Articles

Top 20 attitudes of today’s best loyalty marketers

By Peter Clark
(Editor, The Wise Marketer & The Loyalty Guide)

When it comes to customer loyalty, customer retention and relationship building campaigns, the attitudes and preconceived ideas of both marketers and management determine much of the scheme’s success.

The Wise Marketer’s experience and insights over many years has taught us that there is no single ‘quick way’ to earn customers’ loyalty, or to keep them coming back. In fact there are a bewildering number of factors and attitudes that need to be planned and acted upon before true customer loyalty can become a reality.

In this article, we’ve drawn insight from The Loyalty Guide report, to introduce the twenty major truths and attitudes involved in every successful loyalty marketing initiative.

The business case: the customer comes second…

There are two basic points of view to be considered when discussing the business case for introducing – or keeping – a customer loyalty programme: some industry observers have argued that a loyalty programme is often unnecessary because it’s just a way of spending money rewarding customers who would probably have been loyal anyway. Others, however, have recognised that the real benefit of a loyalty programme is not necessarily felt first by the customer, but by the merchant that gains the necessary insight (from detailed analysis of its loyalty programme and transactional data, for example) to be able to improve the way it communicates with and deals with its customers. The customer is actually the secondary (but still the most important) recipient of the benefits of a true loyalty programme.

Loyalty schemes are all about insight, and therefore data…

The theory of customer loyalty is quite plain: 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. Actually doing that – the practice of customer loyalty – is not so straightforward. It’s not a trick that can be quickly learned and performed; creating loyal customers depends fundamentally on following good and sound business and marketing practices right across the business all the time. It’s a sad truth of business that customers are hard to win but easy to lose. A loyalty programme is not a quick fix that can simply be bolted on and produce measurable results immediately. That said, the principles are quite simple: know your customers, reward them for behaving in the way that you want, and don’t reward them for behaving in any other way. In order to know them, you need to collect data and then use it intelligently to identify the valuable customers and to reward them for generating more profit.

You can cut marketing costs by going for the best…

The idea of Best Customer Marketing (BCM) is not simply to restrict your marketing efforts to customers who are somehow defined as being better than others in the customer base. In fact, best customer marketing is all about directing the majority of the marketing budget toward customers who can bring greater profit.

Pricing strategy really counts in a recession…

Clearly, pricing strategy is a key feature of any business – it plays a major part in customers’ perceptions and impressions of the business. Speak to any average consumer and mention the names of some high quality, leading businesses. The chances are high that one of the first words they will use is “expensive”. Not “excellent service”, “marvellous range” or even “helpful staff”. Possibly “expensive but worth it”, or “you get what you pay for”, but in the average consumer’s mind, price is almost always a key factor. The individual psychology of each consumer determines whether they would prefer to simply trust a business to charge low prices all the time, without any exceptional bargains, or whether they would prefer to pay slightly more for some products, but pay really low prices for others. And of course, a growing number of people choose to buy some products at one retailer and then just the bargains at another.

Coalition loyalty schemes gain a wider audience more quickly…

There are many essential goals that any coalition programme must achieve if it’s going to succeed – such as rapid market penetration, attractive and attainable rewards, being the first into the market, and communication opportunities. A coalition programme should launch with a major partner in several of the key consumer sectors in order to quickly capture a significant proportion of consumers’ spend. Ideally, this would be a major grocer, fuel retailer, bank or credit card, department store, and mobile telecoms provider. lf this can be done, then proportions as high 50-60% of the target market can be enrolled very quickly. This means that not only is the data collected more representative of the target market but that the share of each consumer’s wallet is maximised. If big-name retailers join the programme at launch, it builds turnover quickly and also enhances the programme’s credibility in the eyes of consumers. With this in mind, it is a good strategy to maintain a high level of secrecy in the planning and set-up stages, and then to launch with a fanfare and concentrated advertising campaign.

Customer lifetime value (CLV) is tied to loyalty…

In theory, building customer loyalty increases company profits. But how can we measure accurately how effective it is in practice? How can we predict the effect an investment in loyalty will have on the future of the business? No method is perfect, but measuring the effect on Customer Lifetime Value (CLV) is one of the best ways – particularly if managing and maximising profitability over the complete customer life cycle is the goal. Within the marketing arena, the correlation has been expressed even more directly by statements like: “It’s 3-5 times as expensive to acquire a new customer as it is to keep an existing customer”, and “The best 20% of customers contribute 80% of the company’s net profit”. Over the past decade, business managers and marketers have become increasingly interested in learning about the loyalty/profitability correlation, leading to more research of customer loyalty (e.g. the causes of customer churn and defection), and the implementation of many loyalty programmes and CRM initiatives.

