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  • By Wailin Wong
  • Chicago Tribune

New Takes on Loyalty Programs Look to End Dependence on Incentives

Mobile apps, social media harnessed by startups to let merchants stay in close contact with frequent customers

AlleyCat Comics in Chicago’s Andersonville neighborhood has an unorthodox approach to rewarding frequent customers: Shoppers that hit 50 purchases get to punch a store employee in the stomach.

The rewards program is new, so the prize remains unclaimed. But because future winners will have spent a lot of money, “I guess I can take a shot in the gut,” said store owner Nicholas Idell, who opened the business with his wife four months ago and expects he’ll take all the hits.

AlleyCat Comics’ rewards program may be an extreme example of the creative tactics local merchants are employing to convert casual customers into repeat ones. But the store’s experiment, which also taps into technology from a Chicago-based startup called Bellyflop, is part of a larger push by startups to put a fresh spin on loyalty programs.

Such efforts to improve customer retention address a common dilemma faced by local businesses that have dabbled in the young but fast-growing phenomenon of daily deals, powered by companies such as Chicago-based Groupon and LivingSocial.

A steep discount can attract thousands of new customers, but merchants say the challenge lies in convincing buyers to return. That’s where these new technology companies are stepping in, harnessing such things as mobile applications and social media to keep merchants close to their customers.

“You’ve got consumers carrying, in many instances, a device which is the first time we’ve been able to know where they are at all times,” said Bryan Pearson, chief executive of LoyaltyOne, which specializes in strategy and customer analytics for big brands. “Secondly, you’ve got this rise of consumer power (through social media), which is helping those consumers hold companies to account.

Bellyflop, which is funded by Chicago technology investment firm Lightbank, designed a version of the traditional punch card that is either paper-based or stored on a smartphone. The company also provides participating businesses with an iPad to scan the cards. Merchants design their own reward system, but the same card can be used at any business signed up with Bellyflop.

“It’s something for small businesses not just to provide discounts or coupons for customers but ways to foster loyalty, which is more than just price,” said Bellyflop co-founder Logan LaHive, who launched the business in Chicago several weeks ago. He declined to say how clients he has signed up. “It’s about helping small businesses foster personal relationships.”

On the Southport Avenue shopping corridor, where Candace Canty runs the Dog-A-Holics pet-supply boutique and a separate day care and grooming facility, Canty estimates nearly a dozen of her fellow merchants have signed up with Bellyflop. One way Canty rewards frequent customers is by hanging a portrait of them and their dogs on her shop wall.

“You have to cater (the rewards) to your business,” Canty said. “For our customers, dogs are part of their life, and we’re part of their routine. We’re their little community store.”

Creative rewards help address a crucial challenge: how to wean customers off coupons.

Incentives should “not ingrain (consumers) to always look for a discount,” said Jere Doyle, CEO of Eversave, a marketing company that offers daily deals and rewards for making a follow-up, full-price purchase. “It’s hard to make your margins if you’re always giving out a discount.”

Social media, which connects consumers to businesses and brands through platforms such as Facebook, Twitter and Foursquare, can mix monetary benefits with less tangible ones. Chicago-based Pegmo offers rewards for completing “pegs,” or small social media tasks such as commenting on a restaurant’s Facebook page or posting a photo of a dish on Twitter.

These incentives are often “hookups or the velvet rope or some sort of VIP opportunity,” such as being able to book a table at a restaurant that normally doesn’t take reservations, said Pegmo founder Jordan Ho.

Harry Caray’s Restaurant Group, which is active on Facebook, Twitter and Foursquare, recently sponsored a sitewide raffle on Pegmo. Marketing manager Sonja Leskinen said Pegmo helps her streamline the restaurant’s ongoing social media efforts.

“The buy-9-get-your-10th-punch-free is not necessarily the most common practice anymore,” Leskinen said. “I think we have a unique opportunity in social media and in restaurants to reach those customers in real time and reward them on the spot for their loyalty, instead of waiting 10 punches.”

Some companies believe the punch-card model works and can be improved with digital tools that help merchants track customer data. San Francisco-based Stampt, which lets consumers collect “stamps” for purchases via a smartphone application, offers a service for merchants to send targeted promotions. For example, a retailer can pinpoint customers within three miles who have more than three stamps but haven’t visited in a month.

“It’s a great concept because the merchant knows they’re rewarding people who are truly loyal to their business,” said Stampt founder Brian Kelly. “It’s not people who come in one time, buy something at a deep discount and leave. They’ve proven their loyalty over time.”

Greg Gibbs, owner of Chicago Bagel Authority, recently signed up with Stampt. Last year he ran a Groupon deal that sold nearly 10,000 vouchers. Gibbs said few of those customers came back because they were “people that didn’t live in the neighborhood and didn’t care what we were.”

Gibbs said he may incorporate more Stampt features, such as sending reminders to cardholders that they’re just a few stamps away from a free sandwich.

David Wachtendonk, founder of a Chicago startup called MobManager that helps merchants track daily deal customers, is trying to target the window between the initial coupon redemption and long-term loyalty. His software helps businesses track voucher usage and target consumers with follow-up email promotions.

“We know you’re already coupon-driven,” Wachtendonk said. “The goal is to come back a few more times over the course of two to three months.”

Groupon, for its part, said “building customer loyalty is a critical piece of each Groupon promotion,” and it works with merchants on crafting promotions that encourage a return visit.

The company added, “This is an area in which we’re investing, and you can expect to see more services coming soon.”

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