A Coupon for building Loyalty

For retailers, couponing presents a familiar conundrum.

While coupons are a proven driver of store traffic and top-line sales, they focus customers' attention on price and create an environment where it's difficult to provide differentiated offers or service levels based on customer value. Any retail sector has a "low price leader," but if you aren't that leader, you face a challenge in building loyalty to something other than the deal. The danger is the behavior exhibited on reality shows such as "Extreme Couponing" could become the norm, rather than the exception.

The ideal customer value proposition provides a compelling blend of hard and soft benefits. Here are a few tips on blending coupons with an effective customer loyalty strategy:

Deploy Introductory Couponing. Instead of flooding your customer base with coupons available to everyone, deploy them to encourage customer identification. When an anonymous customer redeems a coupon and then walks out the door, still anonymous, you've lost the opportunity to build a relationship with that customer. Specialty retailer Sports Authority, for example, offers $5-off email coupons customers can redeem after they register for the retailer's loyalty program. Once you've captured the customer's identification, you can market to him or her as part of a customer segment or on a 1-to-1 basis. As a result, your discount dollars make a real impact on marketing return on investment.

Go Mobile. Consumers will redeem 20 million mobile coupons this year, according to eMarketer. In 2013, they'll redeem 40 million. There's a land grab going on in mobile marketing, and it won't be long before share-of-wallet evolves into share-of-phone. Aimia's millennial consumer survey suggests mobile users are often a retailer's most valuable customers: They're tech-savvy, highly educated and display more loyal behavior than the general population. Deliver value and relevance through a targeted application of mobile coupons, and they'll respond with profitable behavior.

Connect the Data Dots. Coupons can help connect offer response to other interactions providing a more complete picture of customer behavior. Sports Authority, for example, can connect coupon redemption activity with customer value as filtered through loyalty program activity. American Express allows online and mobile coupons to be connected to card transactions, so coupons can be processed at checkout. Earlier this year, Visa ran a test allowing Gap shoppers to receive discount offers when they purchased with Visa card products. The options are limitless–so long as companies deploy coupons not in isolation, but to deepen customer insight.

Mix Tactics. By relying solely on coupons as your value proposition, you're deploying your marketing dollars inefficiently. Mix in hard benefits, such as promotional currency or cash vouchers, to provide the optimum blend, and then alter the mix based on segmentation by value, potential or likelihood to churn. Focus your hard benefits on customers who have the opportunity to spend more, and focus your discount dollars on high-value customers to keep them happy and engaged with the brand. It's the difference between wielding a scalpel or a sledgehammer.

Deploy Smart Coupons. As you deploy coupons to offer soft benefits to your best customers, target the offers based on customer value and relevance. Every customer targeted for a coupon offer shouldn't get the same coupon. Should your top-decile customer get a deeper discount than a new customer who just joined your loyalty program? Should you base coupon offers on customer lifetime value? Should you deploy coupons to encourage cross-sell and up-sell? Amazon has pioneered smart discounting, while The New York Times reports 70 percent of Kroger customers who receive targeted coupons redeemed at least one of the offers. A marketing strategy provides a perfect laboratory to test and learn.

Retailers tend to default to a coupon-only marketing strategy because coupons are easy and cost-effective to implement, and they work. Customers love them. But success in today's hypercompetitive retail environment requires retailers to evolve coupons from a blunt instrument to a surgical tool that can focus the discount dollars where they have the greatest impact. It's not rocket science; all artful couponing requires is that you deploy coupons to identify, understand and influence your best customers. Your customers will still enjoy the thrill of the deal, and you'll enjoy bigger profits and long-term, sustainable customer loyalty. In this scenario, everybody wins.

Alan Goldstein develops and delivers long-term business results for loyalty firm Aimia's retail clients across the U.S. region. Prior to joining Aimia in 2012, Goldstein operated ALG Partnership Marketing. He previously held senior positions with Loylogic, Maritz and Vesdia Corp. (now Cartera Commerce).