Inventrak Blog

A loyalty program helps retailers by  
• Building trusting and positive customer relationships
• Increasing customers’ spending
• Strengthening the brand
• Decreasing price competition with their peers
• Decreasing marketing costs  

One key to a loyalty program is targeted marketing, which allows you to focus on your various customer types and customize rewards to best suit those customers. For example, some customers are of high value, i.e. they make a great contribution to your sales and gross margin; others only come to your store to get a product which is on sale. High value customers might come back because of your special service for them, e.g. a private sale. You want to deliver the right benefits to the right people so that you can get the most from a limited investment in your loyalty program. 

The first step to building a loyalty program is to identify your customers’ value and segment them into different categories. What categories should you have at your store? It depends. Best Buy create some categories based on the level of "tech oriented".  

After segmenting customers into categories, retailers should use targeted loyalty programs tailored for each customer category’s needs and desires. How this is accomplished will vary by types of items sold, the value of each customer, and customer categories serviced, among other things. For example, luxury store owners do extremely targeted marketing (the loyalty program strategy is generally called “client telling”) aimed at their best customers and based upon the loyalty program and sales associates’ personal knowledge of the customers’ shopping preferences. 

Most retailers cannot justify the high cost of the client telling approach, so more modest, but still targeted approaches can be used, such as targeted direct mail and e-mail. You can send personalized promotions/services/rewards to customers from different categories based upon their preferences, purchase history, manufacturer-funded discounts, inventory levels, and so on.

Amazon shared that cross-sells were responsible for 35% of its sales! An informal survey shows that, for online store, cross selling accounts for 5% to 10% sales; for brick and mortar stores, it accounts around 20% sales! 

Do you have cross selling strategy or plan to get one?

Here are some quick tips for cross-selling:

Customers Who Bought This Item Also Bought… 

This promotion has been proved very effective and efficient. Because customers are more likely to buy what you recommend based on other people's buying history.

When a customer checks out at your POS, let your POS system automatically generate an items list of what other customers also bought when they purchased the same item, promote these recommended items at your POS. This is probably a perfect way to promote items at your online store. At your physical store, in consideration of convenience, for each customer, you can promote one related item with highest frequency. 

Bundled items for sales               

Based on your transactions report, you can also pick up frequently bought together items to form a bundled package. Display and sell these items as a package at your store.  

In my last blog, we have discussed one of the possibilities that might lead your store to promotion trap.  In this blog, we will discuss another one.

Let us go back to Jessica’s story. Jessica found out that both of sales and gross margins of her brand A purse increased, but total gross margin for the store slumped. So sales of some other products must have fell. After she carefully read her sales report, she came to interesting results but not out-of her expectation- she lost big sales in other purses…

Looking at the results, it is easy to reason that increasing sales of brand A purses came from sales lost of other purses… 

Generally speaking, when you promote an item in your store, it will affect sales of other similar items in your store. Should you stop promotion ever? Definitely not. However, even other items’ sales are affected, as long as total gross margin increase, your promotion is in a good path.  

Quick tips to minimize the affect and maximize total gross margin:

Manage promotions in category/sub-category level.

• Promote the whole category/sub-category.
• If you promote certain item(s) within a category/sub-category, read your category/sub-category sales report daily : 
            How much  is the total gross profit of those items?           
            How about the gross margin of the whole category/sub-category? If it is not good, stop your promotion, find which items’ sales are affected. (next time, you probably should consider to add these items to this promotion group).
• If vendor A ask you to promote one item which would affect the sales of products from vendor B, negotiate with A to get more money or talk with B to get big discounts.    

Have you ever been in a similar situation like Jessica did? She promoted a purse of brand A at her store, she was so happy when she saw sales on this product rose 50% per day on average. However, when she looked at her total gross margin (sales excluded cost of goods sold) at her store, it did not change that much and even decreased a little bit.

She did not get more money in the promotions and even lost some money! I call this promotion trap.

How does this happen? I will talk about promotion trap in this blog and coming blogs.

If you are stuck in a promotion trap, first of all, of course, you should check your sales report. Check whether your gross margin earned on this product on a daily basis increase or not.

If it doesn't, it indicates that your promotion failed completely, you did not get enough purchases to compensate for your sacrifice (e.g. discounts or coupons...) in the promotions.   

Do not be afraid of failure, it is much better than you do not take any actions to grow your business.

Tip: read your sales report for the promoted product on a daily basis to adjust your promotion strategy. 

• On promotion day one, do your sales on this product grow?
• If not, decide whether you want to continue this promotion because many people might and might not come in the following days.
• If you do see sales on this product grow in the beginning days, how about your gross margin on this product?
• If you promote it for a few days(3, 5 days), you still can not see daily gross margin grow on this product, you should make some changes, either stop the promotion to prevent further loss, or change promotion strategy.

If your gross margin earned on this product does increase, it means your promotion at least help you make more money from this product. Jessica actually was in this situation when she promoted the purse. But how come her total gross margin did not increase? We will talk about it in my next blog.