Today we see a wide variety of customer loyalty programs, ranging from the simple punch card found at your neighborhood sandwich shop to sophisticated, omni-channel data-driven programs run by credit card companies and retailers. They all have the same basic objective – to drive more business from existing customers. It’s widely known and accepted that it’s more cost-efficient to generate increased revenue from existing customers than it is to find new ones. Having a loyalty program instinctively makes sense and many organizations jump on the loyalty bandwagon. But are loyalty programs for everyone, and how do we ensure they do what they are supposed to? And how do we measure program success?
Is a Customer Loyalty Program a Good Fit for Your Marketing Efforts?
Loyalty programs don’t make sense for every industry. Ideally, products should be purchased fairly regularly, as infrequent purchases mean less data and accuracy in predicting future behavior. In addition, infrequent purchases mean there are fewer opportunities to interact with customers in ways that result in incremental sales, thus paying for the cost of a loyalty program. The business should also be generating high enough margins and/or enough incremental revenue to support the cost of a program. A customer loyalty program must also be able to capture and effectively utilize customer data, which reveals customer behavior and enables us to build, manage and measure the program.
But for those who have or are considering a loyalty program, careful consideration must be given to ensuring the program is profitable, driving incremental revenue and providing valuable customer intelligence. I still see too many programs that enroll customers to their email subscriber list, call them “VIPs” and proceed to bombard all “members” with the same email promotion seen by everyone else. This is not a true loyalty program.
So What are the Top Qualities of a Successful Loyalty Strategy?
The program must be an integral part of cross-channel marketing efforts driving business goals, and it must be fully supported by management. A program that simply functions as a one-channel email list has not received the time and investment necessary for success, will not stand up to inspection and can actually damage a brand through its weak offerings.
It should go without saying that a program must be customer-centric. This is a claim most marketers make, but are we really focused on knowing our customers and their needs, or are we fixated on selling them our products regardless of fit? Being customer-centric means mining customer data to create a holistic view of customers, understand their needs and then leveraging that knowledge to communicate with relevant products and services.
Customer Segmentation is Key
Customers are not all alike, but they’re often treated that way by loyalty programs that send the same creative, messaging and offer to everyone. Creating and using customer segments based on behavior and demographics supports a customer interaction that is personalized, appropriate and leads to a significant increase in marketing performance. While good programs reward loyal customers, great programs recognize the potential in customers just below the top segment, and develop the means to move them higher up the spending ladder to become more profitable.
Program Differentiation Keeps Your Program Fresh and Distinct
This means a program that does not hype the same benefits as competitors. Loyalty does not come from great discounts and offers, which can be easily copied. Customers need to realize value beyond coupons or discounts – which may come in the form of experiential or unexpected rewards and a higher level of service.
Loyalty marketing is not all about only using email to communicate with customers. It should be an omni-channel experience, taking advantage of other channels and testing them as part of the marketing mix. Direct mail is often mistakenly associated solely with acquisition efforts, but it is also a very effective customer onboarding and retention vehicle.
How Do We Measure the Success of a Customer Loyalty Program?
It’s inaccurate to simply total all member spending and attribute it to the loyalty program – some of that spending would have occurred anyway. Measuring success comes down to determining whether a program is generating enough incremental revenue to outweigh its costs and face up to CFO review. One approach is to do a “before and after” comparison analysis looking at pre-program spend, churn and transactions versus loyalty program metrics.
An additional and recommended approach is to set aside an ongoing hold-out control group of non-member customers who aren’t exposed to the program’s marketing efforts, measuring the lift in loyalty metrics between non-members and members. Hold-out populations should also be created for every loyalty marketing campaign. Eventually, we get to an incremental lift percentage that can be translated into dollars. These dollars then become part of the loyalty program P&L statement that measures this incremental revenue against the cost of the program.
Whether your loyalty program needs a guiding hand or you’d like to start a brand-new one, IWCO Direct’s customer loyalty consulting and omni-channel marketing services can help. Please contact me to learn more.
Subscribe to SpeakingDIRECT to have new articles delivered to your inbox as they post. We promise to keep it fresh and interesting.