5 New Strategies in Loyalty Marketing
In our uncertain economic climate, loyalty programs play an increasingly important role for direct marketers. Customer loyalty programs have been around for nearly 30 years in most developed countries in the world, including the U.S. and most of Europe. As a result, it’s a saturated market.
COLLOQUY, which comprises a collection of resources devoted to the global loyalty-marketing industry, conducted research last year that showed the average U.S. household was a member of 12 loyalty programs. “That seems unlikely, but it’s because a lot of folks will sign up for the initial offer but then not re-engage with it again,” explains Rick Ferguson, COLLOQUY’s editorial director. He says that in terms of programs that customers actually pay attention to and participate with, that number falls to about four. “That presents a challenge for loyalty marketers. If you’re not one of those four, then you’ve got problems—you’ve got a lot of disengaged members.”
The trick, of course, is getting your program to stand out. “The way you do that is to understand your customers, your community better than your competitor does,” states Ferguson. Here’s how to do all of that better.
1. Take a Good Look at Your Customer
Any customer loyalty program provides a lot of information about the customer, and that’s the reason to run it in the first place. “You’re giving value to customers, and in exchange for that value, they’re allowing you to track their behaviors,” comments Ferguson.
Whether we’re talking about a retail loyalty program, a credit card with a reward program or a frequent flier program, the operators of these programs should pay attention to customer behavior: what’s bought, how much is bought, the channels via which the purchases are made, survey participation, requests for information and so on. “Most program operators are sitting on a mountain of information. But, for the most part, we haven’t done as good a job as we should using that information,” says Ferguson
2. Get Value Out of Your Data
“The idea is, if you can understand customers a little better, you can put them in buckets. Those buckets may be how valuable they are to you or how much potential value they have,” shares Ferguson. “Then you start to give them offers based on their past behavior.”
Ferguson provides the example of a grocer that’s operating a grocery loyalty program. After pulling out all the customers who bought diapers for the first time in the past 12 months, it could send them offers based around that lifestyle change, such as for formula or more diapers. “That’s what’s going to transform loyalty marketing over the next five years or so; you’re going to see retailers in particular get much, much more sophisticated in how they use the data that’s coming into a loyalty program,” shares Ferguson.
3. Start the ‘Relationship Chain’
In a well-run loyalty program, you get smarter over time. “We call it the relationship chain, which basically posits that each interaction with the customer moves them a little further along the chain towards having a deeper relationship with you,” explains Ferguson. The first link is acquisition of that customer; next is identification, in which marketers really understand who the customer is. “This link was always a challenge for retailers because customers would walk into the store and pay with cash or checks and the retailer would have no idea who the customer was,” he says.
Loyalty programs solved that problem by providing an identifier, such as a membership card, so that the retailer can now pay attention to what the customer is doing. Whether a customer is opening an e-mail from the company, calling a customer service line, or going online and checking his or her points balance, each interaction is now getting tracked and telling the company a little more about that customer.
4. Meet the ‘Moment of Truth’
At some point, the customer is going to get enough points stored in the program or has been involved long enough that it becomes time for a redemption episode, such as earning enough points for a gift certificate. “That’s the moment of truth for a loyalty program. And the episode has to happen flawlessly for the customer; it has to be a good experience. It’s got to be easy to redeem; they have to see real value in what they’re getting; and there has to be good follow-up,” describes Ferguson. If it all goes smoothly and the customer enjoys the experience, then he or she will seek to repeat it.
5. Unleash the Unbeatable Loyalty Combination: Economic and Emotional Value
Historically, retail operators focus more on the economic side, but new trends will focus on the emotional side, predicts Ferguson. “There are so many programs out there and many look alike, so the companies that can add that emotional connection to the[ir] program[s] will differentiate them from the programs where it’s just a point-per-dollar kind of value and nothing else.”
After all, a loyalty program gives a company the ability to understand the customer’s lifestyle and behavior, and it can use this knowledge to create an emotional connection. Maybe it’s redeeming points for a three-day golf vacation, or simply a discount to a family restaurant. So while affluent customers want greater value for their loyalty, overall it’s about creating a memorable experience that’s also right for the customer.