Design tips for Best Customer loyalty schemes

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By: Wise Marketer Staff |

Posted on January 4, 2006

Design tips for Best Customer loyalty schemes

The year 2006 will be the 'Year of the Best Customer', with retailers being armed with a sound understanding of who their best customers are and how to keep them coming back when it counts, according to Loyalty Lab's vice president of marketing, Michael Greenberg.

Greenberg offers some simple advice for any retail marketing executives who plan to launch a loyalty programme during 2006, starting with the idea that it's the retailer's Best Customers (the ones who spend the most money, most often) who the marketing budget should be aimed at.

But to achieve this, some careful planning is needed in the loyalty programme's design. Whether the aim is to refresh an existing programme or to pilot a new one, the five stage approach put forward by Greenberg focuses more on how to differentiate from the competition than on structuring rewards and benefits:

  1. Strategise Loyalty programs are not just about handing out rewards for spending. Great programmes connect with customers on a rational and emotional level, prompting long-term changes in behaviour. But no company can connect with customers they don't understand. Who is the target audience? Who do they buy for? Why do they buy from one store instead of another? No program can target everyone, so understanding how customers spend their money - and why - helps to identify the various ways they can be enticed and nurtured later on.

    Objectives must also be set at this stage. Write down your quantitative goals and what timescale should be involved. Ask yourself: "If I accomplish these objectives, will my company consider this programme a success?" If the answer is anything but "Yes!" then your objectives are wrong, or not ambitious enough.

    Next comes the actual strategy: It can be confusing if you look to sources such as the internet for inspiration, though: there are as many ways to talk about strategy as there are "experts" on the web. Norton and Kaplan's approach, detailed in their book Strategy Maps, of phrasing strategy as cause and effect is a particularly effective approach. To paraphrase their model, strategy is stated as an hypothesis: "This (effect) will happen due to this (cause), because of (rationale)."

    Once you can state your strategy this way, it can be clearly communicated internally and used in the programme's design. For example, assume you're using this strategy statement: "My company will improve best customer retention by providing shopping services that minimise time spent on the selection process, which will be effective due to the time-starved nature and price insensitivity of our target customers." This statement is truly unambiguous. So, if this were your strategy, you could argue that gift cards would have no place in your programme, but tiers, recognition, and exclusivity probably would.  

  2. Ideas - plural Why isn't this stage called "planning"? Because the first idea is rarely the best idea. Sticking rigidly to your new strategy statement, spend a few hours with the company's key decision makers and generate as many ideas as possible. Look at the problem from your customer's point of view: What do they want? Do they really want another key fob? Is a US$5 gift card going to change their behaviour? What is important in this stage is to develop ideas that are difficult to replicate, and are "on brand". In the USA, where coalition programs are rare, the programmes that everyone remembers (such as Neiman Marcus, Chico's, and Barnes & Noble, for example) almost always offer a benefit or concept that's rare in their vertical market.

    Consider whether the corporate persona lends itself well to a theme. Does the company have a unique heritage? Is there something particularly unique about the company's core customer, home market, or product category? Does what it sells have exclusivity? Once those questions are considered, there should be no problem in identifying benefits that the company's best customers will value.

    This is also when you decide whether discounting is appropriate and, if so, to what degree. Determine what spending levels, if any, should trigger free or exclusive products or services, including complementary products and services from partners. Finally, examine the opportunities for awarding non-financial, exclusive benefits that are complementary to the core business and meet the needs and desires of its targeted segments.  

  3. Socialise Even the greatest idea is doomed if there isn't genuine buy-in throughout the entire company. A good idea with wide support is far better than a great idea perceived as "another marketing effort". Take the ideas generated in stage two and circulate them among key influencers and decision makers. Two or three should bubble up to the top. This process should be thorough but not exhaustive; it should take no more than two weeks.

    Seek feedback from appropriate groups within the company. Talk to merchants, operations, and the IT department. Is anyone throwing up a red flag due to their understanding of some nuance that you missed? Be sensitive, too: they could be saving you a lot of trouble further down the line. The most important group is the one that represents your customer-facing employees. They will have the best intuition regarding customer response, so listen closely to their concerns. Other stakeholders are important, but if you wait for global consensus you will probably never get the idea off the ground.  

  4. Validate Now take your ideas to your customers. It costs very little to survey a few hundred or thousand customers online, especially when weighed against the long-term costs of a poorly received programme. Have a local market research firm help you with a short survey, or write one yourself if you have those skills in-house. Summarise the programme benefits quickly and succinctly. This is a good test of the quality of your ideas, because good ideas should be easy to write up.

    If one particular idea comes out of this research as a clear winner, you may be ready to try it as-is. But it's much more likely that you will end up with two or three ideas to test against a control group.  

  5. Test or launch After all the planning and validation research is complete, the launch or pilot test will almost be an anti-climax. By this stage, you have already considered all of the steps and know what programme components should follow others, and when. This is the time to launch the programme with a limited number of test customers from the targeted segments, with an evaluation being conducted after three to six months. In Loyalty Lab's own experience, very few retailers need more than three months to identify the clear winner and turn a pilot program into a full public launch.

Loyalty Lab provides loyalty and CRM solutions, including a point tracking and management infrastructure. The programmes it creates include account management, triggered e-mail, customer support tools, and full loyalty programme support.

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