A Round-Up of Top Notch Loyalty Programs
Oh, what an effect a mature market and healthy competition have on business standards. If you think back a decade or so, you probably can remember more than a few "loyalty" programs that seemed to be designed more for the sponsoring company's benefit than for the customer's.
That's not the case today, as consumers wield more power and hold high expectations for companies to meet their demands for better service, reasonable prices and more value.
Loyalty programs have been forced to keep pace, and many companies have stepped up to the challenge by adopting new technologies, investing in data management tools and cultivating an environment that is closer to customer-centric than it has been since the days of people being on a first-name basis with their tailor, butcher, bank teller, etc.
For example, Hilton Hotels and Harrah's perform the modern-day version of putting a name to each person that enters their properties, and follow that initial recognition with services and rewards that are customized according to each person's value to their organizations.
But before we get into the fine points of each of these firm's loyalty programs, let's take a look at what makes for a successful loyalty program in the first place.
The Key Attributes
One of the most important qualities of a strong loyalty program is a business plan that makes economical sense to the overall company, otherwise the program won't surviveand abruptly closing a loyalty program is worse than never starting one at all, says Todd Nelson, who is vice president and general manager, loyalty marketing solutions, at Epsilon, and who helped Hilton Hotels redesign its program.
The number-two attribute is designing a program that offers value to the member, or the program won't generate participation, says Nelson.
When reviewing a client's loyalty program, Nelson occasionally finds that while the overall concept sounds good, the reward chart reveals that the return on loyalty investment is not attractive to the customer.
For example, some programs don't offer enough distinction between the status levels, so there is no incentive to devote more share of customer to the company. Other programs make it impossible to obtain even the most basic of rewards.
The idea is to structure a loyalty program so that it rewards the best customers, while helping the least desirable customers to self-select out of the program, says Richard Barlow, president of Frequency Marketing.
It's important not to reward every customer, Barlow explains, because you will drain your loyalty program of the resources needed to make attractive offers to your best customers.
All programs should offer a blend of both hard benefits, such as extra hotel stays, airline tickets, etc., and soft benefits, such as priority seating, advance notice of sales, late check-out and other services that recognize members' preferred customer status, says Barlow. The better programs, he adds, deliver soft rewards consistentlywhich is easier said than done.
The third success factor is that the loyalty program is a part of a company-wide integrated marketing effort, says Nelson.
Where the loyalty program benefits from being part of a strong corporate marketing plan, the company's overall marketing strategy also benefits from a thriving loyalty program. These two marketing arms must complement one another, Nelson explains. For example, the main marketing department cannot send prospects offers that are supposed to be exclusive to loyalty program members.
That's why implementation of even the most basic of loyalty programs is not easy, Nelson says. It requires a long-term commitment; loyalty is not something that can be turned on and off with the flick of a switch.
What loyalty programs can't do is change market behavior, explains Barlow. What they can do is allow you to track customer behavior and reward loyalty appropriately.
A perfect example of the benefit of an organized loyalty program to a company can be seen in the travel sector right now. The correct strategy for the hospitality and travel industry is to ride out this down-market, Barlow says, and to offer its best customers VIP services and status that recognizes their value, so they continue to keep their business with you.
Maximize Customer Touchpoints
The main opportunities for companies to make or break loyalty are at the points of customer service, whether that touchpoint is via phone, e-mail, direct mail, on the website or in person, says Nelson.
For the hospitality industry, he explains, that's at check-in and check-outor what is called "heads and beds."
It's at this juncture that companies have the chance to meet or exceed customer expectations.
For example, says Nelson, GM Goodwrench is a strong brand with a reputation of good customer service. But that reputation means less to the customer whose car wasn't fixed properly.
But getting the job done right the first time is only a basic expectation of customers. Today, people have come to expect all communication channels available to them to be synchronized with up-to-date information on their customer status, activity, etc.
What's more, says Nelson, is that they do not see this level of service as a benefit, because it's become a universal standard. So, if you don't offer it, it's a key detractor; for all companies that do, it's merely a cost of doing business.
What should be stressed about handling customer touchpoints well, Nelson adds, is to never make the fatal mistake of not listening to or acting upon how your customer prefers to be contactedespecially if you request this information at membership registration.
As always, the rule of service is to under-promise and over-deliver.
The Measures of Success
Companies used to think the success of a loyalty program was based on how many members it attracted. But as Barlow pointed out earlier, unprofitable customers can undermine the purpose of a loyalty program.
More relevant measures are those that pertain to ROI and what Nelson calls "share of wallet."
A good program measures ROI, Nelson explains, which is best defined based on the lifetime value of customers in the program versus customers who aren't; you then keep an eye on whether LTV goes up or down for program members in response to the reward structure.
Another way to determine the success of your loyalty program is to measure how well it does for the company in terms of dollars spent with your organization versus the competition. Obviously, you want your loyalty program to entice customers to keep the majority of their purchase activity with your company.
