Hopefully you’re part of a company focused on retaining customers and improving customer loyalty. Improving customer loyalty and retaining customers is about more than offering a loyalty program.  According to Accenture, there are 3.3 billion loyalty program memberships in the U.S. alone — or 29 per household.  Many of these programs are not delivering for either the company or the customer. This begs the question about the usefulness and validity of rewarding customer loyalty. In conversations with customers, we’ve found some of the businesses have forgotten the reason they implemented a rewards and/or loyalty program. In research with their customers we’ve learned that many of these customers have forgotten the initial reason they joined such a program.

The theory of customer loyalty is quite simple: a business that retains its customers for longer usually makes more money from them at lower cost than one that is constantly paying to acquire new customers. A well-designed, executed and managed customer loyalty initiative should enable your company to focus on its best customers, optimize the profit that can be made from these customers and increase the period in which they remain customers. For a loyalty program to be effective it should achieve two outcomes.

1. Help you understand your customers better so you can determine what changes or offerings you can make to increase their loyalty and their spend.
2. Help you attract new customers. The data you glean from your existing customers can help you establish the demographic profiles of existing ‘best customers’. By using this information, you can target prospective customers with similar demographic profiles in acquisition campaigns.

What Makes Customer Loyalty Happen

What makes customer loyalty happen? InformationWeek conducts a number of loyalty studies.  Over the years, their research suggests loyalty is heavily influenced by three broad areas: good customer service, usability, and a combination of price and return on investment factors. Rolled together, the right combination of those factors generate customer satisfaction and additional or repeat purchases, two of our key metrics in defining customer loyalty.

They determined that suppliers who consistently offer better service, discounts on price, optimized distribution or shipment alternatives, and increasing levels of customization have steadily climbing shares of the budget (share of wallet).

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When Contemplating a Customer Loyalty Program

You’re considering the idea of customer loyalty program.  There are a number of types of programs. Most typically fall into one of these categories: points, cash back, free products.  Regardless of the category, most loyalty programs involve some sort of program currency that customers earn and redeem.  Want something out of the box? Consider these options for “rewards”:

• Premium service programs
• Recency/frequency and volume clubs for discount pricing or rewards for meeting purchase thresholds
• Member-only exclusives on new content and advice
• Member-only access to experts, advisors or events

When it comes to loyalty, its nice to have a program. Sometimes something as simple as an unexpected “thank you” can go a long way. 

Here are few tips (not in any order) to take into account when contemplating a loyalty program.

• Consider how much you can grow your customers and how profitable they’ll be in the long term. Avoid putting more into a rewards program than you’ll receive. Be clear about what you are trying to accomplish. More frequency of purchase? deeper share of wallet? and structure the program accordingly.
• Collect good customer data. Remember to use your web site, email platform, social media, events, as data collection sources.
• Anticipate copy cats. Remember, while a rewards program might start out as a competitive weapon, they’re fairly easy to copy. So anticipate this might happen.
• Match reward to your brand strategy. High end brands warrant high end value and rewards. Make sure the rewards are perceived as highly valuable and relevant to the target base. Develop rewards programs that motivate customer behavior and enhance your brand. 
• Personalization software that is based on a predictive behavior model, where unique real estate is filled with content or information based on where the user is navigating within the Web site can be a valuable tool. Predictive content can be served; creating a potential navigational path and selling opportunities, based on the past and present behavior of the Web user.
• Try to anticipate redemption patterns and be sure to monitor these. You’ll want to structure a rewards program to be flexible enough to allow you to react tomatching offers by competitors or to take a different direction should the market warrant.
• Communicate, communicate, communicate. Customers need to understand how the program works to best use it.

Give Your Customer Loyalty Program Purpose

Sales are about attracting customers on a short term basis. Loyalty is about developing a long-term relationship and ongoing preference.  Therefore, make sure your loyalty program serves a long term strategy focused on building purchase frequency, driving customer loyalty, and improving the customer experience. Otherwise, when consumers become cautious about spending they will exchange loyalty for price and special deals.

Clay Voorhees, assistant professor at Michigan State University (MSU), reminds us that while loyalty programs aren’t necessarily an indicator of loyalty. “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 program designers need to find ways to keep customers active.” Roger Calantone, Eli Broad Professor of Business at MSU, suggests that many loyalty programs are designed to limit customers’ switching behavior (think about your own membership to airline programs).

When designing a loyalty program, be sure you’ve addressed these ten questions.