CRM and one-to-one are where data becomes insight…

The loyalty of customers stems from building relationships with them, and those relationships have to be managed. This is where CRM (customer relationship management) comes in. Whether the relationships are so finely tuned as to be one-to-one relationships, or whether they are in bigger segments or groups, the principles of management are similar. When it was first introduced, CRM was hailed as the answer to many of the marketer’s problems. However, in many instances its success in application didn’t live up to its promise, resulting in a fall from favour. But now there is a stronger understanding among marketers and board-level executives of what is required for a worthwhile and effective CRM implementation – genuine support from the very top of the enterprise, from the Chairman and CEO down to the customer-facing staff on the front lines.

Prepaid cards can make great loyalty cards…

The market for gift and prepaid cards continues to expand rapidly. Clearly, the card is the mechanic: what is done with it determines how useful it is as a vehicle for building loyalty to the retailer. Gift cards do not appeal to everyone, but there are more than enough supporters of the concept among consumers to make it worthwhile for those companies that adopt them. But, while there is a definite market for the integration of prepaid cards and loyalty programmes (after all, many consumers are looking for ‘instant rewards’ in today’s economy), this is a two-edged sword: There is also a strong need to understand the cultural issues involved in launching gift cards in countries where there are cultural differences, as well as the technologies and innovations that keep the market developing on a monthly basis.

Keep up with new best practices and innovations…

Over the past few years there have been many innovations in the field of customer loyalty marketing, and several of these have come about through the earnest implementation of established best practices. For example, the idea of giving customers exactly what they expect and engaging them in a meaningful two-way dialogue is not something new – but it is the foundation of the current trend toward greater customer engagement and satisfaction. For example, among the best practices now recommended, loyalty marketers should:

Give customers what they expect;
Go beyond simple reward programmes;
Turn complaints into opportunities;
Engage customers in a two-way dialogue;
Build opportunities for repeat business;
Survey customers and solicit feedback;
Centralise customer feedback management;
Tie customer loyalty and engagement to outcomes;
Use analysis to predict loyalty and intent.

Choose the right tools for the programme – and its future…

It’s not always necessary to design and develop a loyalty programme from scratch, and there are many technology platforms and service solutions available that can make the process easy. In fact, some ‘on-demand’ platforms – which are usually hosted SaaS (software as a service) systems – require no specialist installation or IT infrastructure on the part of the programme operator. Other platforms are installed to suit each specific company’s unique requirements, beginning with full scale consultancy, analysis, metrics and report planning, and data mapping. Such systems take longer to implement and roll out, but often include many more features that work with unique aspects of the programme operator’s business. Most of these systems, although major aspects of the technology and services can be outsourced, will involve the programme operator in a lot more internal IT infrastructure and maintenance than would be the case with a hosted application.

Choose the right loyalty token – if you need one…

The identifying token of a loyalty programme is important because many consumers see it as the programme. Many people are just as likely to say “I have a Tesco loyalty card” as “I am a member of Tesco’s loyalty programme”. The token is the bit of the programme that the members actually see and feel and carry – it’s seen as their contact with the programme. So it plays an important part. And it’s main purpose must not be forgotten – it is there to identify the customer at the point of contact; to link the transaction with the correct record in the database. It’s also important to the programme operator. There is a wide range of possibilities, from paper-based stamps, coupons and vouchers, through the ubiquitous magnetic stripe cards, up to smart cards, RFID-based tokens, and even biometric devices. Clearly, as their complexity increases, so does the price. A balance has to be struck. What, if anything, will serve the purpose, appeal to the customer, and not cost too much?

Create a strong, relevant catalogue of rewards…

The reward is a vital part of any loyalty programme. It is the bait on the end of the line: the bit that actually convinces the customer to sign up. It is also a complex part of the programme and usually presents a delicate juggling act: it must be worth enough to be attractive to the customer but not cost enough to make the programme unprofitable. It must appeal to the consumers of the right profile and it must cater for wide variations in taste and desires among those customers.

