Frequency marketing is a surefire way to attract and keep long-term customers, but only if you do it right. This article describes the best techniques to use and lists several sources for obtaining more information.

Frequency marketing was around long before anyone gave it a name. One of the first programs began in an A&P grocery store in New York City with trading stamps. Stamps were collected as rewards for purchases and redeemed for fun merchandise or gifts. It was a guilt-free way for families to shop for discretionary goods. People enjoyed the process of pasting the stamps in books, setting their goals, then achieving their rewards. And, of course, they kept going back again and again to the store that provided the stamps.

A great idea! Why didn't anybody think of it before? Well, after the idea became successful, everybody did. Soon, all the grocery and gas station chains had trading stamps, and they became meaningless. Today, something similar is happening with frequent flyer programs. Now that all the airlines have them, the competitive advantage is lost, and many airlines would like to drop them.

That doesn't mean you should ignore the possibilities of frequency marketing programs, however. They are still a great idea, but they have to be well thought out and constantly rethought and reapplied.

The 20th Annual Survey of Promotional Practices, conducted by Cox Direct, includes all major parties involved in the promotional mix: the consumer, the manufacturer, and the retailer, and its findings help industries involved in the promotional mix to have a clearer picture of the trends in promotional practices. The 20th Annual Survey is the final publication as Cox Direct is no longer conducting and publishing this survey.

Of particular interest are the findings regarding consumer awareness and use of supermarket savings clubs or frequent-shopper programs which reveal that consumer awareness and usage of these programs is high, and a majority have favorable experiences. Specifically:

Consumer awareness of supermarket savings clubs or frequent-shopper programs (which offer discounts to shoppers who present their savings card at the register) increased in 1997 versus 1996 (72 percent versus 62 percent respectively). This may be due in part to the increase in the usage of frequent-shopper programs by retailers in 1997 (60 percent) (+6 percent points versus 1996). Of those consumers who are aware of the clubs/programs, more than three-quarters (78 percent) currently have memberships. This is significantly higher than in 1996 (67 percent): with 42 percent having one membership; 25 percent having two memberships; and 11 percent belonging to three or more clubs/programs. A majority of consumers (63 percent) rated their experiences with the supermarket savings clubs/frequent-shopper programs as beneficial (63 percent), and an additional 24 percent have no opinion on the experience. Only 13 percent of consumers find the clubs/programs to be too much trouble. In addition, according to AC Nielsen's Annual Frequent Shopper Study (1998), over 90 percent of card holders use their card almost every time they shop.

DEFINITION

Frequency marketing is the term applied to any program designed to generate brand loyalty and cultivate a long- lasting relationship with customers. Specifically, it encourages and rewards the ongoing purchase of products and services.

ADVANTAGES OF FREQUENT BUYER PROGRAMS

Frequency marketing programs help to retain old customers and win new ones as well as lower marketing costs and build brands. They generate increased frequency of visit, stimulate faster purchase cycles, add value, and make the sponsoring company stand out from the competition. They lock in consumer loyalty and make consumers resistant to product or service promotions by competitors. Effectiveness is easy to measure, and a valuable database is put in place for future programs.

TYPES OF PROGRAMS

Continuity premium programs are long-term customer loyalty programs that reward consumers with brand-logo merchandise or with premiums that can be associated with the product. Examples: Marlboro Action Gear, Kool-Aid Wacky Warehouse.

Free or pay-to-join club programs are formal membership programs geared to generate significant incremental purchases of sponsored products. Examples: Club Rewards by Diners Club and Swatch Collectors Club (both pay-to-join); Convatec's Better Together Club (free).

Collect-and-win games are designed to operate over a short period to generate four or five repeat visits or product purchases. Participants qualify for prizes at various levels. Example: Imperial Margarine's Win a King's Ransom game.

Escalating rebate offers are designed to stimulate multiple purchases of a variety of brands. The more products purchased, the greater the rebate. Example: Nabisco's Parade of Values.

