Last year, I reported on a company that was thinking progressively about loyalty and loyalty programs. Shop.com is a multi-merchant shopping portal, encompassing hundreds of other stores within its framework. Its major business differentiator is one shopping cart and one checkout process. Of course, these differentiators only matter if consumers use the site to purchase from multiple stores at the same time. If they don't, the experience isn't much different from any other retailer.

Realizing this, Shop.com had a promotion last year that offered free or reduced shipping on orders made from multiple stores at the same time. This was a great idea because it taught users the benefits of multi-store shopping, pushing its main differentiator and hopefully attracting more customers in the long term based on their exposure to this promotion.

Not content to rest, the folks at Shop.com have been busy strategizing more ways to create loyal customers. They have come up with a twist on a traditional loyalty program geared toward holiday shopping.

Generally, retailers expect lots of Q4 traffic. They harness that traffic and create promotions aimed at retaining customers when Q4 is over. Of course, any promotion geared toward long-term loyalty and repeat business is a good idea. Shop.com decided to try something a little different this year. Instead of focusing on Q4 and hoping people stick around in Q1, it looked at the time leading up to Q4.

It ran a promotion that rewarded customers with up to $500 in credit for purchases they made in July. These credits are redeemable in Q4 as part of people's holiday shopping.

Why is this a great idea? First, it jumpstarts sales during a slow period. Second, the promotion takes advantage of the fact people will be spending money in Q4 but may not have particular store loyalties yet. Knowing they have up to $500 in the bank they can spend on gifts is a huge incentive to begin shopping at Shop.com. Obviously, Shop.com hopes users' spending goes well beyond whatever credits they have. Just as important, the promotion is redeemable in Q4, when volume will more than make up for the discounts. Other promotions that use Q4 as a catalyst and are redeemable in Q1 and beyond cut margins during slow sales periods. Not a good idea. Shop.com's promotion leaves Q1 margins where they normally are, while encouraging people to shop more with it in Q4.

Measuring Success

With loyalty programs, success is measured based on three metrics: learning curve, frequency, and decay. The learning curve shows how quickly consumer behavior was changed based on the promotion: how many people jumped at the promotion and how quickly. Frequency measures how often people shopped during the promotion period to accrue credit. Decay is a measure of whether these customers continued to shop once the promotion ended.

Because this promotion has two parts (the accrual stage in July and the redemption stage in Q4), there are twice as many metrics to report. The folks at Shop.com have been very kind to keep me in the loop. Once I have metrics to report, I'll write a follow-up column.

Think Pre-Q4, Not Just Post-Q4

Take a lesson from Shop.com. Instead of just concentrating on retaining customers after Q4, find ways to jumpstart buying leading up to it. Doing so will help you avoid cutting margins during slow times and get customers thinking about your store earlier in the year, meaning you'll get more of their business in Q4.

Thoughts, comments, questions? Let me know!

Until next time...

Jack

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