how your fidelity cards will become a success

StampKey Ltda. www.stampkey.com

How your fidelity cards will become a success

The fidelity card - also known as loyalty card, punch card or stamp card - is still one of the most widely used marketing tools for many businesses. Learn how

you can effectively create customer loyalty for your business and why it pays off

www.stampkey.com

How your fidelity cards will become a success 2

Content

Why a fidelity card? ............................................................................................................. 3 How to introduce a fidelity card in my business?................................................................ 5 The difference between a discount and a loyalty reward .................................................... 6 How to calculate the return of your fidelity card?................................................................ 7 How to design your fidelity card to maximize its impact? ................................................... 8 Frequent problems with your fidelity card ........................................................................... 9 Measure your progress ...................................................................................................... 11 Contact .............................................................................................................................. 12


Why a fidelity card? A proven marketing tool

For decades, the fidelity card has been a proven marketing tool for many businesses in creating long-lasting relationships with their customers. Whether loyalty programs such as every 10th coffee for free, every 10th haircut for free or a free flight received by collecting airline mileages, in many businesses one can find the loyalty card and the associated reward and incentive system. The sheer number of businesses which offer their own fidelity cards – starting from large corporations such as airlines, supermarket chains, restaurants, hotels, gasoline stations to smaller businesses such as restaurants, hairdressers, clothing stores, stationery stores, bakeries, cafes, bars, fitness centers, tanning salons, leisure, sport and many more - proves that the fidelity card system works. Most businesses are ready to reward their loyal customers and obviously it must make sense to do so for the business.

Having loyal customers pays off The basic idea in business is - be it a restaurant, a bar, a hairdresser, a beauty salon or any other business – that there are better and other customers segments. The better customers visit more often and spend a lot more money in total than the other customers, because those appear only sporadically and their average purchase amount per visit also is less. Good customers can spend at minimum 5x-6x as much as the other customers. Thus from a business perspective, it makes a lot of sense to especially cultivate the relationships with the best customers in order to increase their visit frequencies and the associated sales with it. In addition, a business with a loyal customer base is economically more stable, better prepared to deal with the business cycle and offers more value because the consumptions are of recurring nature which translates into a lower business risk.

The goal: Increasing sales and profits permanently With the introduction of a fidelity card the business tries to achieve the following objectives:

! Increase sales and profits in the long term

! Reduce business volatility and achieve better capacity utilization

The fidelity card as a marketing instrument The loyalty program contains the following components:

! Reward customers for their loyalty

! Raise awareness for your products

! Treat your customers as important

! Establish and formalize a relationship with your customer

! Treat all customers equally and fairly by applying a disciplined and systematic approach

! Increase visit frequencies

! Win new customers

The fidelity card thus serves as an important communication and marketing tool. To the customer your message is very simple: "The more you consume the more we reward you". This way, the customer feels respected. He can also benefit from


a better customer service and as a business you can fully concentrate to keep your best customers happy. Thus, the business owner can use the loyalty card to establish a more formal relationship with the best customers, motivate the other customers to consume more and thus generate more visit frequencies. Normally, the benefits should outweigh the costs. A loyalty program is something every retail business should have.

“Fidelity cards are a key marketing tool to maximize your revenues in the long-term”


How to introduce a fidelity card in my business? Today there are various loyalty card programs available - from traditional plastic cards to modern loyalty apps, where the loyalty card is stored via app on a smartphone so the customer can easily carry his card with him at all times. The business owner needs to decide which loyalty system to choose and how to implement the loyalty program into his business. There are two basic options to choose from: (1) implementing a loyalty program yourself or (2) using a specialized service provider in customer loyalty. Due to the technical progress in software development made, today even micro companies can find professional fidelity card solutions via app for smartphones that can be implemented quickly even on a small budget. The software is ready for use on a server and thus no upfront investment in software development is required.

Implementing a loyalty program by yourself Implementing a loyalty program by yourself can be an option worth to consider for a very small business, such as e.g. a small café which offers every 10th coffee for free by printing a traditional punch card on paper, where the customer cards are distributed only to a limited number of guests. But as soon as the business and the number of customers grows, the more difficult it becomes to manage such a loyalty program because its easy to loose the overview how many stamps are outstanding and who really uses the stamp cards. It is similar to driving a car blindly, without a better control of your loyalty program, it is very had to extract the full benefits from your loyalty program.