Credit card or ATM automatic-entry sweepstakes. Every time you use a credit card to make a purchase or use your automatic-teller card, you're automatically entered in a sweepstakes. Examples: MBNA MasterValues or MBNA's Visa Anything, Any Charge, Anywhere sweepstakes.

External group programs entail joint participation by two or more sponsoring companies. The program rewards consumer loyalty by offering points, such as "air miles," based on purchases of a wide variety of products or services. Example: MCI gives its long-distance customers frequent flyer points on American Airlines.

Time-release programs provide the required coupons up front but encourage purchases over an extended period of time by staggering the valid dates of the price offers. Example: Frito/Mattel Calendar.

IS FREQUENCY MARKETING FOR YOU?

Some businesses are bettered suited than others for frequency marketing programs, according to Jill Griffin, author of Customer Loyalty: How to Earn It, How to Keep It, which offers the following questions to help determine whether frequency marketing programs make sense for your company:

• Does your product or service have a frequent and regular repeat purchase cycle? The most successful programs are those that occur when customers have an ongoing need for your product or service.
  
  
• Do your customers perceive little differentiation between your product or service and your competitors'? If your customers perceive your product as replaceable and if they can be persuaded to buy from a competitor, then a frequency marketing program may be useful.
  
  
• Will your customers perceive the rewards as valuable? Your customers must consider your frequent buyer benefits to be valuable and definitely worth working for.
  
  
• Are both you and your staff willing to commit to the program long-term? Frequent buyer programs are not short-term. They require a long-term commitment in order to work.
  
  
• Will you communicate with these customers on a frequent and ongoing basis in order to build a long-term relationship? A monthly statement by which you report to your customer is one way to accomplish this.
  
  
• Does your product or service lend itself to easy collection of proofs of purchase? Either the company or the customer must track purchases. The easier you make it for the customer, the better.
  
  
• Can you afford the program? The rewards, tracking, regular communication, and customer inquiries associated with the program require significant time and monetary resources.
  
  
• Do your competitors offer a frequency marketing program? If they do but you do not, you may want to give serious consideration to a program.

DOS AND DON'TS

• Do offer real value. Evaluate your product or service from all sides and determine how it stacks up, not only against the competition but in the eyes of the most discriminating consumer. Unless performance meets the highest standards, you'd be wasting your money on frequency marketing, because it's aimed at the repeat customer. If your product or service isn't good, you'll be found out, and no amount of marketing dollars will help. . .
  . . . Don't discount. Discounts devalue, and most people believe they come off of an artificially high price anyway.
  
  
• Do think long-term. Frequency marketing is a long-term strategy that should touch on, and be an expression of, your entire business focus. . .
  . . . Don't think of your frequency program as a promotion. Promotions are short-term events with a payoff required within a few weeks or months. Even though some frequency programs employ merchandise awards, frequency marketing should not focus on tangible rewards. More important are the "soft" benefits: enhancing satisfaction and making the customer feel important. Ideally, the program should make the customer feel like an integral part of what you are doing.
  
  
• Do aim for your core audience. You naturally want to expand your market share, but there's nothing shameful in putting a significant effort into keeping the customers you already have. Remember, it costs five times as much to gain a new customer as to retain an old one. . .
  . . . Don't try to please everybody. You may offer your service to everyone, but you should determine who your two or three core groups are. They're not the same as everybody else, so give them special treatment.
  
  
• Do analyze costs. Determine what it will take to acquire or retain a core customer. How much will that cost? Is the cost worth it for the increased business. . .
  . . . Don't just expend a budget. It's easy to set frequency marketing goals and then spend enormous amounts of money to get there-with an ever-declining return on investment.
  
  
• Do integrate the program with overall corporate goals. Because they are aimed at your best customers, frequency programs should express what is best about your company. All employees in every department, not just sales and marketing, should be trained in customer satisfaction and given incentives to support these programs. . .
  . . . Don't simply make it a colorful add-on. Promotions, by nature, are splashy, eye-catching, and often have no real connection with what the company is about. Frequency programs, however, do more than offer tangible rewards. They are designed to enhance the satisfaction of your best customers.
  