Case Study #1: Hilton HHonors
Hilton Hotels launched its first loyalty program in 1987, and since then it has built membership in HHonors® to more than 10 million worldwide.
The program is structured to reward members with free stays at any of the parent corporation's seven chains: Hilton, Conrad, Hilton Garden, Doubletree, Homewood Suites, Hampton Inns and Embassy Suites.
Members earn 10 points for every dollar spent, plus extra credit for stays on a tier status. The four membership levels are:
* Blue (enrollment level)members receive 2,000 bonus points after four paid HHonors stays in a calendar quarter.
* Silver (after four stays or 10 nights in a calendar year)members receive: a 15% bonus on all HHonors Base points; 2,000 Bonus points after four paid stays in a calendar quarter; check-cashing privileges; and VIP Only Rewards.
* Gold (after 16 stays or 36 nights in a calendar year)members receive a 25% bonus on all HHonors Base points; 4,000 Bonus points after four paid stays in a calendar quarter; room and amenities upgrades; complimentary health club privileges; check-cashing privileges; and VIP Only Rewards.
* Diamond (after 28 stays or 60 days in a calendar year)members receive all the benefits of Gold status, plus: a 50% bonus on all HHonors Base points; guaranteed reservations availability on 48-hour notification; and no black-out dates on most stays.
The plan is to offer a more lucrative combination of hard and soft benefits in each tier. For example, Nelson says, Diamond members have access to a RewardPlannerSM Service that handles travel arrangements for business and personal travel. The service can redeem members program points with partner companies and help them craft their travel plans to avoid blackout dates.
Beyond awarding points for stays, the HHonors program also allows members to earn points for their transactions with a variety of partners, including American Express, FTD, E*Trade, Citibank and others.
Like other loyalty program, HHonors offers members a co-branded affinity card, via which purchases result in points that may be used in the program.
But Hilton has made one facet of its program stand out from the competition: It offers reward exchange privileges with a wide variety of airlines, so a member can go either way with the points and miles he or she accrues. This is what Hilton calls "double-dipping."
Nelson points out that HHonors is the only loyalty program where members earn both points and miles on each stay. Other programs, he explains, make participants choose between earning points or miles for their stays.
One of the reasons why the program is successful beyond the "Double-Dip" feature, says Nelson, is because it continues to offer value to its members by allowing them to turn their points into rewards beyond hotel stays.
Instead, HHonors members can use their points to order subscriptions to select magazines from AOL Time Warner and buy products from program partners, such as Sharper Image, Cannondale Bikes, and Tiffany & Co.
In all, there are 50 partner companies, says Nelson, with a new partner added, on average, each month.
Hilton offers customers two-way communication via phone, direct mail, web, and e-mail. Its call centers feature live representatives and interactive voice response (IVR). More importantly, all channels are in sync with real-time integration of information; a customer's transaction via the web will be known by TSRs, if the customer suddenly decides to call Hilton for additional service. Hilton has offered this level of information management to members since 1996.
Finally, HHonors points never expire, so long as the member remains active.
Case Study #2: Harrah's Total Rewards
Harrah's is the first casino to understand that a national brand in the gaming business would be valuable in the future, says Richard Barlow. Casinos in general, he adds, were the first businesses to recognize the value of loyalty and institute programs that rewarded players based on the amount of business they brought to the casino.
According to Colloquy.com, Frequency Marketing's website, Harrah's started a huge loyalty project in 1994, when its new CEO, Phil Satre, merged the loyalty programs from all its individual casino properties into one national database. The investment in a new information technology infrastructure was more than $20 million and a timespan of nearly three years.
But it was worth it to Harrah's, says Barlow, because the company believes that loyalty is best executed by driving it at the customer via personalized programs. With the 1997 debut of Harrah's Total Gold program, the company could recognize loyal customers from one property to the next and treat them according to their level of involvement with the Harrah brand.
In 2000, Harrah's relaunched the program as Total Rewards, with three value tiers:
* Total Gold(enrollment level, with no minimum reward credits): members receive a 10% discount at Harrah's-owned gift shops; priority access to rooms, shows and events; ability to earn comps and cash; and special offers via mail.
* Total Platinum (3,000 annual Reward Credits): members receive all Gold benefits, plus priority check-in at hotels; a special 800# for priority service; exclusive travel service plus partner benefits with airlines and travel services.
* Total Diamond(10,000 annual Reward Credits): members receive all Platinum benefits, plus members-only access to VIP lounges; personal VIP hosts; free room upgrades and tickets to Harrah's shows; exclusive hotel check-in area; invitations to Diamond-only special events and tournaments.
According to Colloquy.com, members receive 1 Reward Credit for every $10 played in the casino. In Lake Tahoe, members can use 275 Credits to buy a meal in the casino restaurant.
What makes the Harrah's Total Rewards program stand out among both gaming loyalty programs and all loyalty programs in general, says Barlow, is the company's consistency of execution. It delivers this level of service for a large program, in which the size can be a detriment to a company, he explains.
But Harrah's implements the program well through every level with contact between casino staff and customers.