Loyalty programs are here to stay. I’ve worked on many loyalty programs from AT&T True Rewards to Macy’s Star Rewards to name the biggest two programs, and individual programs and campaigns for successful (under $1 Billion) firms in e-commerce, publishing & retail. I’ve lifted customer sales by $100 Million annually and designed the loyalty system requirements for major loyalty initiatives.
You have all those key chain cards or a wallet “full of loyalty” and too many things to even remember. How does your company break through the loyalty maze? Is your program recognizable, do you have a multimillion ad budget like Citi or American Express? Is every one of your associates asking a customer to sign-up or use their loyalty card at every transaction like Sears, Kmart or Toys R Us? Some of these companies have just gotten into loyalty marketing in the last few years, while others like American Express have been running a time tested loyalty program.
Aspirational Rewards / An Offer you can’t refuse
The Citi ads showcase powerful experiences like mountain climbing. Do you even remember exactly what the program details are? It was about getting credit for each purchase that got her to her ‘experience’ of rock climbing in Moab, Utah. Beautiful scenery and real rock climbers. Citi tells you about the program as a story that gets you to the ‘top’ of a mountain. Capital One showcases Viking battles and wiping away your airline travel – pretty neat concept, while an alternate ‘brand’ called Quick Silver (CapitalOne) talks straight up 1.5% cash back. That’s for us regular folks! It is a smart practice to have an experiential or aspirational type of loyalty reward and a simplistic ‘cash’ equivalent reward. A good program even has ‘higher’ rewards for in-store purchases.
Excessive ‘points’ for select purchases
Some of the programs require fewer points for select redemption options or they flip it and give more ‘value’ for using the same points. CapitalOne does this with wiping away travel vs. strict credits on your account. At least, that is how it worked a few months ago. American Express Membership rewards did the same concept when I had an American Express.
American Express even allowed certain business cards to be included in the rewards program, which was fantastic if you were in one of the companies that allowed you to register your card for personal points. You could line up multiple cards on one rewards account, now that was special if you had different American Express cards. (There were fees associated with adding cards to the program and having the various cards, but from a company perspective they wrapped you in their loyalty program and you were happy – unless you were a low spender and had fees that outweighed the value of your rewards. Interest and fees can add up for unpaid balances.)
Don’t lose these customers, your best customers. I call them your Marquis customers. They can influence others in the best case scenario – influencing them about your great products or services. In the worst case, that influence can turn negative, don’t let it turn negative. These customers can represent up to 80% or more of your revenue, in many cases a significant revenue source of repeat business. Depending on your business, many loyalty programs are targeting everyone, but you want these customers to be recognized like they are the ‘blood’ of your business, because they are.
A good loyalty program will accelerate their rewards and have ‘experiences’ that they offer to their best customers.
Increase Customers’ Value
A good Loyalty program will increase customer Life Time Value (LTV). It will also retain customers. In one case, I used loyalty bonus points to accelerate redemption of offers to our best marquis customers driving high Life Time Value, overall revenue of $100 Million annually and ‘stickier’ customers – customers stayed longer buying our products & services.
Retention is key for a good loyalty program to thrive, it can’t be just on the acquisition end, but on keeping people longer – get them to earn and redeem, potentially redeem on large aspirational offers or many smaller recurring redemption transactions.
Data / Demographic / Modeling
Customer data will prove itself in your loyalty program, but it has to be collected in your loyalty database, which consists of tables such as contact information and transactional data in your database or data warehouse. Different demographic groups will respond more favorably to loyalty programs and to your brand in general. A full suite of customer information including simple information like a customer’s name can change a marketing campaign. Include a personalized name and previous purchase data on your email or direct mail piece directing customers to a unique URL showcasing their loyalty rewards and past purchase information can lead to increased sales. Personalization is the first step in building connections, and data appended to your database and organized for campaign purposes can provide increased sales and retention.
How does one acquire a customer in their loyalty program when it is first introduced and on-going in the customer’s life time with your firm?
Grow Customer Spending
Loyalty programs drive retention and customer loyalty. Have you ever spent more money just to reach a loyalty bonus point level?
Winback your former customers. Besides an existing customer, a former customer can be extremely profitable and less expensive to acquire. A loyalty program can hinder them leaving in the first place, but for those that do leave – use their loyalty program ‘value’ to bring them back. You can also use promotional offers to supplement your ‘points’.
Acquisition Costs – if done correctly are executed against offsetting revenue, while the program has hard costs that can be capitalized over time. The real financials are in sales lifts and retention of customers – longer life and more sales.
These generally offset the hard costs of the program (capital and SG&A) and create a positive ROI as long as your acquiring attractive customers into your program and low margin customers defect. These costs are going to be compared against the revenue gains.
Reduce Marketing Expense
A successful loyalty program will also reduce marketing expense.
Database / CRM
Your database, Point of Sale system and integrated systems will be crucial in creating a successful loyalty program.