  
• Do communicate. Whether by mail, phone, or face-to-face, converse with your customer genuinely, not generically. Aim for a dialogue, ask for a response, and act on it. . .
  . . . Don't just use communications. Mass marketing is a numbers game. With a frequency program, you have to offer more than, say, targeted direct mail with a general message.
  
  
• Do be honest. If you want genuine loyalty, you have to offer genuine service that provides customers with reasons for renewing their allegiance to your company. . .
  . . . Don't fake it. How often have you received a mailing addressed to "Preferred Customer" offering you not much more than a plastic card, a quarterly newsletter, and a toll-free number? That's not frequency marketing.

CASE HISTORIES

Swatch Collectors Club, formed in 1992, is designed to create an inner circle of 12,000 Swatch customers, people who may have dozens, even hundreds, of Swatch watches in their collections. For an $80 annual fee, members get a members-only Swatch, a catalog of every Swatch ever made, and a newsletter.

Members receive special mailings about new products and are invited to many of the same Swatch events attended by top department store buyers. There are contests, sweepstakes, and even a toll-free information line for club members.

Canon Photography Masters Club is structured to sustain customers' interest in photography by improving their skills. Applications to join are packed in the box with each new Canon camera. It costs $40 to enroll. Members get a wealth of materials, but the focus of the program is on the six photo assignments that members must complete over a two-year period in order to qualify for club rewards.

Each assignment is reviewed and graded by a panel of professional photographers, instructors, and editors. At the end of the six assignments, the total point score is translated into one of five levels of award, ranging from low-cost camera accessories to a three-day apprenticeship with a top photographer. This program consistently enrolls 400 new members every month and has helped make Canon a leader in rejuvenating amateur photography.

COSTS

Frequency marketing campaigns can cost anywhere from a few hundred dollars to a million or more. Because of the wide variety of these programs, there is no one way to establish their cost. For instance, refunds or coupons can be costly, but the payoff may be worth it. In the case of customer clubs, costs can be mitigated by setting enrollment fees so that the company breaks even or even makes a modest profit.

In general, you can arrive at a ballpark figure for your program by estimating how much customers are willing to pay for additional purchases and then calculating what it will take to entice them to do that.

Costs will vary depending on the degree of sophistication of the technology, the level of the award, and how often you plan to refresh what you are doing.

Caution: It's possible to go into a program with low front-end costs but be surprised by high back-end costs because your goals haven't been clearly thought out.

ASSOCIATIONS

The following associations provide a wide variety of publications, conferences, and other resources related to frequency marketing:

Direct Marketing Association. Call 212-768-7277; fax 212-302-6714. Go to the-dma.org.
Food Marketing Institute. Call 202-452-8444; fax 202-429-4519. Go to http://www.fmi.org.
National Retail Federation. Call 202-783-7971; fax 202-737-2849. Go to http://www.nrf.com.
Promotion Marketing Association (PMA). Call 212-420-1100; fax 212-533-7622. Go to http://www.pmalink.org.
Retail Advertising and Marketing Association International. Call 312-251-7262; fax 312-251-7269. Go to http://www.ramarac.org/.

TRADE SHOWS

The Motivation Show includes the Incentive Travel and Meetings Executives Show (ITME) and the National Premium Incentive Show (NP/IS). Oct. 10-12, 2000, at Chicago's McCormick Center. Call 630-434-7779.

The Premium Incentive Show has close to 1,000 exhibitors. May 9-11, 2000, at the Javits Center in New York City. Call 888-202-1276 or 703-318-0300.

Promo Expo, sponsored by Promo magazine, includes segments on frequency marketing. Oct. 3-5, 2000, at the Navy Pier, Chicago. Call 800-927-5007. Go to http://www.intertec.com/.

