Loyalty. How Do You Do It Right?

The idea of inviting customers to join a program, then encourage them to continue trading in exchange for rewards has had a long and distinguished history; from retail to air travel, from magazine subscriptions to credit cards.

Because only one in ten programs really work there are skeptics. Their problems usually come from the L word – loyalty. We believe that these programs need to be built differently – especially in this economic environment. As the recession looms, companies have to do more with less. Keeping customers loyal can be a great way to make your marketing dollars go far. Here are a few principles to consider when creating effective loyalty communications.

Loyalty not monogamy: Skeptics say it’s all very well introducing a loyalty scheme to get the first mover advantage. But what happens when competitors follow suit and customers end up carrying two or three cards in the same category? Isn’t that subsidizing promiscuity rather than reinforcing loyalty? The short answer is: get real.

When marketers strive to increase customer loyalty they can only aim to create a little extra goodwill, a margin of preference and incremental shifts in buying behavior. But a lot of small, positive choices by many customers can add up to a massive difference to the bottom line.

Every customer has a variety of suppliers for different needs. All that a loyalty program seeks to secure is a bigger slice of customer commitment, share of mind and share of spend than the brand would otherwise achieve. That comes from consolidating spend that would have been spread over a wide number of competitors. If a program does that consistently well it pays back royally, for customers and the balance sheet.

A loyalty program is not an end; it is the means to an end: Offering a customer reward program could be the best way to encourage loyalty amongst your customers. Or not.

There is no guaranteed value in building a loyalty program, neither to the customer nor the business. There is no off-the-shelf solution to suit every brand. To ask ‘what sort of loyalty program do I need?’ is not a good place to start. Instead we should take a step back and start with the basics. ‘What problems do I need to fix to make my customers more satisfied?’ or ‘how can I persuade good customers to be even better?’ Those are the sort of questions to grapple with first. The executional answer may include a structured rewards program or it might be something very different.

Loyalty marketing is a business strategy first, a promotional tactic second.

The natural child of the brand: The best loyalty programs are created in the brand’s own image. They take the brand promise and demonstrate it through personal, relevant benefit to customers. Like any natural child, a loyalty program should share something important with its parents – its DNA.

Equally important, the program has to be loved by the business. Just as marketers have to champion their brand, they also have to commit to the loyalty program that represents that brand to its members. They have to see a program as part of the body language of the business. Loyalty programs invariably stand or fall on how well they are represented by the people on the front line.

What’s the customer contract? Loyalty works both ways. Even the most committed football fan will turn away from a club if it shows no respect for the paying supporters. Equally, the best loyalty programs work as a mutually beneficial contract between the brand and the customer.

In fact, loyalty schemes are so much about the brand showing loyalty to the customer as they are about the customer showing loyalty to the brand. And the reward to customers should be no more a bribe than the company’s dividend to its shareholders is a bribe.

Reward the behavior you seek: What does customer loyalty look like in your business?

Your priority might be to increase the frequency of visits, or you may need customers to consolidate spend, or you may want to shift transactions from phone to internet. A loyalty scheme that sets out to thank customers for doing one or two things is more likely to succeed than one that asks them to do too much, or indeed asks for nothing in particular. The main challenge from the outset is to define clearly what it is you want your customers to do, and reward them when they do it.

These principles are just that. Just a list of tips based on what we’ve observed and experienced over a decade designing loyalty programs in different sectors. For further reading, I thoroughly recommend Scoring Points – How Tesco Is Winning Customer Loyalty (Kogan Page, 2004).

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Categories: brand strategy, crm, economic downturn, future, loyalty, marketing, measurable

Tags: , , , , , ,

5 replies

  1. Hi Zain,

    This post offers some very helpful suggestions. I definitely agree with the principle of loyalty marketing as a business strategy rather than a promotional tactic. Too many companies try to use loyalty programs as a quick fix to up their sales numbers – especially during these economic times.

    How do you think loyalty programs should be utilized during this ever-important holiday season?

  2. Amy,

    Thanks for your thoughts. Marketers need to understand the core drivers of their customer behaviors and use these to define their propositions for this holiday period. Customers are looking for meaningful value. Not just price-promotions. Deeper understanding of these (especially relevant for commoditized brands) can help you improve your odds of success in these difficult times.

    Zain

  3. Zain- Thanks for your post. I agree that in order to work, loyalty programs must be a two-way street, and not just beneficial for the merchant.

    I recently saw that Starbucks rolled out its new gold-card loyalty program. The card is $25 and allows cardholders 10 percent off most items except gift cards and digital downloads. The company anticipates that millions of gold cards will be sold to customers who are existing cardholders of the regular Starbucks card, as it will save them more money. I think this is a perfect example of rewarding loyal customers with an added bonus, while still building your business and garnering sales.

  4. Zain,
    You raise some thought provoking points about loyalty programs. Your distinction between “bribes” and true rewards is a very important one. Far too many programs seem to hand out “treats” somewhat indiscriminately, with little concern about the behavioral repercussions. These look like “bolt-on” programs. In many cases, the points, miles, perks can become an end in and of themselves, with no link either to specific desired behaviors (other than frequency of use), or to real connections with the brand promise.
    While these programs can have some significant impact, they quickly lose their uniqueness, and can even invite gamesmanship on the part of the consumer. How many times have I witnessed some consumer at a checkout line, fumbling with a key fob holding the scanning cards of dozens of “loyalty” programs, eager to get his/her points du jour.
    This raises an interesting question. What do you think is the role of any emotional connection between consumer and brand? How many airline frequent flyers feel trapped by their mileage status? These customers might maintain a high usage profile, even a high wallet share, but they are not likely to become brand evangelists ad might even turn negative because of their perceived loss of control and dependence upon their carrier of necessity.

  5. Zain,

    Given the current economic situation where consumers are cutting back their spending and looking for increased value from their purchases, how do you see the role of loyalty programs in maintaining a company’s market share?

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