the five months he has been using the system. "Our c-store sales continue to climb even during the summer season when a lot of people leave the island to visit relatives either in Hawaii or the Philippines or California," said Kokott. A key development has been the value of the customer data generated by the system. The Outsite controller helps track every transaction, loyalty or not, across a broad range of point-of-sale systems. This makes the vendor relationship a source of funding to help underwrite the program. "We're able to get the information and the vendors are willing to pay for it, although we haven't charged them for it," said Kokott. "What we say to them is that if you think the information is worth $2,000 then let's do a promotion that's worth that amount of money. "Also, a lot of manufacturers and their distributors have promotional items that they are basically mothballing in a warehouse somewhere and they don't have any unique way to get them out into peoples' hands. Say a distributor has 4,000 T-shirts that they want to get out into peoples' hands. They can either give 10 to 400 retailers who are on the island and have no clue what's going to happen with that, or they can advertise, 'Get your free Pepsi shirt at all the Circle K locations' and through Fidelis know that every 25th or 50th customers is going to get a T-shirt. It's a very controlled mechanism to pass these out, which the vendors love." Gilbarco offers loyalty solutions for both its installed base of monochrome dispenser displays, as well as it's high end Eclipse dispensers. In a key development, Outsite Networks announced that they have entered into an agreement with Eby-Brown Company to promote Outsite's loyalty and media system to their customers. A privately held company, Eby-Brown, with headquarters in Naperville, Illinois, is one of the largest distributors in the United States, providing consumer goods and other products to retailers in the convenience channel of trade. In addition, Eby-Brown will offer their customers a marketing program with a variety of value added services to support the Outsite Networks' system. "We've been taking a look at loyalty for some time," said Eby-Brown co-president, Tom Wake. "We had a specific retailer who was getting into it at the time so we got together with Outsite. We spent several months trying to understand what their equipment could do, what their program could do and how we might get our arms around it so that we could help our retailers. We think this is a great opportunity for retailers to get into a loyalty program on a reasonably small scale and get benefits." Eby-Brown plays a key role in the relationship through its longstanding connection with product vendors and its established base of retailer customers. Gilbarco Veeder-Root Greensboro, N.C.-based Gilbarco Veeder-Root is working with third-party developers to field loyalty applications for its Internet-enabled multimedia Eclipse and Encore dispensers and its installed base of monochrome-display dispensers and G-Site and Passport point-of-sale systems. Gilbarco will work with retailers and third-party developers to integrate the hardware into proprietary customer loyalty programs. A major client of Gilbarco Veeder-Root is Imperial Oil, headquartered in Toronto. The company currently produces about 7 percent of the total Canadian energy supply, and retails petroleum through some 2,100 Esso-branded service stations. Gilbarco Veeder-Root worked with Imperial to integrate its loyalty program with nearly 1,000 locations using its G-site POS and legacy dispensers with monochrome displays. The proprietary program itself allows the customer to earn one or more Esso Extra points for every dollar spent with a swipe of the Esso Extra card. The points appear right on the Esso receipt, and can be redeemed for Esso Extra rewards or exchanged for other program points. You can even transfer your points to another Esso Extra member. Speedpass also plays a significant role in the program by adding an extra point for the transaction. "Loyalty is definitely a business driver," said Monika Sipley, technology manager for Imperial Oil. "We promote our loyalty program on our CRINDs and through the mail and brochures at the site. Loyalty definitely drives business and it's a fact of being competitive." Progress with the next generation Encore and Eclipse dispensers has been slow, influenced in no small part by the business environment during the past few years. Although the technology provides a number of improvements in diagnostics and marketing capabilities, it also comes at a cost. Further, exciting loyalty applications for smaller retail chains have generally been lacking, leaving the technology primarily appealing to larger retailers and proprietary programs. In a proactive move, Gilbarco Veeder-Root just announced the acquisition of Alki Networks, a Seattle-based technology developer and software licensing company. With this transaction, Gilbarco Veeder-Root