CONFERENCES AND SEMINARS

National Center for Database Marketing is a seminar sponsored jointly by Intertec and the Direct Marketing Association. It covers a wide variety of topics related to frequency marketing, such as customer satisfaction, customer acquisition and retention, and loyalty management programs. Dec 3-5, 2000, Walt Disney World Dolphin, Orlando, FL. Call 800-927-5007.

Update 2001 will be held March 5-7, 2001, Chicago Hilton and Towers, Chicago, IL. This is the national annual conference of the Promotion Marketing Association. Topics cover the pressing issues of promotion marketing. Some promotion marketing suppliers will have exhibits. Call 212-420-1100; fax 212-533-7622. Go to BOOKS

Customer Bonding, by Richard Cross and Janet Smith presents a unique approach to creating lasting customer relationships beginning with awareness, through reward systems, lifestyle involvement, value sharing, and empowerment networks. Available through Amazon.com, $15.26.

Customer Loyalty: How to Earn It, How to Keep It, by Jill Griffin. In addition to a small section on frequency marketing, this book covers a wide range of techniques of interest to those who want to build a loyal clientele. $16. Available through Amazon.com, $12.80.

Profitable Retailing, Using Relationship and Database Marketing. This study, prepared by Deloitte & Touche, covers many issues related to frequency marketing. $60 DMA members, $90 nonmembers. Direct Marketing Association. Call 301-604-0187.

The One to One Future: Building Relationships One Customer at a Time, by Don Peppers and Martha Rogers. By following their groundbreaking One to One approach, readers learn how to find their customer base and how to keep those customers loyal no matter what product. Available through Amazon.com, $16.95.

Loyalty.Com: Customer Relationship Management in the New Era of Internet Marketing, by Frederick Newell. Using case studies, Newell shows how winning marketers are executing CRM in real time in today's digital age -- and that there's a lot more to E-commerce than just using the Internet, Web, and e-mail to communicate with customers. $29.95. Available through Amazon.com, $20.97.

PUBLICATIONS

With the exception of Colloquy, which is devoted exclusively to frequency marketing, the publications listed below cover a wide range of sales and marketing topics and occasionally zero in on frequency marketing.

Advertising Age. Weekly. $119/year (two years $190). Call 888-288-5900 for general information, 800-678-9595 to subscribe. Go to http://www.adage.com.

Brandweek. Weekly. $140/year Call 800-722-6658. Go to http://www.brandweek.com.

Colloquy, a quarterly newsletter devoted to frequency marketing. Free to qualified readers. Call 513-248-2882; fax 513-248-2672. Go to http://www.colloquy.org.

Creative, The Magazine of Promotion and Marketing. Bi-monthly. Free to qualified readers, otherwise $30/year. Call 212-840-0160. Go to http://www.creativemag.com.

Potentials. Monthly. Free to qualified readers, otherwise $24/year. Call 612-333-0471. Go to http://www.potentialsmag.com.

Progressive Grocer. Monthly. $99/year. Call 212-592-6200. Go to http://www.progressivegrocer.com.

Promo. Monthly. Free to qualified readers, otherwise $65/year. Call 203-358-4375 for general information, 800-463-4054 to subscribe. Go to http://www.promomagazine.com/.

AUDIO AND VIDEO TAPES

Chesapeake Audio/Video Communications provides tapes on a wide variety of subjects, including frequency marketing. Call 301-596-3900; fax 410-379-0812.

ACKNOWLEDGMENTS

The following people helped with the preparation of this article:

• Richard Barlow, chairman and chief executive officer, Frequency Marketing. Call 513-248-2882.
• Len Daykin, senior vice president, Don Jagoda Associates. Call 516-454-1800.
• William McDonald, president, Metier Marketing. Call 770-270-2825.
• Lisa Manhart, management supervisor, Ventura Associates. Call 212-201-8277.
• Jill Griffin, president, The Marketing Resource Center Inc. (MRCI). Call 512-469-1757. The questions in the section "Is Frequency Marketing for You?" were excerpted with permission from her book, Customer Loyalty (see Books).