Earlier today I promised to write a little more on the role of loyalty programs today. This is not an exhaustive take on the matter, but should give you a little insight into the way things are moving.
It is commonly accepted that well-conceived and executed, formal customer loyalty programs can increase retention rates as well as revenue and profitability per customer. Despite the expectation that over $2 billion will be spent worldwide on customer loyalty programs in 2010, however, less than 15% of companies today are leveraging their customer loyalty programs to advantage.
In part this is because fewer and fewer programs are being well-managed, and in part because the way rewards-based loyalty programs are being perceived by customers is changing.
Although having a loyalty program is as de rigueur as having a website these days, customers are increasingly indicating that these programs do not necessarily make them loyal customers because so many companies with similar offerings have programs with similar rewards.
For this reason, my advice to companies today is this: Only join, or introduce, a formal rewards-based customer loyalty program if....
• Your primary reason for introducing the loyalty program is to capture data... and you ensure that your systems are designed to allow for easy analysis of the data, and that marketing initiatives are deployed accordingly; and
• You want to use the information to better understand your customers’ behaviour patterns and preferences in order to improve the product offering, customize service and create a more meaningful relationship with the customer, and
• You are prepared to invest sufficiently in the program to provide meaningful benefits to your customers – benefits that will actually enable you to shape customer behaviour; and
• You understand the benefits of customizing services and/or packages and/or communication to the specific needs of individual customer cluster groups; and
• You are willing to offer special benefits to your best customers – and think that it is okay to treat your top clients like VIPs (yes, excellent service to all, but kingly treatment for the top tier).
That’s a lot of ands – but you need to take this to heart if you want a loyalty program that reaps rewards for you.
Why? Two reasons.
1) Rewards alone don’t create loyal customers.
2) Customers expect that, in exchange for allowing marketers to track their purchases and other consumer behaviours that they will be rewarded with more personalized, customized service.
Point #1: Rewards
Despite nearly 70% of participants saying they are satisfied with the loyalty programs in which they participate, less than 25% say that the programs make them loyal to the company running the program.
In nearly 70% of cases, people have come to view these programs simply as a way to get a little extra perk when they patronize retailers and service providers they like for other reasons. They participate in all the programs offered by the types of retailers they frequent so as not to miss out.
The following comments from a few of the research respondents are representative of the broader picture:
About gasoline: “I play in the Esso, Shell and Petro-Canada games. That way, I can go to whatever gas station I find on the right hand side of the road when my gas light goes on. I don’t really care whose gas I buy because it’s all the same to me and it’s all the same price, too.”
What business travellers said about hotels: “When I book a hotel, I choose one that, in order of priority, is a) close to the conference or meeting, b) within my corporate allowance, c) known for being clean, safe and accommodating and d) has a points program. If the first things aren’t in place, it won’t matter what kind of rewards program the place offers; I simply won’t stay there.”
About grocery retailers: “If the program is free, I sign up. If not, I don’t. I always show my card when I’m in the store, but I don’t decide where I’m going to shop because of the card. If there are great specials or points on certain items, I may buy them, even if I hadn’t plan to when I entered the store, but as I said, things other than the loyalty card make me decide where I’m going to do my groceries.”
Given a choice between frequenting a retailer or service provider that was conveniently located but had no loyalty program – and one with a loyalty program that was not conveniently located, 90% chose convenience over loyalty program, as long as the companies’ reputation were similar and the price gap not too large.
Interesting observation: As a result of the glut of loyalty programs in the market, collectors are becoming loyal to the reward and points play, rather than to the company.
The only way to change this is to either have a loyalty program that is superior to anything else – and this includes almost unprecedented levels of customized service and communication
In terms of the rewards themselves, they need to be attainable. In many instances, respondents indicate that the rewards are becoming harder and harder to earn and that this is making the rewards program less of a motivating factor. This is supported by a recent CMO Study which finds that 38% of participants overall say there are too many conditions and restrictions on the programs and that 37% of people feel the rewards lack any real value.
Point #2: Recognition
For the top tier clients, the one who represent the highest revenue contribution per person – and are also usually the most profitable, too – recognition is more important than reward. Indeed, the most active participants in a program expect that the company reps should be able to recognize their value to the company and they should be given special treatment as a result. Fewer than 10% of companies surveyed, however, say they have special tools in place to a) recognize the best customers and b) provide them with special treatment in any case.
Many airlines and hotels are notable exceptions to this – and room and seat upgrades and other special treatment can cement relationships with the best clients. Said one senior exec: “I travel a lot and my airline knows me. When my meeting is done early, I just head to the airport. Even if I have a later reservation, I know they’ll get me on the next flight, even if they have to bump another passenger. I don’t care about free trips; I do care about getting home sooner.”