gains exclusive distribution of the Alki Intelligent Merchandising system, a Web-based application, which delivers interactive marketing and merchandising programs on fuel dispensers and alternative display devices at the forecourt. The AIM system provides a suite of tools that retailers can use to quickly create digital promotions, schedule and deploy them across a single location or an entire network of gas stations, and capture and report critical customer response data in real-time. All system management is conducted through a standard browser, and is accessible to non-technical operators. "We are excited about adding the Alki system to our integrated suite of merchandising solutions," said Martin Gafinowitz, president for North America, in a release announcing the acquisition. "This is another example of Gilbarco Veeder-Root using smart integration to help retailers leverage their investment in forecourt devices and point-of-sale systems, and at the same time, increase traffic, grow profits and build customer loyalty." Gilbarco Veeder-Root has over 150,000 color and monochrome screens installed in the field capable of displaying AIM marketing and merchandising. AutoGas Abilene, Texas-headquartered AutoGas offers its Digital Rewards loyalty program that displays the store generated gasoline reward at the dispenser. When the cashier scans items out, the POS recognizes the promotion products and consolidates the discounts into a token, which can be a bar-coded receipt, their credit card identification or a loyalty card. The customer then takes the token to the dispenser where he or she swipes a card or waves a bar code under a scanner and the gasoline price is immediately adjusted. Multiple tokens can be used so that filling a tank may cost only a $1. The Outsite program works to bring the customer into the store. "We looked around and a lot of big box stores were using this technology, and we decided we needed a loyalty piece to compete," Said Terry Presta, president of Wichita, Kan.-headquartered Presta Oil Inc., which operates 27 Presto Convenience Stores and is using Digital Rewards at 10 sites. "We haven't been running the program long enough to have all of the details, but the customers seem favorably inclined to the program. We're still experimenting with the promotions and keeping on top of the rewards." Presta came to Digital Rewards through his brand partner, ConocoPhillips, that offers Digital rewards as part of its marketing program. Retailers use a Web-based tool that links them to manufacturers and facilitates promotion management. A manufacturer can setup a promotion by city, region, or state and retailers can decide whether or not to participate. A chip manufacturer, for example, can offer a promotion linked to a 5-cents-per-gallon rebate up to 20 gallons. The retailer logs in and sees the offer, and clicks an acceptance. AutoGas works to bring the manufacturers on board, and at the end of the month invoices the manufacturer on the retailer's behalf. KickBack Points KickBack Points was the brainchild of Patrick Lewis, former CEO of Oasis Stop'n Go which operates 10 sites in Twin Falls, Idaho. He spent $100,000 developing the program, after failing to find one that fit his needs, and uses it at his retail sites. Its success prompted him to market the program to other retailers, first regionally and now nationally. Currently, 100 different companies (not all convenience retailers) use the "village" program at over 150 locations. KickBack Points offers the customer one to five points for each dollar spent at a variety of retail establishments, with each point being worth one cent. The petroleum/c-store site falls in the 1-cent category, while a higher-margin operation like a restaurant could fit in the 5-cent range. Realtors and lawyers have even shown interest in participating with points in the 10 cent range. The participating merchants donate the various prizes, as do the various vendors and manufacturers. Each time the card is swiped there is a potential winner for a 1,000-point giveaway and other instant prizes, and the customer gets one entry in an annual sweepstakes. The program has been so successful that Lewis hired a new CEO for the Oasis operation and is devoting all of his time as the CEO of the KickBack Points program. In Fact, Lewis even exhibited at NACS for the first time in an effort to expand what has been a regional program. While the program brings in new customers, it works to reward the best customers. The system allows him to identify the top customer for every location, the number of visits, how much the customer spends and lost-customer reporting, which tells the merchant if he has a frequent customer that has stopped shopping. The program worked well for Oasis, allowing it to increase margin and volume growth, and was so successful that a local competitor fought to get on board. "The program has been phenomenal said Jim Lynch, president and owner of Mr. Gas, which operates six stores out of