LOYALTY PROGRAMS AT FARMERS' MARKETS:

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1 LOYALTY PROGRAMS AT FARMERS' MARKETS: A MINI TEACHING TOOL for FMO Introduction In this document, I will very briefly outline some of the research findings about how and why customer loyalty programs work in North America, and suggest questions that are relevant for managers looking to add a customer loyalty program to their market. Program 'fit' for any given farmers' market would be based on a number of factors, including: The goals a market would have for running a customer loyalty program The market's budget The market's administrative capacity The market's age and size Community demographics The Research In North America, companies spend more than $2 billion on loyalty programs every year, and statistics show the average household belongs to about 14 different rewards programs, even if they're only active in six. Loyalty programs have one main goal - to protect the customer relationship. "It's so easy for customers who are price-sensitive to slip away or go to a competitor. One of the ways you can make your customer relationship more sticky is through a well-planned and well-executed reward program." i 1

2 A 2014 study ii by Technology Advice, a business research company, found that of 3,162 loyalty program users they surveyed, 82% of them were more likely to shop at stores that offered some type of loyalty program. In terms of motivations for joining loyalty programs, over half, 57%, said they join programs hoping to save money, or receive discounted products. The second most cited reason for participation, at 37%, was receiving rewards. In these programs, instead of offering discounts, consumers can build up points, which can then be redeemed for rewards or free products. Earning exclusivity-based rewards like VIP status, and social recognition, were insignificant in comparison. Customer loyalty isn t just for big businesses a well-designed program can help any size business or organization scale and reach new heights. Marketing and The Importance of Loyal Customers A study iii of 1,000 small business owners found that they spend more than half of their time and budget focused on existing customers. Why? According to Inc iv it costs a business about 5-10 times more to acquire a new customer than it does to sell to an existing one, and the average 'spend' of a repeat customer is a whopping 67% more than a new one. 2

3 This is why loyalty matters so much in the farmers' market sector -- our focus on always finding "new" customers to come to our markets is not founded on what marketing research tells us. 'The Pareto Principle', based on the work of Italian economist Vilfredo Pareto in 1896, is also known as the '80-20 Principle' and the 'Law of the Vital Few'. v One of the core implications of this work in a business context is the rule of thumb that approximately 80% of your sales will be generated by 20% of your customers. Businesses and organizations that focus on keeping and serving their dedicated customers and clients, rather than continuing to focus on finding new customers, are ones who inherently know the value of loyalty to their success. Simon Sinek states the same idea in a slightly different way in his book "Start With Why". vi His 'law of diffusion of innovations' shows that when just less than 20% of the population has 'bought in' to a new social innovation or idea or product, a tipping point is reached and wide-spread social support for that idea or product follows. His call to action is clear: small businesses need to focus their advertising and customer service on the 20% of the population who really understands and benefits from their product or service (he calls these their innovators and early adopters). Those 20% will then champion their cause or product to the rest of the population. It's another way of saying that 20% of a given population are likely to be your 'loyal customers' and they will be responsible for the majority of your sales throughout the entire lifecycle of your business. I believe this relates to farmers' markets in the following way: If we can shift our thinking away from a fixation on finding new customers, and focus it instead on keeping our existing customers loyal, we could grow our markets more cost effectively. Higher sales volume for our vendors isn't a purely numbers game. More customers overall, we are finding out, doesn't always translate into better financial success for our vendors. 3

4 The information I've presented so far shows why -- loyal customers account for the overwhelming majority of a business's sales. Customers who are more loyal will spend more at your market than a constant flow of new customers ever will. The Goal of Farmers' Market Customer Loyalty Programs There is a big opportunity for the farmers' market sector to grow our percentage of regular and weekly shoppers. We aren't even at half yet. What we know in Canada is: According to a 2008 national Canada-wide research study, 48% of farmers' market shoppers attend every week According to a 2012 study for the BC Association of FM, approximately half of all farmers' market shoppers attend 2-3 x /month According to the 2013 economic impact study conducted by Farmers' Markets of Nova Scotia, approximately 45% of Nova Scotia farmers' market shoppers are regular patrons According to Kentville Farmers' Market (NS) year-end customer surveys in 2011 and 2012, 47% shoppers ranked their attendance as "most weeks / as often as I can" Two questions frame the decisions and program outcomes that you would decide on as a market, were you to develop a customer loyalty program at your market. Q1: How do we reward our best customers and keep them engaged? While a program aimed at giving small rewards to your existing customers may function to cement goodwill, I would argue that great customer service and reliability of experience are all that our already-loyal farmers' market customers need to continue 4

