Using loyalty

Making shoppers feel special requires some careful calculation by local retailers as to the value that offers provide to their customers.

A recent Retail Newsagent magazine suggested that local retailers think about providing loyalty cards to encourage regular coffee purchases, for example a “buy 10 cups and get one free” offer.

Is this generous enough for most shoppers to appreciate the value that you are offering them enough so that they change their behaviour?

Doing the maths, if the cost of each hot coffee to go is 50p and you sell them for £1, then on a deal where someone buys 10 to get the 11th cup free, the discount is worth 10% to the shopper and it costs you 50p to give this value to him or her (the sales tax does not apply). The impact on your cash profit is that it falls by 14.2% from £3.50 to £3.

If you do the offer at “buy six cups and get the seventh free”, then the potential cost to you is 23.7% from £2.11 to £1.61.

However, you also need to factor in how attractive the promotion is in terms of driving loyalty. For a five day a week shopper buying a cup a day, six cups takes you neatly into the second week and a quick reward, while 10 moves the shopper into the third week.

Assume that you sell 100 cups a week and the 10 for one deal increases sales by 10% and one shopper redeems his loyalty card. You increase your profit by 8.6% or £3.50 at a cost of 50p.

Or assume that you choose the six for one deal and it increases sales by 50% and four shoppers redeem their loyalty cards. You increase your profit by 44.3% or £15.55 at a cost of £2. You also benefit from increased footfall and additional purchases.

Doing deals is a good idea but the return you get is determined by the extra value your shoppers think they are getting. You need to experiment and look beyond the simple face value of the transaction to understand the dynamics at work underneath and how they help your bottom line.