"The 19th-century satirist Ambrose Bierce defined fidelity as 'a virtue peculiar to those who are about to be betrayed,'" writes Joanne Kaufman in the Wall Street Journal (2/19/10). This came to mind, for Joanne, when her son came home from a trip to Duane Reed and reported that her loyalty card was no longer valid. It seems the retailer was in a blackout period pending regulatory approval of its acquisition by Walgreens. But when the new program was introduced, the terms had changed.

It used to be you'd get a five dollar coupon for every $100 spent; now she has to spend $250 for the five-dollar gift. Unfortunately, this wasn't an isolated incident. Joanne had also paid $25 for a Starbucks card offering two free lattes (one for signing on and the other on her birthday), plus ten percent off every drink. This was working out great until Joanne's daughter came home with news that Starbucks had replaced the program "with a tiered system of rewards involving stars."

Under the new plan, Joanne gets a star with each transaction, and a free drink for every 15 stars. It doesn't matter if each transaction includes several drinks. A company spokesperson told her, "We wanted a program that was more inclusive. And the new card is free." Except it really isn't because it only works if you load the loyalty card with cash. As Joanne notes, "Just think of those stars as the chain's way of thanking caffeinistas for what amounts to an interest-free loan," adding, "You're welcome and you'll find me at Dunkin' Donuts."

"We treat customers like we'd want to be treated," says Terry Sutton, vp of customer satisfaction at L.L. Bean, in a BusinessWeek piece by Michael Arndt (3/1/10). For Bean, founded some 98 years ago, this has meant big changes, most of them digital. "Wherever they want to shop, we have to be there," says Terry. For openers, this means "a website that makes placing orders intuitive and package tracking simple." Bean has also "opened the site to customer ratings and reviews of its wares, even if they are negative."

The Bean site offers instant messaging and email with call center agents, and plans are to add a "click and call" button "that will prompt a help call within two minutes to any online shopper who wants more information." Even more impressively, Bean "switched to a new bank that agreed to split the cost of free return shipping to holders of the L.L. Bean credit card." None of this should be surprising, given the retailer's famously "liberal return policy and folksy sales staff."

The surprise is the extent to which it has transformed Bean's business: "This year, for the first time, internet sales will top catalog orders." This change has not come without significant disruption at Bean. With phone orders declining, it is closing "one of its four call centers," although the center's employees will continue to work either from their homes or other sites. What Bean won't do is offshore its back-office, or cut benefits; the philosophy is that "happier employees mean better service." As Terry says, "The technology has changed the game, but the basics haven't changed."

Loyalty grows when brand values and strategy align.  By Scott Osman. (more)

"Retailers can actively manage returns so that they become a tool to help maximize profit," write J. Andrew Petersen and V. Kumar in the Wall Street Journal (11/30/09). The authors note that some retailers make the mistake of believing that returns are a money drain. In fact, they say that retailers with liberal return policies generally do better than those with "strict time limits or only partial refunds." This is both because shoppers tend to spend more when they know goods are returnable. They also are more likely to recommend retailers that are relaxed about returns to others.

However, while it's true that a higher rate of returns "result in higher future sales," there are some limits; there does come a point where "costs to the company outweigh the benefit of the increase in sales." So, the key is to find just the right balance. For example, the authors "studied six years of data from a large national catalog retailer" and found that a 13 percent return rate maximized its profits. The problem was that the retailer's return rate was 16 percent, so they needed to find ways to discourage returns without imposing the stricter returns policies that might also depress sales.

The solution is to pinpoint the circumstances that cause returns and use that to re-calibrate "toward the optimal rate of returns." For example, returns tended to be lower when shoppers buy familiar products from unfamiliar channels (e.g., online versus catalog). So, the retailer could send the customer incentives to buy unfamiliar products in the new channels, which should increase returns, but also sales. Conversely, returns also tend to be higher when shoppers buy "new products from unfamiliar distribution channels." So, the retailer should offer discounts on familiar products from new channels. The main thing is to continue to invest in customers who return products, because they can be the best customers.

Snooty attitudes are giving way to customer service worthy of a hardware store at some of the top luxury retailers on Madison and Fifth, reports Eric Wilson in the New York Times (12/22/09). Actually, a recent report by the Salt & Pepper Group "rated the service in luxury stores like Nordstrom, Bergdorf and Saks as no better than what was found in home-improvement stores like Lowe's and Ace Hardware." Rick Miller of Salt & Pepper says the problem is that most retailers are good at transactions, but "not very good at building sales relationships." But in a funky economy, even the haughtiest retailers are attempting to make shoppers feel more welcome.

