Redemptions, not points, will engage customers
As time passes and more loyalty programmes are launched, it is becoming increasingly difficult to actually engage the customer in the programme, according to Peter Clark, co-author of the recently published loyalty marketing bible, The Loyalty Guide.
Customers are now so used to handing over a card at the point of sale that they feel little real involvement. Handing over a card when transacting and receiving a quarterly statement within a pile of other mail is not engagement.
"Real engagement grows little by little, each time the customer has to actively think about and make a decision about the programme," explained Clark. "In fact, according to recent research by LoyLogic, following their first redemption, loyalty programme members' earn rates can increase by up to eight times compared to their previous point accrual rates."
Engaging quickly As a result, loyalty programme operators must now find new ways to make sure the customer's first redemption happens as soon as possible in the customer lifecycle.
The day a customer makes their first redemption with your loyalty programme is the day they can actually be counted as being 'engaged' - they have browsed through all the redemption options, found the best reward, and turned their loyalty into something tangible. (In fact, LoyLogic dubbed the experience of that first redemption 'The Golden Moment', and that best part is that, once a customer has had their first Golden Moment, they're much more likely to come back for many more.)
Profit from engagement Customers who have made a redemption are on average 8 times as valuable as those who have not. But, perhaps more importantly, those same customers increase their loyalty point accrual rate on average by 30%. These figures represent a significant increase in engagement, accrual and consequently programme profit by a segment of consumers who have already taken the time to enrol in the programme.
These are the consumers who will offer the greatest contribution to a successful loyalty programme. They will drive the profits to the company shareholders and can ensure a loyalty programme directly contributes to, rather than drains, the company revenue.
More engaging rewards The reward is a vital part of any loyalty programme, and it must be worth enough to be attractive to the customer yet not cost enough to make the programme unprofitable. It must appeal to consumers of the right profile, and it must cater for wide variations in taste and desires among those customers.
But most importantly, rewards not only drive brand engagement but they also drive long-term behavioural change. Experiments have revealed that, while a bigger reward reinforced the desired behaviour better than a small reward, when the rewards were discontinued, those who had received the big rewards were more likely to return to the unwanted pattern of behaviour than the group who had received the small reward. So never let your best customers feel that you are withdrawing privileges from them, and try to ensure that customers become loyal to the product or service, and not simply to the reward.
In order to have any effect at all on customer engagement, the reward you offer must be desirable enough to actually stimulate a change in behaviour. It also has to be affordable, and balancing the two sides of the desirability/affordability equation is tricky.
Rewards vary tremendously in shape, form and size. There must be thousands of variations, and they all can serve a purpose. The skill lies in finding the right one for the purpose that you have in mind. Clearly, the importance of the desires and needs of the target group of customers cannot be over emphasised. A decade or two ago most customers were satisfied with simple rewards. This is no longer true. In general (particularly among "best" customers) they are now more affluent and, instead of simple gifts or small discounts, they would rather opt for rewards that save them time and make life more convenient.
More engaging interactions The more often that a customer interacts properly - mentally or emotionally - with a loyalty programme, the more effective it will be.
The simple handing over of a card at the point of sale is not really significant interaction; neither is receiving a letter every three months informing them how many points they have collected. A really good loyalty programme would involve them in actual thought or at least consideration every time they visit.
One way of doing this might be the method used in 'Access Pricing', where the customer needs to decide, every shopping trip, whether to spend reward points already earned on specific highly discounted products. The reward programme is then "top of mind" during the whole shopping trip and the reward is instant and obvious. Another very effective reward structure is that used by TCC in its BCM (Best customer marketing) programmes. These programmes sort the best customers from the worst without having to resort to database segmentation; they reward the best more than the worst; and they actually drive customers up through the segments during the course of the programme. At the other end of the scale, US retailer Neiman Marcus offers rewards that are truly staggering - in return for very large numbers of points. These examples are all good and valid rewards - they all serve a useful purpose and are all equally ingenious, and are no doubt appreciated by the customers who redeem points for them - but there the similarity ends. The important point is that rewards at both ends of the scale reflect the value of the customer to the programme, and the rewards meet the customers' expectations.
Rewards for engagement It has often been said that any programme operator could get most customers to be loyal if the reward is big enough. The art is to find the point of balance where:
- The reward is enough to entice the customer to keep participating;
- The reward is not so big that the customer becomes loyal to the reward and not to the business or brand;
- The reward is not so expensive that it makes the programme uneconomical;
- The reward is structured so that it can be altered, reduced or even withdrawn without alienating too many best customers;
- The reward is able to attract new customers of "best customer" profile;
- The reward encourages the customer to interact with the programme frequently.
- The real reward of any loyalty programme is not the gift or the discount: it's the improved service and stronger relationship that comes from using the information that the loyalty programme generates. The gift or discount keeps the customer interested in the programme and allows information about the customer to be gathered. It is in fact a trade-off for the information that the customer supplies.
"The reward is the main bit of the loyalty programme that the customer sees and touches, and it is therefore a key opportunity to increase customer engagement, not only with the loyalty programme itself but with the brand as a whole," concluded Clark.
Loyalty marketer's handbook Clark's Loyalty Guide distils all the best practices, do's and don'ts, how-to's, research and experience of loyalty marketing experts from every major industry and global market. The guide is 1,300 pages packed with the very latest customer loyalty, retention, engagement, and relationship marketing strategies, plus hundreds of detailed case studies, techniques, innovative ideas, trends, facts & figures, ready-reckoners, and practical walk-throughs.
Increase your bottom line, customer lifetime value, retention rates, share of wallet, market share, and return on marketing investments. The guide shows you what strategies are working in the real world, how you can do the same, and how to be ready for what's just around the corner - you'll see who's succeeding, what they did, and how they did it. You'll be surprised how much there is still to try - and this is the one handbook that shows you how - get your copy at www.theloyaltyguide.com.
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