1. How can you create rewards that motivate customers to move from one spend level to the next?
2. How can you design a loyalty program that rewards better customers without rewarding less desirable customers?
3. How can the loyalty program help you win-back profitable customers who have defected?
4. How will you monitor the impact of the program on long-term customer lifetime value?
5. What elements of the program will focus on customer service and service quality to build trust and what personal elements will use you use to surprise and delight?
6. How will you use the program’s data to formulate new products, better product delivery and/or pricing strategies that both appeals to your customers and impacts loyalty?
7. What elements can you develop that will encourage cross-purchasing to grow share of wallet?
8. How will the program positively affect the brand experience?
9. What aspects of the program will increase the level and quality of the customer/supplier relationship?
10. How will you measure how the loyalty program increases the customer’s commitment to the brand/company?

Start Your Customer Loyalty Program

You’re ready to design a loyalty program. Good for you. Start your program as a small experiment.  Focus on your best customers. Look for way to include customers in the  development process.This means you will need to be able to segment your customers, preferably by profitability, recency and frequency. Then….

1. Understand your customers loyalty drivers.  Is it price, product quality, brand, or service? Have a clear idea on your membership strategy. Which customers and then how will they be enrolled?
2. Select a loyalty model. Examples of common modes include:
   • Special content, advice or advisors
   •  Premium customer service
   • Communities that are tailored to special interests or needs
   • Entertainment, humor or games
   • Exclusivity/access to benefits and/or events and 
   • the familiar Point programs.
3. Formalize your program and give it a name.
4. Design the program in such a way that it is hard for competitors to easily copy or match rewards and that keeps customers from defecting.
5. Use benefits, privileges and rewards to influence continued customer purchasing behavior, that is to drive incremental revenue.
6. Consider how to add partners to the program.

Improve the Success of Your Customer Loyalty Programs

When it comes to loyalty and garnering repeat business as a source of recurring revenue, the customer experience is key. Employ these ten elements to improve the success of your loyalty programs:

1. foster customer engagement
2. establish a two-way value proposition
3. capitalize 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 commoditization by differentiating
9. avoid the ‘price sensitivity trap:
10. embrace new technologies

Many Channels; One Promise for Loyalty

Customers see one brand when they buy your product regardless of where they make the purchase. The experience they have- in any channel-will impact their impression of the brand. It is essential to present one brand across many channels. Companies who do this well follow these three best practices: 

1. Consistency. customers expect consistency in service, look and feel, and so on. Be consistent regardless of channel.
2. Value Proposition.  Brands require a unique value proposition in each channel because customers purchase differently in different channels. Avoid cannibalizing one channel with another.  Stretch one customer across several channels by providing exclusive merchandise, information or services.
3. Team Up With Complementary Brands. You can use complementary brands to build loyalty – without making the investment of building a new channel.

Remember, loyalty programs are not a quick fix, nor do you see results right away. It takes time to build loyalty because loyalty is based on trust-and relevance-based relationships with your best customers. We’ve helped develop numerous loyalty initiatives, we’d be thrilled to help you.

FAQ:

• Help you understand customers better so you can increase loyalty and spend.
• Help you attract new customers by using best-customer data to build demographic profiles and target similar prospects.

• Premium service programs
• Recency/frequency and volume clubs tied to thresholds
• Member-only exclusives (content and advice)
• Member-only access to experts, advisors, or events

• Define the objective (purchase frequency, share of wallet, experience improvement) and ensure long-term profitability.
• Collect strong customer data (website, email, social, events).
• Anticipate copycats and design defensibility.
• Match rewards to brand strategy and perceived value.
• Use personalization and predictive behavior models where appropriate.
• Anticipate and monitor redemption patterns; keep the program flexible.
• Communicate clearly and consistently so customers understand how to use the program.
• Tie the initiative to a meaningful purpose.

1. How will rewards motivate customers to move from one spend level to the next?
2. How will you reward better customers without rewarding less desirable customers?
3. How will the program help win back profitable defectors?
4. How will you monitor long-term customer lifetime value impact?
5. What service-quality and personal elements will build trust and surprise/delight?
6. How will program data inform new products, delivery, and pricing strategies?
7. What elements will encourage cross-purchasing to grow share of wallet?
8. How will the program improve the brand experience?
9. What will increase the quality of the customer/supplier relationship?
10. How will you measure increased customer commitment to the brand/company?

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