Loyalty rewards still not engaging enough?

As more marketers turn to loyalty rewards programmes to boost business growth, a report from the Chief Marketing Officer (CMO) Council suggests that marketers are under-valuing these often costly programmes even as customers give the perks, discounts, deals and additional service opportunities high marks.

According to the report, entitled 'Loyalty Leaders: Feeling the Love from the Loyalty Club', both customers and marketers agree that deeper engagement and personalised contact drives true loyalty, not mass blast communications and gimmicks.

The study showed that today's loyal consumers expect marketers to understand them better and deliver more relevant and valued offers. But many marketers are not giving themselves high marks in meeting the needs of their business, and some even question their own ability to meet the needs of the customer. Given that more than US$2 billion is spent annually on loyalty and rewards programmes, the CMO Council believes that this raises questions about the value and ROI of this area of customer relationship marketing and insight building.

Most marketers (60%) believe that loyalty programme participants are the best and most profitable customers. So it is perhaps not surprising that an almost equal number of respondents (63.6%) view customer loyalty programme investments as a very essential, or quite valuable, part of the marketing mix. Despite this, only 14.8% believe they have been highly effective in leveraging loyalty and brand preference among club members, and nearly 20% don't yet have a strategy for this. Another 27.5% admitted they had not yet mobilised brand loyalists to become active advocates either.

The study also found that marketers are generally trying to induce loyalty with discounts or free products and premiums, rather than quicker, better service or improved customer experiences. Some 39.7% of marketers view discounts and savings as their key member benefits, while 34.4% view free products and premiums as essential incentives, and 32.8% said they are committed to offering points for later redemption against merchandise as a further motivator.

When asked to outline typical customer complaints about loyalty programmes, nearly 30% of marketers reported that some customers see little or no added value in becoming a loyalty programme member; 23.4% indicated that rewards lack substance, and a similar percentage felt they don't get enough personalised attention; and 21.1% of customers said they had problems with too much spam (email) and junk mail (direct mail). To a lesser degree, customer complaints also touched on the lack of personalised communication as well as problems with redeeming points and miles (17.1%).

Despite these challenges, investments in loyalty programmes will continue as nearly 80% of marketers said they are committed to maintaining or further funding their loyalty programmes as customer retention and relationship building vehicles. Over 33% reported that they were significantly increasing their commitments, and 45.9 were planning to maintain their current commitments. Only 3.6% expected to discontinue their loyalty programmes.

Online channels dominated the expected investments, as nearly 60% of respondents said they planned to make better use of the web and social networking tools to grow and develop loyalty programmes. Other key actions for generating a greater ROI from club members included:

1. Personalising interactions and target messages (50.7%);
    
2. Increasing frequency and relevance of communications (38.8%);
    
3. Gathering more insights and intelligence for better customer handling (37.2%);
    
4. Adding new benefits, incentives and inducements (35.2%);
    
5. Studying industry best practices and making adjustments accordingly (18.1%).

And, when it comes to in-depth profiling of customers, the majority of marketers still only aggregate and analyse limited customer data sets. Nearly 73% said they collect basic demographics and 67.5% track the location of members. But critical insights such as advocacy rates (14.3%), brand loyalty and attachment (27.1%), personal preferences (31.4%), satisfaction levels (33%), and product preferences (37.8%) are still not being used effectively.

Loyalty programme operations are also increasingly challenged. Acquiring and retaining motivated and engaged participants is the number one problem facing 45.7% of marketers. Other obstacles and issues include:

• Measuring marketing value and effectiveness (42.4%);
   
• Collecting, integrating and maintaining customer data (40.7%);
   
• Deriving valuable insight and intelligence (37.9%);
   
• Delivering more personalised offers and inducements (34.5%);
   
• Creating more customized communications (32.9%).

Digital marketing channels are taking precedence as the top ways for marketers to promote their loyalty and rewards programmes. Nearly 60% rely on web sites, 58.1% on email, 46.5% on word-of-mouth, 45.8% on point-of-sale information, 41.4% on direct mail, and 38.3% on a sales or service representative.

Most member communication is monthly (30.7%), while 19.2% interact with members on a daily, weekly or bi-weekly basis. Cost-efficient email is the preferred mechanism for member communication among 84.2% of marketers, followed by printed mailings and statements (51.6%), corporate web sites (44.8%), dedicated club sites (30.6%), SMS text messaging (24.2%), and social networks (15.8%).

The consumers surveyed reported that they do see value in loyalty programme membership. A surprising 78% of consumers surveyed said that they are very, or pretty, satisfied with their loyalty and rewards programme experiences. But nearly 70% want to see more discounts and savings, 44% better deals and offers, and 39% would like free products and premiums for steering their business to loyalty programme operators. In a definitive call for personalisation, 56% say they want more compelling personal benefits and services, as well as more relevant offers or individualised deals.

And, while social media also topped the list of investments for marketers, consumers reported that point-of-sale information, service representative interactions, company web sites and word-of-mouth are their primary sources for learning about loyalty clubs. Nearly 65% had acquired information about loyalty programmes in retail environments (compared to only 2.8% in social media networks, 3% in blogs and 10% in online advertising). This finding is not surprising considering that consumers engaged in loyalty programmes tend to demand high-touch, direct engagements rather than mass messages, regardless of the channel.

Too much spam and junk mail topped the list of negative consumer feelings associated with loyalty and rewards programme membership (43%), followed by the hassles of redeeming points or miles (38%), and too many conditions and restrictions (37.7%). Other prevalent complaints included rewards and memberships lacking any real value, as well as communications and service not being personalised or targeted specifically for individual members.

Surprisingly, poor economic conditions are not necessarily inducing consumers to sign up for loyalty and rewards programmes. Only 19% said the economic climate had raised their interest in these programmes, while 44% said it had no impact at all.

For marketers, the big question is how much loyalty club membership influences purchasing decisions, customer affinity, and attachment to brands. Club membership strongly motivates, or is at least a big factor, in influencing buying decisions for 52% of consumers. When it comes to word-of-mouth, nearly 20% of club members said they are 'brand boosters', and almost 50% said they sometimes talk up a product or service that they support. On the other hand, 54% of survey respondents said they would give up their loyalty or rewards club membership if they had a poor product or service experience with a brand.

And, despite spam and junk email concerns, more than 64% of loyalty club members said they do want to receive information, notifications and updates electronically. Nearly 16% say they are comfortable visiting web sites to find loyalty programme information, while 14% prefer a monthly printed statement.

It is estimated by Colloquy that there are some 1.8 billion loyalty programme members in the US, and that the average household is enrolled in 14.1 loyalty programmes (but active in only 6.2 of them). Marketers spend some US$2 billion annually on operating these programmes, according to PROMO Magazine.