Four ways to lower the costs of a loyalty scheme

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By: Wise Marketer Staff |

Posted on March 9, 2009

Four ways to lower the costs of a loyalty scheme

While there is still some debate among marketers about whether loyalty programmes are worth the money that is spent on them, there are lots of ways of running a completely cost-effective loyalty programme, according to Shaju Nair, director of global CRM and loyalty for software firm IBS.

The technique that Nair has termed 'Low Cost Loyalty' is based on the idea that, while there are various costs that go into the running of a successful loyalty programme, some of these are absolutely essential (such as the software that runs it) while many others simply contribute to 'financial flab'.

The costs involved in running a loyalty programme include:

  • Information technology You need the basic software to run your loyalty programme. This is the corner-stone of any loyalty programme. Apart from the base license cost for the software, there are additional costs of hosting it, maintenance, and the regular updates and patches that also cost money.  
  • Service centre Customers have problems, and this is where the service centre comes into picture. The service centre is the entity that your customers turn to when they have an issue or are faced with a problem with the loyalty programme. Throughout the world and across most industries, service centres are extremely resource intensive - and even more so if you have global operations that require you to have a 24/7 service centre or a more evolved 'follow the sun' model. Either way, this demands a sizeable number of service centre staff.  
  • Fulfilment There are the welcome kits, brochures, pamphlets, membership guides, loyalty cards and so on that you need to give your members. Loyalty programmes around the world try to out-do each other in the design and quality of these materials and, in doing so, often spend far too much on it. Apart from the creation of these materials, there is also the cost of the packaging and shipping.  
  • Loyalty management staff This may be a cost centre from an organisational point of view, but actually this will not have a major impact on your bottom line. Typically the loyalty department comprises 3 - 5 people, and is usually part of the marketing team anyway. So the costs, although they do exist, are not excessive.

An analysis of typical loyalty programme cost centres has identified the top spenders: IT, the service centre, and fulfilment. So for marketers to identify steps to help reduce or eliminate these costs becomes a necessity in today's worsening economic climate. For example:

  1. Get a good IT solution from a reliable vendor The solution you choose will have a significant impact on costs or savings. It should require very little IT involvement to make business changes, and it should be easily configured by your business team and cater to your growing needs over time. It should also be supplied by a vendor that there for the long term, and that is committed to enriching the product to cater for the latest developments in loyalty. Another key decision-making point in selecting the vendor (in addition to the quality of the product) should be that it is big enough for you to be able to trust in its future presence but also small enough for you to matter to it. If you select a very large vendor, you may end up being one of many customers and your voice may not be heard as clearly or quickly as it could be with a slightly smaller vendor.  
  2. Online help: an e-CRM solution This is a very powerful tool. Not only does it help to eliminate the need for global or regional service centres but it also enables programme members to benefit from self-help. Consequently, the amount of time they have to wait from the creation of a 'support ticket' to its final resolution can be greatly reduced, which can increase customer satisfaction and make the loyalty programme more appealing. While the entire service centre cannot be eliminated, you can certainly reduce the head count required.  
  3. Forget the loyalty card Why force members to increase the size of their wallets by forcing them to carry yet another plastic card? Instead, be a pioneer for mobile phone-based loyalty. With the advancement of mobile technology and the almost total ubiquity of the mobile phone, it could easily double up as a loyalty card. Today's mobile technology can enable a consumer to carry all of their loyalty information in a mobile format that can be 'flashed' whenever and wherever needed. All loyalty management activities such as accruals, redemptions and customer functions such as balance enquiries can easily be performed using a mobile phone handset. The cost savings from this change can be tremendous.  
  4. Do away with unnecessary programme materials Almost all the materials that you send to your members will eventually end up in the rubbish bin. This is lost money for you, and could even be a source of mild irritation for members. One way to counter this could be to give members an online portal through which all of that information can be accessed whenever it's needed, saving money not only on printing and production costs but also on postage and distribution.

According to Nair, these kinds of smart decisions by the loyalty team can not only reduce the programme's impact on the environment but they can also save a significant amount in unnecessary costs. All of these savings can then be channelled back into the loyalty programme to make it more attractive, or into improving the IT backbone to derive further cost reductions.

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