Bergdorf Goodman actually fired its doormen because they weren't friendly enough and is now sending customers thank-you notes "for buying as little as an $18 bottle of nail polish or a lipstick." Lord & Taylor "has been coaching sales people to be less intimidating." At Dennis Basso, a fur shop, Dennis himself is now greeting customers, even transient Christmas shoppers. At Hermes, where shoppers sometimes must join a waiting list for certain items, Jody Black was shocked when a saleswoman bothered to track down a particular handbag for her.

"That's the kind of store where they really don't care if they don't have what you're looking for," she says. Jody was even more surprised when the same saleswoman remembered her when she returned to the store weeks later. "Every customer is valuable ... and they're even more valuable today because there are fewer of them," says Ron Frasch, merchandising chief at Saks. Lord & Taylor ceo Brendan L. Hoffman agrees: "As the business gets more challenging, customer service is one of the first places we're going to look to improve," he says, adding, "It's like mom and apple pie."

Brand rituals build loyalty and drive growth. By Zain Raj. (more)

Rather than cutting room rates, Kimpton Hotels is building loyalty by adding "wonderful and bizarre" amenities, reports Elizabeth Olson in the New York Times (12/1/09). For Greg McHale, who travels 50-60 days a year, this means finding Snickers bars, Diet Pepsi and "a compact disc of his favorite electronic dance music" when he checks into his room. "The level of personal attention really blows me away," says Greg. As a result, he says he always stays at a Kimpton if there's one in town.

For business traveler Paul Sues, loyalty to Kimpton paid off in a weekend trip with his spouse to Oregon wine country. The getaway included "meals made by Kimpton chefs, and a balloon ride over the vineyards." Says Paul: "I've traveled my whole career, and I used to stay, well, wherever ... Now I'll only stay somewhere else if I can't find one of their hotels." Kimpton is also known to offer "specially prepared dinners for its most frequent guests, including one recently for top-tier female travelers and their spouses."

Other hotel chains -- especially on the high end -- are also adding perks in hopes of dodging deep discounts because once the rates go down it's hard to bring them back up. Discounted rates aren't exactly a formula for building loyalty, either. According to Forrester Research, just "36 percent of business travelers said they were brand loyal this year, compared with 42 percent two years ago." And Smith Travel Research says the "average occupancy rate in October was down 6.2 percentage points to 58.1 percent, and per-room revenue dropped 13.8 percent to $57.57 from the year before -- the worst numbers in more than two decades."

Growing numbers of people are redeeming hotel loyalty-program points for merchandise instead of rooms, reports Kris Hudson in the Wall Street Journal (12/15/09). Intercontinental says gift redemptions are up 15 percent, Marriott says it's up 14 percent and Hilton says it's up 23 percent. Only Starwood says there's been no "increase in members redeeming points for merchandise." Must be those heavenly beds.

"I think people are trying to save more of their own money," says Don Berg, who heads the loyalty program at Intercontinental, owner of the Holiday Inn chain. "It's basically a year-long trend we've seen that says, 'I'm holding onto my wallet a little tighter and I'm going to use currency that doesn't come out of my pay account'." Vincent Anderson, a member of the Intercontinental loyalty program, agrees: "Things are a little tight, so it's good to be able to buy a gift for yourself or a family member."

While most people continue to redeem points for rooms, the trend toward gifts can be a problem for hotel owners. One problem is that owners are reimbursed by the hotel whenever a guest redeems points for a room, but when guests opt for a gift, the money goes "to the product supplier." Some hotels see this "as a necessary sacrifice if the merchandise offered through the loyalty programs helps draw frequent business travelers." But the larger issue may be that there's less about the hotel stay itself that feels like a gift.

A year ago we were angry.  Now we'd like some tender, loving care. By Dori Molitor. (more)

A little-known company called Next Jump could represent the future of e-commerce and give Amazon a run for its money, reports Steve Lohr in the New York Times (12/6/09). Next Jump has its unlikely roots in a business Charlie Kim started while a student at Tufts University, in which he inserted local merchant coupons in student guidebooks. After graduation, this evolved into "corporate perk programs that offered employees discounts on merchandise."

Eventually, Charlie took his enterprise online and today "60 percent of the Fortune 500 companies use Next Jump's technology for their employee discount programs." It also handles consumer rewards programs for various companies to a point where "more than 100 million Americans have access to Next Jump's e-commerce marketplace, and 10 million a year are customers." What that gives Next Jump is all kinds of really valuable data, which the company has combined with "credit-card transaction data from American Express and MasterCard."

This provides insights into "what a person would be likely to buy, and at what price," which it further combines with retailer data that specifies "the characteristics of customers -- age, location, income, for example." The key, of course, is Next Jump's software, which "tailors offerings to small segments of potential customers, down to individuals." Next Jump claims a 60 percent click-through rate and says that one in every 11 people who sees one of its ads buys something. Importantly, Next Jump is not a retailer, but "merely a technology engine for sales," making it potentially a more attractive partner to retailers than Amazon.