For large corporations, such as e.g. a supermarket chain, a proprietary implementation of a loyalty program is a more widely used option since customer behavior shows more impact on the financial result, the business has the necessary economies of scale and the loyalty program can be connected with the warehouse management system. In addition, the profit margins are lower, so that important details do make a higher impact on the financial result. For such businesses a proprietary implementation makes sense, especially as the business has the critical size to absorb the related costs with it.

Using a specialized service provider for loyalty programs For most small and medium-sized enterprises, it might be worthwhile to use the services of a specialized provider to implement a customer loyalty program. For those businesses, the management of a loyalty program is not part of the core competences and savings in time and money can be achieved when using already existing processes and systems to manage the program. In addition, the know-how and experience allows the business to better reach the full benefits of a loyalty program. Specialized providers of loyalty programs such as StampKey can offer innovative solutions (e.g. loyalty cards on your smartphone), which increase customer value and the business can better differentiate itself from the competition through the use of modern technologies. Modern providers for fidelity cards on smartphones offer the software as a service (SaaS), where you simply setup a business and stamp card profile via the website. This profile then is downloaded via app on a smartphone located next to the cashier ready to issue loyalty stamps to the QR codes shown in the smartphones of the visitors. The progress then can be monitored live via the web 24/7 where all the stamp history and analytics are visible. Moreover, the use of existing processes allows an easier training of the staff, which is very important at the beginning. Thus, time and cost required to start a loyalty program are minimized.

”Time and money can be saved when using a specialized provider for a customer loyalty program”


The difference between a discount and a loyalty reward Loyalty rewards are often mistaken for discounts. Because the loyalty bonus - such as a free haircut – shows similarities with a discount, the loyalty card sometimes is viewed the same way as a discount: a tool to attract customers to buy by means of cheaper prices. This understanding is very limited and disregards the significant advantages of a fidelity card over a pure discount.

The discount for new customers Typical providers of discounts are e.g. internet platforms such as Groupon.com, which are focusing on selling discounted deals for a variety of small businesses. For a new clothing store, a discount of e.g. 25% can make a lot of sense in order to attract new customers and to increase visit frequencies in the short term. Discounts may also make sense when trying to clear out the inventory through price reductions in order to get ready for the next fashion cycle. The business, however, positions itself as a discounter and the offer is aimed primarily at impulse customers, which show a very different profile than loyal customers. In addition, the business in the customer perception is positioned as a discounter, making it difficult to increase prices and profit margins in the future. Impulse customers are not necessarily those customers the business wants, since the motivation for the purchase is price and not the quality of the service or the product. Once the price advantage goes away, these customers will go somewhere else. However, excellent customers are those who come for the quality of the service and therefore are willing to pay higher prices. Retaining those customers is more attractive for the business.

Fidelity cards create customer loyalty The goal of a fidelity card is to increase sales in the long term and also to reduce volatility in capacity utilization. Compared to a pure discount, the customer is motivated to revisit the store because of the quality of service and its products, leaving more leeway in determining the company’s pricing policy. Moreover, the goal is not to increase revenues in the short term but instead to focus on building customer loyalty so that long term revenues and profits can be maximized - at a multiple of today’s revenues and profits. An investment in a loyalty program thus is long-term in nature and the success depends on the disciplined execution to effectively motivate the customer to re-visit the business soon.

