What a Loyalty Program Can do for You… and What it Can’t

Aug 17, 2015

What a prorgram can and can not doWhenever a client says, “We want to have a loyalty program,” my response is usually, “Why?”

Loyalty programs – or more generally, customer engagement strategies – are, thirty years after airlines introduced the modern reward program, still one of the fastest growing strategies used in the marketing world. Everyone, it seems wants a loyalty program.

But marketers need to have a clear understanding of the business issues they are trying to solve. Loyalty strategies are not the answer to every marketing challenge. Clear focus on the objectives helps determine whether a program is needed – and if so, what kind of program it should be.
Here’s a high-level look at what loyalty programs typically can and cannot do.

  • Reinforce brand values
  • Create an emotional bond
  • Fix a quality, price or distribution issue
  • Increase brand involvement, giving customers reasons to engage
  • Create engagement in a low-involvement product category
  • Reduce “splitting” within the category
  • Drive new or additional product trial
  • Encourage a broader, more profitable basket mix
  • Stimulate primary demand
  • Deliver customized offers, content
    and experiences of relevance and value
  • Deliver mass communications and broad-market offers
  • Enhance lifetime customer value
    and profitability
  • Acquire masses of new customers
  • Gain explicit customer permission
    to contact and to collect data
  • Counteract the “creepiness factor” if information is misused or preferences are ignored

Common objectives for loyalty programs

The most typical goals for loyalty strategies include:

  • Identify individual customers
  • Collect customer transaction data
  • Collect customer interactions, including social behavior and service interactions
  • Track customer behavior across channels and over time
  • Leverage data analytics to segment the customer base
  • Identify customers with the greatest incremental revenue potential
  • Identify customers with the greatest propensity to defect
  • Deliver the right content, offer or experience at the right time and in the right channel, improving the customer experience
  • Improve Return on Investment with more accurate marketing spend
  • Increase profitability by reducing discounting and focusing on program rewards and benefits

Goal number one: Get the customer’s permission

One of the most important things a loyalty program can do is secure the customer’s explicit permission to trade data for benefits. (Which is why a fairly strong and clear value proposition is necessary for program success.) Today’s consumers, especially Millennials, understand the relationship between sharing information and getting greater value and a better customer experience, and most are willing to make the trade. A loyalty program is still one of the friendliest ways to make that exchange.

Track and understand behavior in the omnichannel world

Customers today expect a unified experience across channels. They expect the marketer to recognize them at different touchpoints and in diverse contexts. Without a program in place, multi-channel retailers do not know what their customers are doing in indirect channels; multi-venue companies do not know which of their customers are frequenting multiple locations; retailers may have little insight into customers who pay with cash or multiple forms of payment.

When the customer knows her behavior drives improved service, greater relevance, rewards, benefits and recognition, she has a strong incentive to ensure her activity is tracked. With this tracking knowledge, a business can distinguish repeat customers from “one and done” customers; it can welcome and recognize cash customers who spend little per transaction but have many transactions a week; it can deliver the same experience to a customer visiting a new location for the first time.

Context is everything

A well-designed loyalty program provides a unified context for the customer experience, creating an ongoing, rather than an episodic relationship. A programmatic setting keeps offers, benefits, savings, interactions and rewards from feeling random.

For many marketers, the right engagement strategy is an explicit program where specific behaviors earn specific rewards. Or it could be a more subtle, programmatic effort in which the rewards and offers sent to members are customized based on behavior. In deciding whether to have a program, and what kind of program it should be, always start with the business goals – and make sure they are the kind of goals a loyalty program can achieve.