CDK's purchase of Auto/Mate may create a major disruption in the dealer management system (DMS) industry. Here is our take. DOWNLOAD
Imagine having customers so loyal that they are willing to pay you just to do business with your dealership. Do you think a customer that makes an investment in your loyalty program would be more or less likely to remain loyal to you and your brand? Three companies have successfully managed to accomplish this and in a very big way.
Movie theater chain, AMC, has a loyalty program called “AMC Stubs.” They charge their customers $12 per year to be a part of the program. In exchange, members earn points for purchasing that $20 tub of popcorn that they can use towards future rewards (like more popcorn). In addition, they waive service charges for any tickets purchased online and provide a VIP “red carpet” entrance for their best customers. If you were a moviegoer and paid to be a part of AMC’s loyalty program, the chances that you would patronize a different movie theater chain are greatly diminished. These consumers have essentially proven their loyalty with their wallets. AMC’s loyalty program isn’t any different from any other loyalty programs. Spend money. Earn points. Get rewards. Yet customers are willing to shell out $12 per year simply to be a part of it. It was definitely a risky move for AMC to make customers pay to be a part of their program, yet it makes sense. There are many companies that have loyalty programs. Let’s take the example of grocery stores. How many grocery store loyalty cards do you own? Does owning one make you more likely to shop there, or do you simply use loyalty card at the store when you were already planning on shopping there? The point of a loyalty program is not simply to reward customers for their business, but to also encourage future business. By charging the modest fee that they do, the customer is now more likely to choose an AMC theater when they go to a movie, rather than simply using the loyalty program when they ended up at an AMC movie theater.
The second company that does this is Amazon. Their Amazon Prime membership, while promoted as a membership, is considered by many experts to be a loyalty program. Their fee is definitely much more expensive; ringing up at $79 per year. For that fee, members receive free two-day shipping on any items fulfilled by Amazon, and access to a vast library of streaming movies and book rentals for Amazon’s Kindle e-reader. I guarantee you that the customer who spent $79 to participate in this program looks to Amazon first when shopping. Amazon has expanded into so many markets that one could just about fulfill all of their needs on the site. With free 2-day air, no sales tax in most states, and the fact that customers don’t have to wait long to receive their merchandise, it certainly creates a desirable value proposition. Amazon is now experimenting with same-day delivery service in several markets and recently announced delivery by drone (although they did concede that this was probably a ways in the future).
The third company we have all heard about is the Starbucks Steel Gift card. While it costs $450.00 to purchase, you do receive $400.00 in prepaid coffee products. Incidentally, it sells out within minutes each year that Starbucks offers it. The remaining $50.00 is put towards you very own Gold Starbucks Loyalty Membership. It is very similar to the American Express model which has been a huge success for many years. How many of you pay $450 for your American Express Platinum Card? While you are thinking about your existing loyalty program, or if you are contemplating a new program for your store, it might be wise to consider packaging some simple services into a pre-paid loyalty offering. Then watch what it does to your service spend and frequency of customer visit.
It’s certainly intriguing to watch, and an innovative idea. If you can get a customer to pay you for the privilege of doing business with you, or to be a part of a program that offers certain perks, you’re well on your way to creating an effective loyalty program that increases revenue from those customers.