Top ten ways to improve a loyalty scheme
A report by the Cornell Center for Hospitality Research has highlighted ten principles that make it more likely that loyalty programmes will actually develop loyal customers.
According to the report, entitled 'Building Customer Loyalty: Ten Guiding Principles for Designing an Effective Customer Reward programme', the hospitality and gaming industries can develop stronger frequent guest programmes by paying attention to customer psychology and desires.
The research shows that the ten most successful methods of improving loyalty programmes are to: 1. foster customer engagement; 2. establish a two-way value proposition; 3. capitalise on customer data; 4. properly segment across and within tiers; 5. develop strategic partnerships; 6. develop dynamic tiers; 7. cater to customers' desires for choice and fairness; 8. avoid commoditisation by differentiating; 9. avoid the 'price sensitivity trap'; 10. embrace new technologies.
According to Michael McCall, professor of marketing at Ithaca College and CHR research fellow, "Virtually all hospitality and gaming firms have some form of customer loyalty programme, but so far there's not much evidence that these programmes actually create customer loyalty. So, we looked at the basic concepts of customer psychology to focus on ways that these programmes can actually build loyalty. One key point is to be careful with price-oriented rewards, which can turn the potentially loyal frequent guest into a discount-focused customer."
In addition, Clay Voorhees, assistant professor at Michigan State University (MSU), points out that most loyalty programmes do encourage repeat purchases, but only up to a point. "Repeated purchases don't necessarily equate to loyalty. What we observed is that once customers hit a reward tier, they consider whether they can make it to the next tier or whether it's easier to get rewards from a competitor. Loyalty programme designers need to find ways to keep customers active."
Roger Calantone, Eli Broad Professor of Business at MSU, explains that several of the report's suggestions are meant to limit customers' switching behaviour. For example, hotels could adjust their tier rewards, possibly by offering continual reinforcement, such as small, undocumented rewards to guests who are moving ahead within their existing reward tier.
The report has been made available for free download from the Cornell web site - click here (PDF document; no registration needed).