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The Honolulu Advertiser

Posted on: Wednesday, January 26, 2005

Businesses try to inspire loyalty

By Catherine E. Toth
Advertiser Staff Writer

Arielle Shirland considers herself a loyal customer.

Malia Johnson is co-founder of Sedona at Ward Centre. The store, which specializes in metaphysical gifts, runs a frequent-shopper rewards program: People who spend $1,000 or more at the store receive a 10 percent discount; $100 purchasers get $10 discounts.

Photos by Gregory Yamamoto ° The Honolulu Advertiser

She would drive from her home near Sunset Beach to Ward Centre just to buy hand-crafted crystals and candles at Sedona, a shop that specializes in metaphysical gifts.

And now that Shirland lives in Kaimuki, she goes even more often — on average once a week — stocking up on gemstones, jewelry and meditation music. She can spend hundreds of dollars in one visit.

"It's always wonderful just coming into the store," said the 50-year-old Hawaiian Electric Co. employee. "They welcome you just for walking in. They're just happy seeing you, whether you spend money or not. It's just wonderful."

For her patronage, Sedona has christened Shirland a Super Nova customer, a designation given to people who spend more than $1,000 at the store. They receive a 10 percent discount on anything in the store, in addition to other rewards. The store keeps these customers on file, noting their favorite items and recent purchases. Some have photos.

Loyalty programs like Sedona's have been around for more than a decade, with companies offering rewards in the form of discounts, free gifts and newsletter subscriptions to frequent — and high-spending — customers. Companies hope that in return customers would return to their stores and, more importantly, spend more money.

Sedona has more than 200 Super Nova customers, in addition to the more than 2,000 people with Sedona Star Customer Cards. Ten stamps, which represents $100 in total purchases, gets cardholders a $10 discount off their next purchase. Complete 10 of these cards and become a Super Nova.

"It's kind of a club," said store co-owner Malia Johnson. "You just become one of the 'ohana in that way ... And it's a get-to-know-the-customer program for us."

Mixed results

An estimated 70 percent of all U.S. consumers participate in one loyalty program or another, although the success of the programs varies, according to a recent study.

Loyalty programs that provide status or exclusivity to their members — meaning, not everyone can join — were most successful at creating loyalty among their customers, said Mark Rosenbaum, assistant professor of marketing at the University of Hawai'i-Manoa, who spent four years studying 20 different loyalty programs across the country, from airlines to specialty retailers.

Successful loyalty programs include those at Neiman Marcus, BMW and Harley-Davidson. Macy's is launching its Star Rewards program in March to reward high-spending customers.

Sedona in Ward Centre is one of a number of local stores that offer loyalty cards, and many grocery stores offer cards that guarantee discounts for members.
"The bottom line of my research is that companies that sell high-ticket items and offer some type of loyalty program based around the product or service, providing members with status and learning opportunities, are beneficial to joining," said Rosenbaum, whose study, "Loyalty Programs and A Sense of Community" will be published in this summer's Journal of Service Marketing. "But the benefits to joining the other programs are not so clear-cut."

He's talking about card-based programs, such as membership cards at supermarkets, which are available for anyone to join.

"Consumers don't see a sense of membership," he said. "Anybody can join a Safeway or Hilton program. Therefore, these programs can never have a sense of exclusivity."

Consumers, on average, are loyal because of convenience or habit, he added. People will patronize particular businesses based on convenience and affordability of products or services. If they can find the same product at a cheaper price elsewhere, they will likely buy it there instead.

"Can people even be loyal to the same place given so many choices in the marketplace, given coupons and incentives, given the desire to just try something new? Loyalty is temporal," Rosenbaum said.

But there is one benefit to loyalty programs: customer satisfaction.

Customers who have a membership card with a grocery store, for example, are satisfied with the discount they receive. But that doesn't mean these customers are loyal to that one particular store.

"(Companies) issue loyalty programs under the assumption that loyalty programs directly impact profitability," Rosenbaum said. "But that's not directly so. What loyalty programs do is enhance customer satisfaction. And customer satisfaction is not the same as loyalty."

To join many loyalty programs, customers have to fill out an application, which includes home addresses, e-mail addresses and phone numbers.

And while these cards are tracking customer buying habits, many businesses are not fully utilizing this information.

Times Super Market started its Royal Card seven years ago and boasts more than 300,000 members. The card is free and members can buy items at a discounted price. But the local supermarket admits it doesn't track its customers as well as it could.

"We do (track them), but we're not using it to the full potential right now," said Sharon Nambu, advertising coordinator. "We're still trying to decide what we're going to do with the card."

Discounts, tracking

Foodland was the first supermarket in Hawai'i to introduce a loyalty card program in 1996. Like the Royal Card, Maika'i membership is free and members receive discounted prices in Foodland and Sack N Save. For every $250 spent, cardholders receive a Rewards Certificate for 5 percent off a future purchase. The supermarket chain has more than 350,000 members. More than 90 percent of sales are made with the card.

But, like Times and other grocery stores, customers who aren't members can still get the discounted price. Most clerks will swipe a generic card to give them the discount.

"I think it benefits the consumers more than the stores a lot of the times, and that's not necessarily a bad thing," said Carol Pregill, president of Retail Merchants of Hawai'i. "Maybe loyalty isn't the right word to use for these programs."

Pregill said businesses could take advantage of the information they're collecting through these programs, applying it to direct marketing campaigns and product buying.

That's what Keith Sung is hoping for when he begins tracking his customers this year.

Right now the owner of the Honolulu Cookie Company offers customers a stamp card, similar to those in Subway and other food-based retailers, where customers spend a certain amount of money and receive a free gift.

This year he wants to computerize this system to track what customers are buying and which customers spend the most.

"Our company will have to spend more money initially, but I think it'll be worth it," Sung said.

What drives loyalty, he said, isn't the stamp card. It's the quality of his products, which are delivered fresh from his bakery in Kalihi to his retail outlets in Ward Warehouse, Ala Moana Center and Waikiki. That, Sung said, is why people come back.

"Nowadays everything is about value and quality," Sung said.

Along with great customer service, those are what determine Shirland's loyalty to a business.

"I don't have a preference — Foodland, Star Market — wherever the discount is," she said. "But at Sedona, it's different. Whether I get a discount or not, I'd still go there."

Reach Catherine E. Toth at 535-8103 or ctoth@honoluluadvertiser.com.