Loyalty schemes are an established feature of the retail and services landscape. They have become widespread and arguably ubiquitous. There are a number of major groups of loyalty schemes, including: retailer loyalty schemes, financial service loyalty schemes, online reward schemes, frequent flyer and other travel reward programmes, geographically based loyalty schemes, and coalition loyalty schemes. Businesses have been keen to enhance customer retention, to find approaches to increasing customer spend and encourage customers to act as advocates.
When the first loyalty programs hit the market uptake was huge and rewards for marketers were high. Some years on, however, the market is overrun with these schemes, each with little point of difference from the next. As a result, consumers are evermore difficult to please, and uptake on offers is reducing. One repeated suggestion is that customer uptake is diminishing because the technology involved is becoming too complicated. However, loyalty programs will continue to work well, provided that the value proposition is attractive enough. What is lacking is the Wow! factor, which in most cases means the offer of a reward with more soft benefits. Marketing departments, however, should be very careful to calculate their potential ROI to make this kind of deluxe loyalty scheme work. All over the world companies are now seeing the benefits of sharing set-up, processing and redemption spend of loyalty schemes by partnering with firms who offer complementary products.
Most important lesson for managers is that loyalty schemes have a life cycle. Although they may be an effective sales strategy when introduced into a market, over time they lose their effectiveness as saturation occurs and customers become habituated to the loyalty schemes. Attitudinal loyalty seems to last longer than behavioural loyalty, but as behavioural loyalty is the only form that translates to dollars; this is not good news for business. However, the solution is to scrap the tired old loyalty scheme and come up with some innovative untried initiative that will capture the imagination of customers and stimulate both attitudinal and behavioural loyalty.
Tips for maximizing on evolutionary trends to stimulate loyalty:
- The power of networks
- The power of data
- The power of convergence
Tips on leveraging the power of networks
- Know your member base – If your loyalty program serves a member base with highly specialized needs, then enabling members to connect to each other can build value. For larger organizations with programs that serve a larger, diverse audience, a question begs: what niche segments within your base can you better serve? Which niche segments have the most potential value? In either case, your starting point is the analysis of existing customer behaviour patterns. Clustering techniques can adeptly segment customers for further exploration. Your next step is to research the underlying motivations of customer behaviour. Why are your customers switching to the competition? Why did they choose you in the first place? By applying a disciplined analysis of what customers desire from their relationship with your brand, you can identify the relevant economic and emotional issues that can form the basis of community growth within your existing loyalty system.
- Create virtual sharing environments – The growth of the internet, with its inherent cost efficiencies, is the primary driver behind the evolution of community-forming networks. As you evolve your own loyalty strategy, you will build your own virtual communities for users. Web-based communities have value when you create specialized, relevant content. Message boards, questions archived by category, “Ask the Expert” access, blogs, members-only content posting features and photo libraries all contribute to the development of affiliate communities of brand loyalists.
- Build community through tangible access – As compelling and necessary as virtual network portals can be, there is no substitute for human interaction. You can build emotional attachment to your network and your brand by creating access to members-only events within your loyalty strategy. Make it worthwhile to recruit friends and colleagues into the network. B2B marketers can share their referrals and leads with their network. Create entertaining events to draw customers in person. Customers who build relationships through brand-sponsored gatherings will strengthen those relationships online.
- Networks are a means to an end – Leveraging the power of the network is just one element of the brand’s overall value proposition. Access to communities is a meaningful recognition benefit, and one that you can and should add to a well balanced diet of hard and soft benefits. Remember also a fundamental rule for loyalty marketers: just as all customers are not created equal, so are all communities not created equal. Unless united by common interests and relevant dialogue, member communities will wither on the vine. By creating both virtual and tangible environments where like-minded members can assemble and share ideas, and then nurturing these communities so they flourish, loyalty marketers can build a core soft benefit around which their brands can develop a pristine oasis of customer relevance and advocacy.
Tips for leveraging the power of the data
How can marketers begin to leverage the power of data in their own enterprises? Information can really be leveraged to enhance your core product, you must understand what insights you can glean from your available data. Consider these best practices:
- Cast a wide net – Simply put, you cannot manage a relationship or enhance the in-store experience if you do not know who your customers are. The starting point is a sound loyalty program with broad appeal. The first step down this path is to put forth a value proposition that encourages customers to raise their hands and ask to be identified. Sophisticated application of recognition and reward is the foundation of your enterprise loyalty strategy.
- Understand customer value – You can start with a simple question: which of your customers are the most valuable? Yes, the basic insight of which customers make up most of your sales will always be relevant. This can be simply: 1 percent of their customers account for 10 percent of their sales; 10 percent of their customers account for 40 percent of their sales. That simple insight is the starting point for giving the businesses a better way to cultivate loyalty, one customer at a time.
- Blend approaches – Combine transactional and demographic data to enhance understanding of your customer base.
- Target offer – Use market basket analysis to target offers and identify new product opportunities.
- Personalization drives relevance – Event-driven communications illustrate the importance we place on relevance. With customer value detectors as sharp as they have ever been, and the din of noise in available communications channels increasing every year, your communications to members should serve as a safe harbor of pristine, relevant and value-added communications.
- Success goes to the innovators – Innovation breeds success. The followers can only devote their time to playing catch-up.
Tips for leveraging the power of convergence
If you are a smaller player in the marketplace, looking up at these mega-corporations with a combination of hope and trepidation, how should you prepare for a major player to evolve their program to a coalition program? And more importantly, why should you care? When you are approached to join a coalition program, here are a few important considerations to bear in mind:
- What’s in it for me? A coalition means your customers can earn rewards and benefits even faster. In return, the increased earning velocity of coalitions drives behaviour shifts in ways that operators of proprietary loyalty programs can only dream of. The power of earning lots of currency quickly, at a variety of partner brands, makes a loyalty coalition a strong ally – or a formidable opponent.
- The acquisition effect – The “collector” mentality created by a well-formed coalition has a significant benefit: increased rates of acquiring customers from other sponsors in the program. This acquisition effect will leave competitors on the outside, looking in. Of the three basic building blocks for generating ROI in your loyalty program – shift, lift and retain – the coalition model excels at the “shift” part of the equation. But once you are in a coalition, remember that you are in it for the long haul – because the acquisition effect can also work against you if you leave the coalition and a competitor steps in to take your slot.
- Share of mind – One of the subtler strengths of coalition loyalty programs lies in their ability to influence share of mind in participating members. When a member produces her coalition card at the point-of-sale several times per week at the grocer, the fuel retailer and the bank, the repetition reinforces the strength of the coalition brand as an integral part of the consumer’s life – particularly if this “swiping power” is combined with accelerated earning velocity. This ability means that the first movers in a new coalition will enjoy a considerable advantage.
- Brand alignment – The ability to align your brand with other top-tier brands within a loyalty coalition is one of the strongest arguments for joining one. If you are a grocer approached to join a coalition, ask about your potential partners in other high-velocity sectors such as fuel retail and financial services. If you have the chance to join top-tier players in complementary sectors, jump at it. The move could quickly vault you from also-ran to leader in your sector.
So when we look at the future of loyalty marketing and the trends that will shape our space, we will see boundaries that continue to expand outward. The very concept of “loyalty marketing” will encompass many more ideas, strategies and tactics than it has in the past. Grouping these micro revolutions into three macro trends will affect the evolution of your own customer loyalty strategy. These shifts will allow marketers to unleash new loyalty-marketing strategies and tactics that will power profits and growth well into the twenty-first century.