Burly, Idaho. "I went into this with the idea that there are markets where I'm big, and markets where Oasis is big, but not the same markets. I convinced them that it was more of an advantage to both of us than a threat, and it's been good for both of us." Lynch notes that he is redeeming more points than he is issuing, but even if he wasn't, the increased traffic makes the program sustainable. "Customers bypass competitors to shop at your locations," said Lynch. "The technology works great, and we've had no problem educating our customers. Our only concern was making sure no one finds a way to cheat the program. We put purchases over $85 on hold for a day to confirm they are legitimate and look for any indications that someone is manipulating the system." Visible Results Auckland, New Zealand-based Visible Results, also offers a program with a village approach. Participants include restaurants, clothing stores, petroleum and convenience stores, hotels and supermarkets. At the heart of Visible Results is the GraphiCard -- a thermal read/write card that has the unique feature of changing the message on the actual card with every transaction. It can update points earned; provide "instant winner" prizes; promote special offers; provide media space for extra advertising revenue or to trade for rewards; or show almost anything the retailer feels is appropriate. At the time of the initial article, Corner Pantry, which operates 26 stores in South Carolina, had just launched the program with great optimism and enthusiasm, and for the most part it has delivered. "We've been pleased, but there have been some obstacles," said Mike Cox, Corner Pantry vice-president. "The learning curve was tough at first. However, since October of last year we've created what's really a new customer for us. We have 22,000 people enrolled who spent almost three and half million dollars on the card and it's obvious that they enjoy it. Now, if we ever tried to get rid of the card we'd have some serious calls and complaints." Cox noted that the program has changed the customer perception of a trip to the c-store. "It's hard to make the convenience store experience really pleasant," he said. "It's not like people really and truly want to go out and pump their gas. Visible Results has made the experience more enjoyable for our customers -- they don't know what instant prize they might win and also they know they're getting something back and that's something new and unique." The card is broken up into three sections and Corner Pantry only funds the earned rewards section. Every $25 on the card generates a dollar off a gasoline purchase. Vendors support the instant prizes. "I thought this (instant prizes) was going to be a tough area to develop, but the vendors really love it," Cox said. "They haven't had any problems ponying up. The bigger players like Pepsi and Coke have been great. It's built up a lot of marketing opportunities. We've even given away hundreds and hundreds of tickets to events at no cost to us." One difficulty with the program has been the educational process. "Since there's nothing like the Visible Rewards card out there in our market the customers couldn't identify it at first," Cox said. "They confused it with the grocery store cards, which are really more discount cards. They would say, 'Is this going to get the cheaper prices or is it going to penalize me if I don't have it with me?' Everybody's in a hurry today and it's hard to get that message out. Whatever medium you use -- print, billboard, TV -- you have a short time to engage them to let them know that it's free, and it's just something we're giving back to them and thanking them for being a good customer. A year down the road, and the initial enthusiasm for the loyalty concept seems to have been well placed. Is it worth it to be an early adopter with loyalty? Most experts in the field give early adopters a leg up on the competition, and there are plenty of glowing, individual success stories to add comfort to the decision to proceed. Of course, these programs are new opportunities for consumers, and generally lack serious loyalty competition among convenience retailers in their markets. The impact of any particular program once some degree of loyalty saturation occurs has yet to be determined. Even now, retailers should enter into a sophisticated, technologically focused loyalty program with realistic goals and an understanding of what is involved. Technology-based loyalty programs can be expensive and require some degree of sophistication to make sure they provide a positive return on investment. Not all systems will work equally well in all markets due to competitive factors. Loyalty programs also need the full commitment of the organization -- from the CEO to the cashier -- to optimize results. And, it can be very difficult to close a loyalty program that doesn't live up to expectations, and produce a backlash against the retailer from disgruntled customers who embraced the program.