What Does All This Mean in Terms of The Role of Loyalty Programs Today?
In an age where is an increasing gap between customer satisfaction and loyalty, it is clear that true loyalty comes from having customers who feel like they are valued. It’s equally clear that the purpose of a customer loyalty program is to give marketers the insights that will help them treat special clients like VIPs. This will, in turn, lead to higher retention levels, large revenues per transaction, more referrals and better profitability overall.
If we look at the evolution of loyalty programs, we’ll see that this is not a new concept. For more on this, please read: The evolution of loyalty programs: http://bit.ly/cBW6dc
If you would like clarification on anything, please feel free to contact me: jmc@theQgroup.com.
Until next time, remember to have fun and be prepared to “go out on a limb because that is where the fruit is.”
Jane-Michèle Clark
Showing posts with label customer loyalty programs. Show all posts
Showing posts with label customer loyalty programs. Show all posts
Tuesday, August 3, 2010
The Evolution of Loyalty Programs
By taking a partial look at the evolution of customer loyalty programs, it is easy to see why so many rewards-based programs are not delivering what the customer really wants.
According to the Turkish tour guide who showed us around the ruins, the first documented “loyalty” program was recorded in Ephesus (ancient Turkey) in the 2nd Century AD. Rival oil merchants apparently would offer customers a free amphora refill every 5th time and would give customers special stones to mark each of the first 4 purchases.
Apocryphal? Who really knows? What is clear, however, is that merchants have been finding ways to encourage customer loyalty for centuries through use of discounts, “buy one get one free”, punch cards and various other types of offers.
In the 1970s, the first of the airline frequent flier programs made its debut. At the time it was a powerful way to get people to choose one airline over another. As more airlines jumped on the loyalty bandwagon, and more people started accumulating frequent flier miles in different programs, however, lines were drawn. If someone were racking up miles in one program, flying on another airline meant making a negative decision against himself (or herself).
The natural human response: Join the other loyalty programs.
Seeing the sign-ups and changing reservation patterns, car rental companies, hotels and others in the travel business entered the fray. As did large retailers such as Zellers, sub stores, coffee chains, grocery stores, video rental outlets... you name it and today it probably has some kind of loyalty program. You’ll also find online programs such as Mypoints, Ebates and other that reward loyal shoppers. There are even non-profit online services such as SchoolPop and iGive.com that have been created with built-in have loyalty building mechanisms.
The result is that today, over 80% of North Americans participate in at least one loyalty program*. One third belongs to two or more – and a whopping 10% of North Americans now participates in more than 20 loyalty programs.
According to COLLOQUY, the average for the US: 14.1 programs. For Canadians the average is 17.5. Not surprising given the proliferation of such programs. In Europe the numbers are lower, but on the rise there, too, nevertheless. According to both Forrester Research and META Group, people’s propensity to join such programs is not expected to diminish in the near future, despite the diminishing of perceived value to the average consumer.
Why is that? In our parents’ and grandparents’ day, the “loyalty program” was actually the service provided by the corner store grocer. He built relationships with his loyal customers and they came to count on him. When Mrs. Smith’s had family coming in from the east coast, he made sure to order her dad’s favourite lamb roast. When the White’s daughter was getting married, he ordered in special ink to use on the invitation envelopes. When Mr. Green was injured at work, the grocer brought the 50 lb. bag right to the house because he knew the Greens’ sons were only 2 and 3 years old. As for the beef bones, they were always saved for the Coxwell’s collies.
Customers were loyal to the establishments where they were recognized and treated as though they were special.
For a while, we in North America moved away from expecting this kind of special personalized, customized service, but the pendulum is swinging back.
Today, with consumers understanding that companies can track individual orders and keep track of who spends what with a company, there is a returning desire to receive the old-fashioned corner store recognition.
The advent of social media tools is increasing this expectation, so marketers need to re-examine how they will use their loyalty programs for these programs to remain effective.
Today, a formal rewards-based customer loyalty program must...
• Capture customer demographic, transactional and preference data. Systems must be designed to allow for easy analysis of the data, and marketing initiatives need to be deployed accordingly;
• Make use of the information to better understand customers’ behaviour patterns and preferences in order to improve the product offering, customize service and create more meaningful relationships with customers;
• Receive adequate financial and personnel support to provide customers with relevant benefits – benefits that will actually help to influence customer behaviour;
• Include customized services and/or packages and/or communication that respond to the specific needs of individual customer cluster groups; and
• Offer special benefits to the best customers.
It’s funny, but as we have become more technologically sophisticated, we are seeing a return to older time customer service values... and the marketers who recognize this, and put in place the systems to provide this level of service to the best customers, will be able to capitalize on what is transpiring in the market.