5 coming back. I feel there is little financial value to be had in creating a low-reward system simply to acknowledge existing loyal customers. That being said, low-cost, low-reward loyalty programs can have positive spill-over effects beyond generating goodwill. They can give people a reason to stop by the Info Booth at your farmers' market, ask questions, pick up free recipes, buy tickets or market merchandise, shop at your General Store, and be given a good customer service experience by staff or volunteers who are trained at your Info Booth. For markets with these services to offer, a low-reward customer reward program may have some additional value beyond rewarding existing customers, and it may be worth exploring in order to get at these benefits. However, this is not the focus of the programs I have developed, for the reasons I will outline below. Additionally, all of the programs I have developed also get at the same set of benefits outlined in the paragraph above, so I believe there is a better way to build customer loyalty programs for farmers' markets. Q2: How do we incentivize occasional customers to become regular or weekly customers? My goal in developing potential farmers' market customer loyalty programs come out of a desire to answer question two. Consider reward versus effort. If the effort to obtain a reward is very high, and the resulting reward is very small, this does not function as a behaviour-changing incentive. As you've read, finding new customers and trying to turn them into loyal customers is a hit-and-miss exercise, and associated with high costs. My goal was to develop some incentive programs that have the potential to turn more occasional farmers' market customers into committed or weekly customers. To do this, the reward needs to be 5

6 meaningful to them, and the effort small enough, that there is a true feeling of 'getting something worthwhile' experienced by our customers. Questions to keep in mind when exploring specific program options: What is our main program goal? To give freebees to our existing customers? To turn occasional shoppers into regular shoppers? (The answer to this question will change which program you design.) Does this function to just give free rewards to our existing customers? Yes or No? Is this what we want? Could this be impactful enough to change consumer behaviour, and incentivize enough of our occasional customers to come regularly that it could build a more loyal customer culture at our market? Yes or No? Is this what we want? Why This Matters to Vendors Not only are we competing with other innovators in the local food movement, but market organizers are sometimes competing with other markets for vendors. Vendors are the first-line customers of any farmers' market, and as such, we should be constantly assessing, "What do we offer to vendors that gives them great value?" Low table fees isn't a sustainable answer. But a rich, rewarding market culture, one teeming with positive relationships between vendors and between vendors and staff, can be deeply satisfying to vendors and help them see beyond the single goal of market sales. Being a market that is stepping up its game by buying into the "loyal shoppers are better shoppers" model that I am presenting here, and doing something about it by running a 6

7 market-wide customer loyalty program, is a powerful way of showing your vendors concretely that you care very much about their success. Loyalty Program Best Practises Here are a few things any market would need to keep in mind as they developed their program: I. Loyalty cannot be won by incentives if basic customer service needs are not being met, if product availability and selection is limited, and if shopping experiences are not pleasant. II. Loyalty is also built through communication, so loyalty programs can be a market's incentive to get better at customer communication. III. No program probably works without on-site staff or volunteers to administer the program every day, all day. You will end up delivering poor customer service if customers come for their stamps, redemptions, draws, etc. and someone isn't there to serve them. IV. For some programs, having vendors participate by sharing the cost would be helpful. If vendors share the costs of the incentives with the market, those vendors who benefit most (ex. for a coupon-based program, those with the highest number of coupons redeemed at their booth) could share the costs proportionally more than lower-benefitting vendors. Be sure to assess the vendor role in any market-wide customer loyalty program you wish to implement. V. Loyalty programs can be designed such that vendors have the opportunity to 'upsell' customers, to get closer to a $5 or $10 coupon or stamp, for example. 7

8 i Quoted by Chris Cottle, vice president of marketing and products at Allegiance, in ii iii "Achieving Big Customer Loyalty in a Small Business World" by Jed Williams and Kristy Campbell, 2014, SBloyalty_4.pdf iv Inc is the publisher of Inc.com, Inc magazine, and the Inc 500 list; v vi "Start With Why: How Great Leaders Inspire Everyone to Take Action" by Simon Sinek. US, Penguin Group Publishing