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What’s In Your Wallet – The Sequel

In the October 2013 edition of Dealer magazine, I examined a phenomenon that occurred last Christmas.

Partnering with luxury shopping site Gilt.com, Starbucks offered an ultra-exclusive steel metal loyalty card for sale on their site for $450. The loyalty cards came pre-loaded with $400 in Starbucks credit and there were only 5,000 available. You might think nobody would want to pay $450 for a loyalty card that they could get for free, but you’d be wrong. The cards sold out in 6 minutes generating $2,225,000 in sales. Almost immediately, these cards were listed on eBay and have sold for $2500 and up. In fact, even a year later, cards with no pre-loaded credit are still selling upwards of $625.

 

This month, Starbucks again offered these metal loyalty cards for sale. However, this time they only made 1,000 of them.  According to an article in USA Today, “the company made a ‘deliberate decision’ to make even fewer metal cards this year.” Group president, Cliff Burrows, is quoted in the article as saying “It’s now more special. We’ve elevated it to a new level.” This gift bestows upon the owner an instant Gold level status within their rewards program for a year. To maintain that status after the year, they must make purchases that would earn it just like anyone else.

 

With 5,000 metal cards already in circulation from last year’s sale, you’d think that the novelty of the card would have worn off and that those that wanted one would have found it by now. Introducing 1,000 more into the market simply means that 6,000 people will now own a metal loyalty card. That’s really not a lot considering that the card is good at any Starbucks location worldwide. To put it into perspective, if the cards were only sold in the United States, that would mean that, on average, only 120 people in each state would own one.

 

The demand for these cards; and the prestige that one gets form being able to whip out this metal card while the baristas and other consumers gawk; is apparently still very strong. This year’s stock of the 1,000 cards sold out in seconds, according to NBC News. The article goes on to say that the Gilt.com website received 2.5 times the traffic it did on Cyber Monday. Within 30 minutes of the cards going live there were over 11,000 people signed up on a wait-list to purchase one.

The Starbucks loyalty card program is one of the strongest in existence. “Our Starbucks card had its best holiday season in history, as measured by any metric, with more than $1 billion loaded during Q1, the most ever loaded onto any kind of Starbucks card.” Said CEO Howard Schultz.

 

These new metal cards are currently selling on eBay for upwards of $1,700+ dollars; and that’s before a single card has even been shipped by Gilt. With Christmas quickly approaching, the demand for these will only increase as people scramble to find that one-of-a-kind gift. The fanaticism and demand for these exclusive, hand-made loyalty cards, is testament to the strong brand and loyalty program that Starbucks has been able to develop over the years. For a company to transform its loyalty card from one that is hardly top of mind other than at the point of sale, to that of a coveted status symbol, is phenomenal.

 

Starbucks has proven once again that customers want to feel special. B offering an elite limited edition loyalty card, they’ve transformed 6,000 people into brand advocates while generating publicity that money can’t buy.

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Tags: advocate, brand, card, christmas, collectible, customer, experience, gilt, loyalty, metal, More…nbc, news, program, starbucks

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Comment by Thomas Reidy on December 30, 2013 at 1:17pm

Amazing!

Comment by Mike Gorun on December 30, 2013 at 9:37am

Sorry Alexander, I guess I was typing to fast :)

Thomas, Yes. You're exactly correct. People are essentially spending $2500 for $400 worth of good and a metal card. In fact, the cards by themselves without any store credit remaining still sell for $1,000+ in aftermarket auction sites. The prestige factor is very simply having something that someone else doesn't. It gets attention when they whip it out at stores not only from fellow customers but from employees of the Starbucks. These are so limited that oftentimes neither of these people (customers and employees) have ever seen one. 

Comment by Thomas Reidy on December 28, 2013 at 3:41am

Mike, great info. Do I understand this correctly; people are paying upwards of $2,500 for a per-loaded card valued at $400 of store credit? (I don't get the prestige factor?) Excellent abstract on automotive rewards programs!

Comment by Alexander Lau on December 27, 2013 at 1:17pm

Great, but I'm Alexander, not Alexandra. Anyway, thanks for the data, very interesting. 

Comment by Mike Gorun on December 27, 2013 at 1:08pm

Thanks so much for your comment Alexandra.

We actually wrote a white paper on this subject in 2011, which you are welcome to access at:http://www.performanceloyalty.com/PDF/2012.02.13_HardFacts_whitepap...

Statistical service and sales transaction data verifies that dealership customers who are enrolled in specially designed rewards-based loyalty programs improve dealership service and sales performance. A multi-year, 72-dealership study that we conducted shows that customers who become active members in an automotive rewards or loyalty program visit their dealership every 4.26 months compared to every 6.82 months for those customers who are not participating in the program(general retail customers). This represents an increase in visit frequency of 60% annually.

Average annual member spend mirrors the increase in visitation with a 97% increase in overall retail spend. The study group, on average, realized a $325.37 per member annual increase in customer-pay spend, from $336.63 for non-members to $662.01 for members. Retail spend is defined only as customer-pay and excludes warranty, body shop, sublet, taxes and shop fees.
Furthermore, study results indicated an average overall retention rate of 56.98% for active members. According to recent research performed by an accredited dealer association, the national average for dealership retention is closer to 22%. Retention for the purpose of this study is defined as a member who visits a minimum of one customer-pay visit per 12 months.
Tom Wood Ford, Indianapolis, IN, started enrolling customers in a rewards-based loyalty program in 2007 and has over 13,000 members enrolled. Its member service visitation and spend ratios compare to the study averages: months between service visits for members, 5.28 compared to 8.43 for non-members; member spend $797.32 compared to only $504.20 for non-members.
“From 2008 through late 2011, my gross profit per month has doubled,” says Tom Kashman, Service Manager. “This is a huge number, one no one is going to believe, but the numbers don’t
lie. My belief is you cannot run a successful service operation without having some type of retention tool paying back the loyal customer,” he stresses.
Results for Richfield Bloomington Honda, Richfield, MN, show similarly healthy increases through its loyalty program. General Manager Tim Carter reports 2.87 months between service visits
for members versus 5.95 for non-members, with an average annual service revenue of $927.34 per member versus $417.30 for non-members.
Dealership loyalty programs also positively affect the new and pre-owned sales departments. Jim Crutcher, General Manager at Berge Ford, Mesa, AZ adds, “We couldn’t survive without this program. In fact, 39% of our total service business is due to this program, plus we sell an additional 30 new vehicle units a month to customers redeeming rewards dollars.” Compared to customers not enrolled in these programs, these dealers:
•See customers in service at least 1.6X more frequently during the year
•Enjoy almost 2X greater total service-spend per customer, per year
•See their customer-pay RO dollars go up nearly $44 per customer, per visit
•Thrive on retention of nearly 60% — nearly 3X the NADA average and better than many non-captive service OEM-branded loyalty program goals
•Sell on average 15 additional units every month to customers redeeming rewards benefits toward those vehicle purchases


I hope this helps. If you have further questions feel free to contact me via email me at : mikegorun@hotmail.com

Comment by Alexander Lau on December 27, 2013 at 6:57am

Customers want to feel special, but it's a hard use in the automotive sales process. Unless dealers are willing to give up less profits. I do not see that happening. Mike, no offense, but can you show me a successful case study of loyalty cards working in the automotive world and real, hard ROI numbers? Bench marks?

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