Example Hairdresser Discount Loyalty Card Example Voucher for 40% discount Every 8th haircut for free Motivation Benefit from the cheapest price Benefit from excellent service Target client Impulse purchase Repeat customer Visit frequency One-time Recurring Objective Get a new client Increase visit frequencies and profits in

the long-term Time period Short-term Long-term

“The fidelity card is a marketing instrument which aims to increase profits in the long-term while a pure

discount is used to increase revenues in the short-term”


How to calculate the return of your f idelity card? A loyalty program costs money, thus it must justify itself. The way to calculate the return of your customer loyalty program is to compare the costs of such program in comparison with the financial benefits created. Using the example of a small restaurant, which has a fidelity card to offer every 8thh lunch for free, the profitability calculations of such a fidelity card are demonstrated as follows:

Your fidelity card as an investment – example of a small restaurant Example restaurant Without loyalty

card With loyalty card

year 1 With loyalty card

year 2 Number of regular customers 100 120 130 Visits per customer and year 6 12 12 Number of consumptions 600 1,440 1,560 Average revenue per visit USD 20.00 USD 20.00 USD 20.00 Yearly revenues USD 12'000.00 USD 28'800.00 USD 31'200.00 Yearly net income (10%) USD 1'200.00 USD 2'880.00 USD 3'120.00 Profit increase +140% +160% Costs of the loyalty card Marketing, promotion and hardware USD 400.00 USD 200.00 Setup fees USD 0.00 USD 0.00 1 year subscription with specialized loyalty app service provider

USD 240.00 USD 240.00

Number of free meals 180 195 Costs per free meal USD 5.00 USD 5.00 Costs for all free meals USD 900.00 USD 975.00 Total costs USD 1'540.00 USD 1'415.00 Amort izat ion period of the investment < 1 year Net income per year USD 1'200.00 USD 1'340.00 USD 1'705.00

When introducing a fidelity card successfully, sales and profits should increase in the long-term. Of course it depends how the implantation of the loyalty program has been executed and if the program is properly incorporated in the company’s culture. As the above example shows, an investment in a loyalty program can actually be attractive for a small business like a restaurant or a hairdresser – potentially leading to a short payback period within 1 year - depending on how effective the introduction was.

With a loyalty program as reason to participate, new customers can easier be converted into regular customers than without such a program. The key to financial success of a fidelity card lies in the increase of the visit frequencies. Financially, it makes a significant difference, if the best customers stop by regularly or only sporadically. In addition, recurring customers include a lower financial risk because the income streams generated are systematic and regular by nature.

“The financial success of a loyalty program depends on the generated visit frequencies”


How to design your f idelity card to maximize its impact? Defining a clearly understandable premium For many businesses such as restaurants, bars, hairdressers etc. it is easiest to offer the most demanded product - such as e.g. the daily menu – as a loyalty reward. This is the easiest way that customers understand how they can benefit from participating in the loyalty program. From a financial perspective, it would be desired to choose a product with attractive profit margins, in order that the costs of the loyalty program can be amortized as soon as possible.

Setting an achievable reward threshold To participate in the loyalty program, the customer needs to understand that he can get the reward in a short period of time. For example, an aquatic park operator might stretch customer’s goodwill quite a bit when offering every 20th entry for free, because at that time the season might be over. The offer won’t be taken seriously and the objectives of the loyalty program cannot be achieved. Most loyalty programs offered by take-away restaurants e.g. offer rewards on every 8th or 10th consumption. The consumer thus takes the offer seriously and he is motivated to participate because he firmly believes that he can obtain the premium easily. As a business, you benefit more likely from the customer the sooner he returns to you.

Setting the initial stamp balance Studies show that customers are more encouraged to collect loyalty stamps if they already possess a starting balance. Therefore, it is advisable to issue one or even two stamps already at the beginning of issuing a new fidelity card, so that the customer feels he can quickly collect the remaining missing stamps to get the reward for his loyalty to the business. The sooner the reward is achievable, the shorter the intervals become when the customer returns to the store.

Make it easy for your customer to join For your customer it must be easy to join your loyalty program. A friendly staff member who explains the advantages of your fidelity card, the loyalty reward and issues the first loyalty stamp directly at the point of sales definitively helps. Furthermore, modern digital loyalty programs such as e.g. the StampKey app allows you to get going easily by issuing the first stamp by email and the loyalty card of the customer will be opened directly. Furthermore, your customers might appreciate when being offered a new technical solution to carry his fidelity card on his smartphone. The fidelity card will not be forgotten at home anymore.

