Here at 365, we agree - it is powerful data and can be helpful in understanding sales trends and buying behavior.  But to me, it's those user accounts with a zero balance and limited to no purchasing activity that hold the most promise - if you have a 50% penetration rate in a 250 person location, your true upside is in attracting the 125 users who don't use the market at all.

In contrast, what we're hearing from operators "we need better promotional tools and loyalty programs to get these users in..." What we're saying is "no, don't do that.  Those programs will end up degrading the profits of your most loyal customers while generating only a modest uplift in overall sales." Specifically, you may lure a non-market user once with a killer discount, but unless you keep them up, they won't come back. 

365 definitely believes a promotional engine will be of value, but it needs to be built properly and executed with even more care. Otherwise, promotion, discounting and BOGO offers will simply establish a new baseline price for your products, something no one wants!

We want our operators to optimize sales by offering a quality differentiated selection of products, in an attractive and enticing environment. The most successful retailers know this is a winning strategy and it's also why most of them don't have loyalty programs and stick to very disciplined promotional calendars. 

Slate.com author Brian Palmer just wrote a fantastic article about this problem, an article you should definitely take the time to read, a few key points being:

1) Loyalty programs only make sense in industries in which a company can do nothing to differentiate itself from its competitors, and customers lack either the motivation or the price sensitivity to shop around.

2) Customers become so well trained to follow loyalty discounts that they won't buy without them. According to a 2002 article in the Harvard Business Review, many retailers now offer such extensive rewards for loyalty that they're no longer making money on their top customers.

We're working on some exciting new tools and strategies to help our operators generate not just increased sales, but maintain profits.  Please reach out to us if we can help you build a strategy for your markets.  And, if you find this type of communication useful, please let us know - we're thinking about making it a special edition communication outside of our normal newsletter and would love feedback on topics that matter to you.

    Matt Caston, CSO 365 Retail Markets