It is recommended that Red Door adopt a buffet-style loyalty program. The customer can choose from a menu of different loyalty plan options, each with a different value proposition. The different plans can help to differentiate the types of customers further, based on their preferences by identifying their preferences. For example, a customer may choose as a reward for their plan a high-end treatment they would not normally buy without the discount offered in the plan. This tells Red Door what that customer really wants, but has yet to regularly pay for. At present, Red Door mainly collects information about what the customer buys, not what the customer wants.
This interaction provides Red Door with new data on the customer. From that data, promotions can be customized to focus on those services and products that the customer wants. The customer may decide, after a few discounted high-end services, that they can no longer live without that high-end service. The loyalty plan would otherwise function as any other -- the company is using a sweetener (service or product) to entice loyalty. The difference in this case is that by asking the customer to choose their own sweetener, the interaction with the customer works in reverse and Red Door learns something new about the customer that can be used in future direct marketing.
This loyalty strategy takes a slightly different approach to segmentation. Red Door's current marketing dashboard system essentially segments customers based on their purchasing patterns. These segments can be analyzed for demographic trends but it is an important distinction that the customer drives his or her own segmentation. This strategy has worked brilliant over the past couple of years for Red Door. The loyalty program continues that strategy, with the underlying premise that the company will gain more from listening to the customer than from dictating to the customer. By giving the customer the choice of reward, Red Door learns what segment the customer should or could be in, in addition to the information the company already has with respect to what segment the customer is currently in. By eliminating any gaps in the appropriate segment and the actual segment, Red Door can more effectively maximize the revenue per customer, the referrals per customer and the repeat visits per customer. Segmentation in this case would be very specific with each segment being a single product/service category (face, massage, body, nail, hair, wax, makeup, gentlemen, and packages).
There are three metrics for this new loyalty program. One will be the number of new loyalty program members. We would like to increase the number of current customer visits by loyalty customers by 20% by signing up new members. The second metric is the new members -- we would like to double our loyalty program membership in a year. The third metric is the revenue generated from the marketing we engage in as the result of the information we gather here. This will be for informational purposes -- we need to know if this program pays for itself or not. The sweeteners in the buffet will depend on what the customer normally purchases. The value will be no more than triple the usual purchase, and that for 10 purchases. At that level, given Red Door's margins, the program is expected to break even. Ideally, it would generate sufficient additional revenue that it does more than break even.
5. Technology-related tools. The first option is the current dashboard program already in use at the Red Door. The strengths are that the program has been a huge success since its introduction in 2007 -- switching programs now might undermine that success. Another strength is that the recommendations can be built into this dashboard, so investment in new technology can be kept minimal. However, in the interest of due diligence, other options have been investigated. CRM Systems Inc. offers customer relationship management systems that can be used for the spa. Its ACCPAC suite is oriented towards providing a consistently satisfying customer experience, which is important for a high-volume high-end spa. This system provides a single point of contact, which can be tied into the nationwide, cross-chain referral program. This will reduce costs associated with most marketing functions. The downside is that while a centralized system works well at a corporate level, it reduces the intimacy and personal-ness of the customer experience. This is not congruent with the personal relationship building we need with our customers at the individual branch level.
Another system is from SAP, who have an all-encompassing CRM system. Their system allows for simulations based on past experience, enables the company to understand customer needs and to deliver a cost-effective service to each client based on the segment that client occupies. SAP also allows us to align after-sales service with the sales function, which is a core part of our strategy given the importance of ongoing relationships to our business. The recommendation, however, is to build on the existing system. Of the other two, the SAP system is the strongest. However, we are a small company for SAP and would likely be segmented into a lesser service group. Our current system functions well, is already installed, and we are receiving excellent service. To risk these service and cost benefits by switching to SAP -- as good as their system looks -- is not something that can be recommended at present.
Red Door Spas website, various pages. (2010). Retrieved May 13, 2010 from http://www.reddoorspas.com