Communication is key to the success of your loyalty program Communicating at the point of sales (e.g. by means of a flyer) that a fidelity card exists, what reward is offered and how the customer can participate is very important. As a business you want your customers to understand that it is worth to spend the money with you, because you reward customer loyalty. This motivates your customers and can be the difference if the customer has to decide between choosing your place or any other place to visit. Who wants to visit a restaurant if the visit is not appreciated?

“A fidelity card should be simple to understand and be motivating to your customer”


Frequent problems with your f idelity card The loyalty reward is too complicated A loyalty reward should be easily comprehensible and avoid complicated terms and conditions. The customer deserves to be respected and taken seriously. Thus best to keep it simple and to avoid unclear incentive systems, such as e.g. coupons for certain discounts for other stores that are redeemable only under certain conditions. Instead, simply use rewards, which are straightforward and do not require a long explanation, e.g. 1 free haircut, 1 free drink or 1 daily menu.

It takes too long to get the first reward In the perception of the customer, a loyalty reward needs to be achievable in a short period of time. In case it becomes obvious that it takes a long time to receive a first reward (e.g. 15 consumptions at a restaurant required), this reduces the motivation of the customer as it looks like the business is more concerned to save money rather than truly reward customer loyalty. In addition the business forgives the opportunity to create higher visit frequencies and thus to increase sales. It is therefore better to offer a realistic reward, because with every visit there is an opportunity that the customer spends additional money. For a hairdresser, which offers a free haircut, a premium should be achievable within 8-10 visits. The consumer’s appreciation is the greater if the premium can be achieved in short time.

A lack of communication Fidelity cards are an important marketing tool and can be used as such in the communication to its customers. The customer will realize over time that it is better for him to visit those stores, which reward his regular consumptions. Therefore, it is important to utilize the important communication channels (e.g. posters, flyers, business cards, web, Facebook, Twitter, etc.) to introduce the loyalty program and emphasize the benefits for your customers. Loyalty programs, which are not communicated, otherwise create the impression that they are not serious. There are many medias to communicate; however most importantly is to direct the consumer’s attention at the point of sale that a fidelity card with e.g. the advantage of every 10th haircut for free, is available.

Untrained employees It also may happen that a customer asks for a fidelity card and is served by a staff member who obviously does not know about his own business’ loyalty program. Either the fidelity cards are out of stock or the employee might not be motivated to assume the extra work to issue a new loyalty card. The success of a loyalty program depends very strongly on pro-active employees. In the case of modern fidelity cards via app for smartphones, this means that the employee knows how to use the app and what the benefit for the customer will be (e.g. a free daily meal). A customer feels better treated when an employee is notifying him that he will benefit from a reward by using the fidelity card and shows him how to start immediately. Besides these advantages, talking to the customers offers a good opportunity to show the customer about your company’s philosophy and culture.

Do not reward disloyal customers A loyalty programs should aim to reward the type of behavior by your customers, which suits your business. You want to create loyalty, so there is no point in rewarding disloyal customers.

Offering double loyalty points on certain days, it is debatable whether this can be seen as truly useful or not. The issue is, double loyalty points have the same effect as a discount, which mostly rewards impulse buyers and not necessarily the loyal


customer. However, with your loyalty program you want to reward customer loyalty. In this case it might be better to award an additional loyalty stamp after the customer has received the first reward in order to effectively reward him for his loyalty.

Do remember your previously lost customers The focus of your marketing efforts should not only lie in taking care of your existing customers and the acquisition of new customers. Do not forget your previously lost customers. If these re-appear at your business, there must be a reason for it. Thus it may be easier to motivate previously lost customers again through the help of your fidelity card. The success rate for those customers should be higher than for new customers, as those do not know your services yet. It might be worthwhile convincing the previously lost customers again of the benefits of your loyalty program and the qualities of your services and products.

No additional offers Through your fidelity card, your best customers are reminded to visit your business for the qualities of your services and your products. On a smartphone they will see the app with your loyalty program on a daily basis. These visits generate opportunities for you to sell additional products beside the daily meal – e.g. coffee, dessert, etc. where you can generate even more revenues. Having additional products ready to offer, allows you to accelerate the return on your loyalty program.

Keeping your promises Trust is created when promises are kept. This in particular applies with respect to your most loyal customers whose visits are essential to the long-term success of your business. Thus it is important to keep your promises on a daily basis.

