Best practices to stop a good loyalty scheme from stalling

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By: Wise Marketer Staff |

Posted on August 10, 2007

Best practices to stop a good loyalty scheme from stalling

There's never a bad time to take a look at the key best practices and advice that will provide the tools and insight needed to grow not only a successful customer loyalty programme but also make a solid impact on your company's bottom line.

In this article, drawn from the 950 pages of The Loyalty Guide (Vol. II), we have highlighted some of the most important factors that any loyalty operator can either get right or trip over:

  1. Loyalty schemes must be a two-way exchange of value Programme members must feel like they're getting something worthwhile for 'playing the game' and providing personal data. Consumers often feel that companies frequently fail to live up to expectations, especially with regard to so-called loyalty programmes, which can turn out to be little more than a ruse to collect personal data in exchange for a load of impersonalised, irrelevant communications, propositions and services.

    Too many loyalty programmes make promises about the customer coming first, but too often the data gathered doesn't improve the customer's personal experience with the company. Have you ever been asked at a hotel which paper you'd prefer, then found the wrong one at your door (or worse still, none at all)? Or perhaps told your grocery store programme that you're vegetarian and then been offered a discounted Christmas turkey? And irrelevant propositions are another constant in many loyalty programmes. Whilst the marketing team may believe a weekend break to Hawaii is the ultimate dream ticket, the recipient in Slough, whose break is going to be spent in airports and in the air, may not feel quite so impressed. Not only the irrelevance of offers but their frequency of delivery - be it by phone, email or post - is a huge source of frustration to the consumer.  

  2. Loyalty schemes must be clearly differentiated Consumers will only participate actively in a loyalty programme that appeals to them - and that means being different from all the others in the sector (be it grocery, fuel, accommodation, airlines, or any other industry). High street loyalty schemes, particularly those devised by supermarkets, are not always smart. What do they actually do to build loyalty? Most of the big players have their loyalty schemes already and, in essence, the loyalty card has become a commodity. The playing field is level.

    Not just in the supermarket sector, but in any retail arena, the door is wide open for one retailer to change the nature of its loyalty scheme, to get smarter in its loyalty offering, and to deliver real relevance and perceived benefit to customers. Customer behaviour could be influenced positively, and ultimately deliver a far greater profit to the bottom line as well as enhanced brand and customer equity. All the one operator needs to do is differentiate the programme, and that can only be done with solid consumer insight that competitors don't have access to.  

  3. Loyalty schemes must be simple enough to succeed Programme members may start out with great enthusiasm after your initial marketing campaign acquires them, but what makes the programme succeed or fail after that? Feedback from consumer research into the motivations and attitudes held by users and non-users of loyalty cards usually show that, unsurprisingly, different consumers want different things from loyalty programmes. However, they do in fact share a core set of beliefs about what makes a loyalty programme good or bad.

    The key things that consumers say they're looking for in a loyalty programme are simple enough:

    1. A unique and relevant reward that's quite easily attained;
    2. A rewards currency that's easily understood;
    3. Several easy ways to earn the currency;
    4. No restrictions or expiry dates on rewards;
    5. A simple, fast, and painless redemption process.

    Reward types that score highly with consumers include cash-back (e.g. most credit cards), money-off vouchers (e.g. Tesco Clubcard or M&S &More), and stored value loyalty currencies that can be spent like money (e.g. Air Miles or Boots Advantage). By sticking to this "1 point = 1 penny" principle, loyalty programme operators can go a long way towards creating simple, straightforward programmes that consumers value and understand.

    But all too often loyalty programmes don't offer compelling rewards, or they set the thresholds too high, or they create unnecessary barriers to redemption - and that's why enthusiastic new members become apathetic toward the programme.  

  4. Loyalty programmes must encourage the right customers Marketing spend is generally skewed toward customers with the greatest gross revenue rather than the most profitability (largely because it's more complex to calculate profit on a per-customer basis). But there are fundamental flaws in this approach. Loyalty programmes are about identifying and profiling customers, enhancing profits from them and then retaining them, not about rewarding gross spend.

    The priority should be to recognise both customers' current value and potential value as the basis for allocating resources to them. One frequent flyer programme, for example, targeted members who flew regularly. This was an unprofitable exercise: chasing high gross income clients, when really the only spend required was on maintaining their continued loyalty. Resources, instead, would have been better allocated to increase profitability by approaching those travellers who gave the company only a small share of their total business, with the aim of increasing its share of customer.

    In fact, many companies minimise investment on those customers who spend least when, in fact, segments of this group might provide the greatest opportunity for future profits. British Airways, for example, uses its loyalty programme and predictive modelling to identify customers with long-term potential and places them in a sub-category that provides different treatment.

    A powerful advantage comes from that kind of customer insight, using both dynamic and static information to recognise customers' current and potential value, and then allocating resources to them on that basis. Such insight can be gathered from product marketing which, while it involves mainly behavioural data and relationship marketing, can also provide attitudinal insight. And this is where reward schemes, such as the UK's Nectar rewards programme, can play a pivotal role. The attraction of rewards is that they are the initial step towards creating a CRM initiative and the start of a meaningful relationship between customer and company.

Guidance from global experts The four 'pain points' touched on in this article are the ones that cause most of the loyalty programme failures in the market, regardless of sector or country.

The Wise Marketer's editorial and research team provides the answers and antidotes to these, and scores of other 'succeed or fail' factors, in the rather weighty and indispensable loyalty bible, 'The Loyalty Guide', which is available for purchase online.

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