Differentiating loyalty schemes by customer needs

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By: Wise Marketer Staff |

Posted on September 29, 2008

Products and services are becoming commodities, brand reputations are being controlled by consumers, and a tighter economy is reducing profit margins ever day, according to a new white paper from Carlson Marketing, which explains how businesses can still continue to earn the loyalty of their customers.

Now, more than ever, smart companies are focusing on customer loyalty and satisfaction as a strategy for increasing revenue and growing the business. Recent research from Accenture found that, on average, customer loyalty accounts for 38% of margin, 40% of revenue growth, and 38% of shareholder value.

New focus on retention
Existing customers are indeed a source of future growth, particularly when times are hard. The probability of selling to a new prospect is usually between 5% and 20%, while the probability of selling to an existing customer is commonly 60% - 70%, according to Marketing Metrics.

According to Bain & Co., a 1% increase in customer loyalty can equal a 10% cost reduction, and AAIA asserts that a mere 5% increase in customer retention can result in a 75% increase in aggregate lifetime profits from an individual customer. As a result, Carlson's white paper, entitled 'The role of merchandise and gift card rewards in loyalty programmes', gives the company's perspective on the rewards currently offered by customer loyalty programmes.

Loyalty schemes for retention
This emphasis on customer loyalty and retention tends to manifest itself in the form of loyalty programmes, with membership in US consumer loyalty programmes (counting those offered by banks, airlines, and others) equalling approximately 12 programmes per household.

In the credit card industry alone, more than 80 million Americans participate in programmes that offer rewards in exchange for card usage, including cash back, airline miles, merchandise, gift certificates, and access to special events. These rewards cards are now featured in 84% of credit card purchases, according to research firm Aite Group.

Importance of the reward mix
With so many choices out there for the consumer, it is important to create a programme that is different and connects with the individual customer. This is because a loyalty programme is often the shortest path to the insight needed to "know the customer", to engage them, and to build up an exchange of communication and data that will help garner the greatest value from every customer relationship. According to Carlson, the three keys to this approach are product, convenience and positioning.

Getting the reward mix right creates a strong foundation to motivate consumer behaviours such as joining, engaging and remaining in the programme. The stronger the tie between the rewards and the audience, the stronger the relationship will be between the member and the brand.

What's the ideal reward mix?
The ideal reward mix varies by programme but every programme mix has some common basic characteristics:

  • Offering an assortment of items that will appeal to various member interests is important.
  • The reward selection must have a variety of industry-leading name brands in categories that appeal to most lifestyles such as electronics or sporting goods with a wide range of price points. Reward options need to be flexible throughout the life of a programme.
  • Merchandise and gift card assortments should have a "Wow" factor, meaning that the rewards need to be perceived as cutting edge or compelling by the audience.
  • The number of merchandise and gift card options required depends on the overall objectives of the programme and understanding as much as possible about the audience.
  • Rewards must always fit into the context of the relationship with the sponsor or programme.
  • Programme data should be collected and used to directly tie the appeal, motivation and impact of the reward mix to the overall programme objectives and results.
  • Easy access to information makes it important to emphasize convenience, quality and service.

Defection issues
At the same time, the internet has made it easier than ever for customers to switch products, brands and loyalty programmes. This ability now also goes beyond conventional e-commerce, as handheld devices are literally putting the power of information into the hands of today's 'always on' consumer. From joining online communities to online gaming to searching the extraordinary amount of information that is readily available, there is currently a significant levelling of the playing field between sponsoring programme companies and their members.

Consequently, it is more important than ever to emphasize such values as convenience, quality, and service in programmes, to help seal relationships with the customer and build true loyalty.

The full white paper is available for download from The Wise Marketer - click here (PDF document, 187Kb).

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