When we think of Gift/Loyalty Cards, we think about Christmas gifts. According to the 2006 Deloitte Touche Report on Gift Cards, Gift Cards the single most popular gift.
But it would be a mistake to focus on the major benefits of a Christmas Gift cards -getting the customer back in the store in January. A franchise system wants a program that will work year around. Harrah's provides an interesting example of what can be done with Gift/Loyalty Card program.
In 2003, Gary Loveman; CEO of Harrah's commented on Total Gold Program, in the Harvard Business Review:
"One tactic the company had already decided to use to enhance customer loyalty was called Total Gold, a player-card program that was modeled after the airline industry's frequent-flier programs. Launched in 1997, Total Gold was designed to provide regular customers with incentives to visit Harrah's properties throughout the country. Customers inserted their Total Gold cards into slot machines and earned credits as they played. They were rewarded with the standard fare that all casinos offer--free hotel rooms, dinners, show tickets, gift certificates. But there were three problems with the program. First, nothing differentiated this program from our competitors' efforts. Our customers simply took their free rooms and dinners and drifted across the street to do their gambling. Second, our customers earned different rewards at different properties; there was no uniformity in the program. Third, and most important, our customers were not given any incentives to consolidate their gaming with Harrah's."
So how do you think Loveman changed Harrah's program? What would you have done? How would have dealt with any one of the three problems?
He didn't change the program; he changed the use of the program.
"While Total Gold wasn't much good for keeping customers loyal to Harrah's, it was quietly digging our future diamond mine. By tracking millions of individual transactions, the information-technology systems that underlie the program had assembled a vast amount of data on customer preferences. At the core of the Total Gold rewards program (and its successor, Total Rewards, which I'll describe below) was a 300-gigabyte transactional database that recorded customer activity at various points of sale--slot machines, restaurants, and other retail areas in our properties. Database managers fed that information into our enterprise data warehouse, which contained not only millions of transactional data points about customers (such as names, addresses, ages, genders) but also details about their gambling spending and preferences."
(Note the privacy concerns, in 2007.)
"When we started digging into the database, one statistic stood out: Our Total Gold cardholders told us in surveys and focus groups that they were spending only 36% of their annual gaming budgets at Harrah's. This presented an opportunity. There was a promise of tremendous upside if we could induce customers to spend more of their gaming money at Harrah's "
"Before we could persuade customers to come back time after time, however, we needed to take a hard look at them and understand how much value each of them brought to us. We discovered that 26% of the gamblers who visited Harrah's generated 82% of our revenues. We were surprised to find out who our best customers really were. They emphatically were not the gold cuff-linked, limousine-riding high rollers we and our competitors had fawned over for many years. Instead, they turned out to be former teachers, doctors, bankers, and machinists--middle-aged and senior adults with discretionary time and income who enjoyed playing slot machines. We also learned that these customers typically did not stay in a hotel but visited a casino on the way home from work or on a weekend night out. At the same time, we found that our target customers often responded better to an offer of $60 of casino chips than to a free room, two steak meals, and $30 worth of chips because they enjoyed the anticipation and excitement of gambling itself. And we were able to develop quantitative models that allowed us to predict, based on an individual's play, his or her "customer worth"--the theoretical amount we could expect the customer to spend not just during one evening but over the long term. "
This data allowed Harrah's to have a completely different approach to its customers.
"So we decided to act on a radical idea: We would reward customers for spending in ways that added to their value. Most consumer businesses insist that they can't treat one customer differently than they treat another, even though some customers are obviously worth much more than others. To us, that approach was fundamentally wrong, but it didn't mean that we had to focus on the relatively small number of high rollers. Rather, we made a point of treating our millions of regular customers differently depending on their value to us."
There are three elements in this approach: a) dedication to empirical or evidence based management, b) focus on customer's value over the long term, and c) treating customers differently. Would this work for your franchise system? Is your franchisor committed to evidence based management? What do you think?