The Loyalty Program Is Dead, Long Live the Loyalty Program
Let's start with this question: "Do traditional customer loyalty programs still work ... why or why not?" The Answer: No, they are not as effective as they have been in the past. There are so many loyalty programs in the marketplace vying for the consumers’ attention, and many of them are not designed to meet the needs, preferences and desires of the customer. Rather, they are built on what the company can afford or support based on a business model or internal systems. The challenge is: How do you differentiate yourself to engender true loyalty? Loyalty is not something that brands create, but rather something that consumers generate based on the brand earning their trust.
Traditional loyalty programs don’t connect with the consumer emotionally. Today’s successful loyalty programs do connect with people emotionally, as scientific research has shown we make decisions for emotional reasons and then later justify them to ourselves and others with rational reasons.
Nor are traditional loyalty programs based on delivering on customer’s individual needs and behaviors, which is critical in today’s marketing environment. Points-based program typically require long timeframes to earn a reward, and these rewards may not meet the customer’s preferences. For instance, Keurig has a points-based loyalty program that only allows you to redeem points earned for their coffee machines and accessories. As a Keurig owner, I would like to redeem my points for free coffee but I’m unable to do so, so it is not meeting my needs and I have abandoned the program.
How Does Engagement Play Into Customer Loyalty?
Customer engagement is integral to building loyalty. Customers are in the driver’s seat. They have high expectations and are more empowered than ever in the purchase journey; influencing others, including brands, to meet their specific needs and behaviors. We are living in a social media and mobile world, and are surrounded by messages 24/7. Therefore, brands need to understand consumers (not only their transactions, but their preferences and attitudes) and deliver real-time information where they are, on their terms, in a personalized manner based on what you know about them.
The best loyalty programs both recognize and reward customers. The recognition part can be especially powerful in that it taps the social science principle of Exclusivity/Scarcity, in which people place more value on things that are not readily available. And, giving participants a "head start" can also be very effective, in that it triggers the Zeigarnik Effect — social scientists have found people are more apt to finish what they've started. So, in a very simple example, giving 2 punches on a punch card of 12 can be more motivating to make 10 more purchases than simply having a punch card of 10 with no boxes already punched.
Engage with your customers across multiple channels in a two-way dialogue that acknowledges who they are and reinforces and rewards the value that they bring to the brand. This requires continually asking for customer feedback, and responding to this feedback in real-time, throughout the customer relationship. Deliver information and experiences that are based on the customer’s previous behaviors and attitudes. This is called “smart” personalization and is based on the data that you have about your customers. However, the most valuable data is “human data” which is self-profiled, and thus can be used to further engage with your customers in a meaningful way because it is actionable and provides greater weighting since it comes from the customer.
Member preference centers are gaining in popularity and are a great tool to use as part of the onboarding process for new customers. This online portal allows members to indicate communications preferences, needs, and interests. These preferences, in combination with other customer data (demographic, self-profiled psychographic, and segmentation profiling) can be used to deliver truly personalized communications.
Successful loyalty programs are built on data-driven customer insights. Segment your customers based on current and potential value in your database, and treat consumers who are most valuable differently than those who are less profitable, e.g. a customer VIP service that can take the form of exclusive events/alerts, involvement in influencing new product trials, etc. In addition, give these most valuable customers the opportunity to advocate for your brand through social media and reward them through social rewards and by telling their story.
The ultimate goal for any brand is to have their customers become brand advocates or ambassadors; thereby creating a momentum and a story that is authentic and therefore most meaningful for consumers. This is particularly true for Millennials, who trust their friends and family much more than companies.
Most importantly, loyalty efforts need to be consistent with your brand mission and promise. Here are two examples of brands that are engaging their customers and engendering loyalty:
Gilt is a members-only lifestyle destination. They conducted in-depth customer research (qualitative and quantitative methods) to design a customer experience which is truly personalized based on what their members purchased, but also their preferences and attitudes. They recently launched Gilt by Appointment, their personalized shopping experience. And they proactively ask questions of the customer based on new behavior trends or changes to continually evolve to meet their customer’s needs. For their best customers, they have set up an advisory panel to influence the brand, and have instituted member reviews.
In October, I saw Black Mycoskie, Founder and Chief Shoe Giver of TOMS, speak at the &THEN DMA 2015 conference in Boston. He understands the importance of creating a mission that resonates with consumers, which not only engenders loyalty but creates brand ambassadors who are as passionate about TOMS as the founder himself. His company started with giving away a pair of shoes to children in need for every pair of TOMS shoes purchased, and has grown to TOMS eyewear which has restored sight to hundreds of thousands, to TOMS Roasting Company which has provided safe water to tens of thousands. TOMS has unlocked the secret to creating a demand among a millennial audience: give consumers a mission, share your company story, and give them a stake in the outcome.