Well, I guess that's it for now. My next post will start to outline some of the things you can do to get more bang from your customer loyalty program buck.
In the meantime, if you would like clarification on anything, please feel free to contact me: jmc@theQgroup.com.
Until next time, remember to have fun and be prepared to “go out on a limb because that is where the fruit is.”
Jane-Michèle Clark
*This figure is hard to quantify, but Jupiter Research puts the figure at +75%, The Q Group Research says 85% and other studies show figures anywhere from 80% - 90%. Differences in regional and demographic skews account for the differences in stats, but most marketers agree that +80% is a reasonable figure.
According to the Turkish tour guide who showed us around the ruins, the first documented “loyalty” program was recorded in Ephesus (ancient Turkey) in the 2nd Century AD. Rival oil merchants apparently would offer customers a free amphora refill every 5th time and would give customers special stones to mark each of the first 4 purchases.
Apocryphal? Who really knows? What is clear, however, is that merchants have been finding ways to encourage customer loyalty for centuries through use of discounts, “buy one get one free”, punch cards and various other types of offers.
In the 1970s, the first of the airline frequent flier programs made its debut. At the time it was a powerful way to get people to choose one airline over another. As more airlines jumped on the loyalty bandwagon, and more people started accumulating frequent flier miles in different programs, however, lines were drawn. If someone were racking up miles in one program, flying on another airline meant making a negative decision against himself (or herself).
The natural human response: Join the other loyalty programs.
Seeing the sign-ups and changing reservation patterns, car rental companies, hotels and others in the travel business entered the fray. As did large retailers such as Zellers, sub stores, coffee chains, grocery stores, video rental outlets... you name it and today it probably has some kind of loyalty program. You’ll also find online programs such as Mypoints, Ebates and other that reward loyal shoppers. There are even non-profit online services such as SchoolPop and iGive.com that have been created with built-in have loyalty building mechanisms.
The result is that today, over 80% of North Americans participate in at least one loyalty program*. One third belongs to two or more – and a whopping 10% of North Americans now participates in more than 20 loyalty programs.
According to COLLOQUY, the average for the US: 14.1 programs. For Canadians the average is 17.5. Not surprising given the proliferation of such programs. In Europe the numbers are lower, but on the rise there, too, nevertheless. According to both Forrester Research and META Group, people’s propensity to join such programs is not expected to diminish in the near future, despite the diminishing of perceived value to the average consumer.
Why is that? In our parents’ and grandparents’ day, the “loyalty program” was actually the service provided by the corner store grocer. He built relationships with his loyal customers and they came to count on him. When Mrs. Smith’s had family coming in from the east coast, he made sure to order her dad’s favourite lamb roast. When the White’s daughter was getting married, he ordered in special ink to use on the invitation envelopes. When Mr. Green was injured at work, the grocer brought the 50 lb. bag right to the house because he knew the Greens’ sons were only 2 and 3 years old. As for the beef bones, they were always saved for the Coxwell’s collies.
Customers were loyal to the establishments where they were recognized and treated as though they were special.
For a while, we in North America moved away from expecting this kind of special personalized, customized service, but the pendulum is swinging back.
Today, with consumers understanding that companies can track individual orders and keep track of who spends what with a company, there is a returning desire to receive the old-fashioned corner store recognition.
The advent of social media tools is increasing this expectation, so marketers need to re-examine how they will use their loyalty programs for these programs to remain effective.
Today, a formal rewards-based customer loyalty program must...
• Capture customer demographic, transactional and preference data. Systems must be designed to allow for easy analysis of the data, and marketing initiatives need to be deployed accordingly;
• Make use of the information to better understand customers’ behaviour patterns and preferences in order to improve the product offering, customize service and create more meaningful relationships with customers;
• Receive adequate financial and personnel support to provide customers with relevant benefits – benefits that will actually help to influence customer behaviour;
• Include customized services and/or packages and/or communication that respond to the specific needs of individual customer cluster groups; and
• Offer special benefits to the best customers.
It’s funny, but as we have become more technologically sophisticated, we are seeing a return to older time customer service values... and the marketers who recognize this, and put in place the systems to provide this level of service to the best customers, will be able to capitalize on what is transpiring in the market.
Well, I guess that's it for now. My next post will start to outline some of the things you can do to get more bang from your customer loyalty program buck.
In the meantime, if you would like clarification on anything, please feel free to contact me: jmc@theQgroup.com.
Until next time, remember to have fun and be prepared to “go out on a limb because that is where the fruit is.”
Jane-Michèle Clark
*This figure is hard to quantify, but Jupiter Research puts the figure at +75%, The Q Group Research says 85% and other studies show figures anywhere from 80% - 90%. Differences in regional and demographic skews account for the differences in stats, but most marketers agree that +80% is a reasonable figure.
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