Neglecting customer needs Your customers have the choice to participate in a variety of loyalty programs. Collecting all the possible fidelity cards will fill the wallet of your customers very quickly. If you speak with a customer, most customers actually will agree that it makes more sense to carry the fidelity cards in their smartphone rather than carrying a thick purse around. Thus a business should respond to these comments and e.g. offer customer loyalty programs via app for smartphones.

Spending more efforts than revenues If you feel that your loyalty program is causing more efforts than benefits, you might first want to check for untapped optimization potential within your organization. Implementation is key for the success of your loyalty program, thus asking questions might help you: Did you receive sufficient support by your employees? Are there ways to improve processes and reduce costs even further? - A review of your loyalty program will most likely identify areas which can be improved and eventually make your loyalty program work better. If you need assistance or external expertise it might be advisable to contact a specialist for loyalty programs.

“Design your loyalty program in a simple way,

reward the desired behaviors of your customers and aim to provide an excellent customer service”


Measure your progress Defining goals Implementing a loyalty program is a long-term project and its success depends heavily on execution. Therefore, it is essential - even after a successful implementation - to track the progress of your loyalty program on an ongoing basis. To do this, its recommended to first define the objectives of your loyalty program for your business in form of measureable key performance indicators (e.g. number of loyalty cards issued, number of stamps issued per week, etc.) so that you can monitor them. With digital stamp card systems such as StampKey this is easily possible. Specific goals e.g. can be the following:

! Distribute 100 fidelity cards in the first month (quite realistic for many businesses)

! Every employee to issue min. 20 stamps per day

Achieving the targets implies there will be a strong correlation to the visit frequencies of your customers and thus you should see at some stage the results in terms of your sales and net profits. A systematic and disciplined approach over time will pay off and will do the utmost to make your loyalty program a success.

Training your employees on a continuous basis The friendliness of your staff is critical to promote your fidelity cards and to maximize their impact. It is therefore advisable to train your employees in the use of your fidelity cards so that they are knowledgeable how to support the efforts to systematically build up a relationship with your loyal customers over time. Raising awareness among your staff, by discussing the progress and objectives of your loyalty program will help to make your loyalty program successful. The goal is that your employees assume responsibility for the success of the loyalty program. Achieving this goal will show up in your business’ sales and profits.

Measuring the progress To ensure the objectives with the loyalty program are achieved, it is recommended to regularly check the progress based on key performance indicators at least once a month initially.

! How many customers did receive a new a fidelity card?

! How many loyalty stamps and rewards were issued?

! Who has issued how many loyalty stamps and why?

! What feedback was received from customers?

! What are the areas we can improve?

Based on measurable key performance indicators, progress becomes better visible. Continuous optimization will ensure that your business’ loyalty program can reach its full potential over time.

"Make the progress of your loyalty program visible, measure the advancements and optimize your loyalty

program continuously"


Contact About StampKey StampKey offers a professional fidelity card solution via stamp cards for smartphones. StampKey’s loyalty program is mainly targeted towards the needs of restaurants, bars, cafes, hairdressers, bakeries, leisure providers and other retail stores. StampKey allows your business to quickly and easily launch a fidelity card for smartphones and monitor its progress via its web platform to stay in control of your loyalty program. StampKey operates via an app for smartphones, where the built-in scanner scans the QR-Codes of other StampKey users and in this way the business can issue loyalty stamps and rewards. StampKey QR codes can be printed on business cards as well, via PDF’s which can be downloaded via its web platform. This allows your business to also include non-smartphone users in your loyalty program. Furthermore, StampKey app allows you to offer special promotions within the app for a limited period of time to increase short term visit frequencies as well. The StampKey app is available in English, Spanish and German languages. Issuing loyalty stamps and rewards via smartphone also works without permanent internet connection (for 12 hours during a normal working day). StampKey thus offers a simple and flexible solution to start a professional and modern loyalty program for your business still today.

Contact us Please get in touch with us if you wish to discuss how to implement a professional loyalty app, which is optimized for the use by smartphones.

T: +41 56 588 00 98

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