Call it the loyalty craze.
According to Jupiter Research, more than 75 percent of consumers now have at least one loyalty card, and the number of people with two or more is estimated to be one-third of the shopping population. Information technology analysts suggest the data-for-dollars explosion is a strategy that represents a multi-billion dollar investment, and showing no signs of letting up.
In addition, a Gartner study revealed that more than 75 percent of 600 enterprises surveyed rated customer loyalty as more important than sales to new customers. A recent CRMGuru survey of business leaders found that 80 percent felt that loyalty was either “extremely important” or “very important” to top management. Of those same respondents only 45 percent rated their businesses’ efforts at managing customer loyalty as “good” or “excellent”. Growth rates soar for those with an adept hand at loyalty. Frederick Reichheld, author of The Loyalty Effect and Loyalty Rules, found that loyalty leaders grow on average more that twice as fast as the industry average across a wide variety of industries.
But do loyalty programs really work? The short answer: yes. To be sure, it’s all in the execution.
Relationship marketing is sometimes associated with airline loyalty programs or credit card customer points programs. But airlines and credit card companies could learn a lot about loyalty and relationship marketing from the gaming business, where tactics are driving affinity programs deeper and deeper into customer segments. These successful programs don’t just focus on the top 20% percent of customers. They identify “growth” segments that can be nurtured and developed into high value customers. For some companies Pareto’s principle, is the 70 -30 rule.
Harrah’s, for example, employs a system that knows how many pulls you have made on the one-armed bandit, and how much you are betting at the poker table. They know your favorite machines, your favorite restaurants, what time of year you prefer to visit and more. As a result, the casino giant’s revenue from money spent by a person carrying a loyalty card on a gambling vacation has risen from 36 percent to 45 percent during the past few years.
A crucial factor in building loyalty – in the gaming industry and across the board is having a strategy that can grow as your company grows. But the gaming business is probably far ahead of other industries in developing the delicate balance of data, benefits and privacy for customer loyalty programs because company’s already have begun integrating loyalty measures as a core company strength rather than an add-on or after thought.
Here are eight best practices that are sure to make you a winner!
Create a Shared Vision
In a true customer-centric organization, the vision has to be clear and – equally important – embraced at all levels by all employees. Some key concepts:
- Over-invest in coordination across all functions. Make sure everyone understands program objectives, strategies, areas of departmental impact and associated expenditures.
- Encourage employees to participate in the program as customers so they experience firsthand the program’s value.
- Create high-level positions with the sole purpose of leveraging customer data across the organization and serving as the customer advocate.
- Encourage employees to think like a customer.
- Incorporate customer focus into training and hiring.
Set Realistic Goals
Sometimes loyalty programs are developed with good intentions, but unclear objectives. Woefully, this oversight can sabotage your program from the start. A program cannot be offered to the masses and exclusive, loaded with benefits and cheap.
So, develop program objectives based on your primary business objectives. Do you want to expand marketing channels with direct capabilities to improve efficiency and measure results? Do you want to collect data to be leveraged as a core business asset? Do you want to build strong relationships with high value and high growth customer segments? You decide – but you have to decide.
Ask Customers What They Want
If you want to know what will make customers more loyal – ask them. Focus on the features, program structure and rewards they would add or remove if they were to (re)design your loyalty program. Compare the benefits they want with the benefits they’re getting. Based on your customers’ feedback, determine the business impact of the requested benefits. Is it financially viable to give them what they ask for and does it ultimately achieve your business objectives?
Know Your Customers
Look at the customer from a holistic perspective, then segment customers that are similar. Create a loyalty profile by ranking customers according to their value to your company, and then differentiate them by their life cycle and needs. The profile should be a 360-degree view, combining purchase behavior, attitudes, satisfaction, demographics and lifestyles. Once you’ve created the loyalty segments, prioritize them to focus on their potential economic impact. Avoid rewarding “free riders” — loyalty members who join your program but give you nothing in return, and instead focus your efforts on profitable, loyal customers.
Make Rewards Attainable and Realistic
Any incentive you offer must be realistically attainable within a reasonable time period. By design, a loyalty program is a balancing act between offering some low-cost, easily attainable short-term rewards that can be redeemed early in the program and more highly valued aspirational (and more costly) rewards that can be redeemed later in the program. While the short-term rewards encourage enrollment and ongoing participation, the beau ideal rewards serve as an incentive for your customers to consolidate purchases and award you greater share of wallet.
Create a Distinctive Customer Experience
While some customers are moved by price, others want personal attention and convenience. Your customers are diverse; consequently, your program needs to acknowledge their uniqueness by speaking differently to each segment. The better you understand your customers, the better you can push the most appropriate levers for the specific customer.
A loyalty program is not a silver bullet to solve a company’s core weakness. You can’t manufacture loyalty if you offer shoddy products, poor customer service, noncompetitive prices, or non-integrated distribution channels, or if you don’t communicate with customers. Instead, a loyalty program should be thought of as a part of your integrated customer relationship-marketing program — one that helps you to proactively manage the customer life cycle.
Depending on your business, customer touch points may include mail, telephone, fax, text message, e-mail, instant messaging, chat rooms, catalogs, point-of-sale, signage, Web sites, online bulletin boards, and whatever was invented last week. With social media, there are additional opportunities to engage and foster customer loyalty. Social media has its own cost implications, and perceived benefits to your customer. In developing your customer communication plan, leverage social media to reinforce the value proposition and focus on what really matters to your customer — creating concise, relevant and compelling messages that build relationships based on your customers’ needs. The key to success is to embed your loyalty program into the total customer experience — into their everyday life.
Photo: Peter Rieke