Gain a competitive advantage from your loyalty data…

Many of the benefits of creating and operating a customer loyalty programme, or implementing a customer relationship management (CRM) system, come from the collection, analysis, and use of data. The more data we can practically use, the better: customer demographics, preferences, lifestyle and life stage, transaction history, returns, and even customer service event history. The loyalty programme gives us a way of identifying specific customers, and tying their demographic records to their transaction records in the back-end database (whether that be an in-house collection of databases, an enterprise-wide CRM system, or some other data warehouse that’s being updated, analysed, and used across the whole business). The uses of the resultant array of data, given all the technologies that are now available to analyse it and turn it into useful support for business decisions, are potentially endless. For example, the vast array of profitable uses of loyalty data includes:

Customer behaviour profiling;
Customer lifestyle & demographic profiling;
Customer product preferences and repertoire;
Product category relationships & cross-selling;
Pricing;
Online shopping suggestions;
Segmentation by various attributes;
Customer lifetime value (CLV);
Recency, Frequency, Monetary value (RFM);
Customer tiering;
Customer base analysis and prediction;
Customer flow analysis;
Share-of-wallet estimation;
Market share estimation;
Human resources planning;
Geographical store site selection;
Inventory rationalisation & selection;
Planogram adjacencies & merchandising;
Business intelligence from raw data;
Differentiation based on the use of data;
Prediction based on past behaviour.

Keep all the channels open for communication…

There are many more communication channels available today than there were before the rise of interactive and electronic media. Even in the past few years, marketers have found a growing number of innovative ways to reach consumers, whether at home, at work, or at play. Communication with consumers and other businesses can take place by mail, telephone, fax, text message (SMS), multimedia message (MMS), computer games, television, films, radio, mobile sales units, in-store teams of brand representatives, focus groups, leaflets, newspapers, free-standing inserts, coupons, e-mail, instant messaging (IM), voice over IP (VoIP), internet chat rooms, web sites, bulletin boards, online communities, social networking platforms, and even other internet-based systems such as video conferencing and meeting sharing systems. Each has different costs, social implications, complications, emotional connotations, privacy issues, and various perceived benefits and risks for the consumer. Each brings its own challenges in terms of finding the right frequency, message, tone, voice, relationship-based permission, and value proposition. But the good news is that there are ways, means, laws, and ethical practices that cut through the communication barrier for all of these channels, allowing you to communicate and build relationships with existing customers and sales prospects alike.

Analyse and report on the programme’s key metrics…

Any loyalty programme needs to be well supported and justified in business terms (both financially and with predefined success standards), not only in the planning stages but on a continuing basis after implementation, and during development. The application of solid mathematics, statistics, and scientific measurement is the only way to prove the effect the programme is likely to have on profitability and the customer base. And the application of regular and meaningful management reporting is the only way to monitor all the factors involved both before and after implementation of the programme. Every aspect of the creation of a loyalty marketing initiative – or of any differentiated marketing initiative – must be evaluated at all stages, and useful metrics must be implemented with proper processes and controls to help determine the success, failure, progress or stagnation using preset standards.

Never forget the human aspect of customer loyalty…

It’s easy to get so involved in the intricacies and technicalities of loyalty programmes that the most important part – the human aspect – gets neglected. The technology involved is a marvellous tool – without it, loyalty programmes as we know them would not be possible. But we must remember that loyalty (and its opposite, the desire to simply walk away) are both intensely human emotions. And unless the programme generates the right feeling in people, it won’t work. We must also remember that humans aren’t as predictable as technology. Actions that might make one person loyal could well turn off someone else. It gets even more complicated: something that could engender loyalty in someone on one day might do the opposite on another day. But one thing is certain: the building of loyalty will not get any easier. While advances in technology have made loyalty programmes more effective, accurate and appealing to customers, these same advances have made it much easier for customers to switch suppliers. Comparisons of stock, prices, trading policies and delivery times and costs are now only a mouse click away from many customers. And if the item is to be sent to them, need they care from where it comes? Many suppliers are apparently equally trustworthy and reputable. It is important to have some unique property that makes you stand out from the crowd. All other things being equal, a good loyalty programme can do just that.

Keep your customers loyal, and your staff even more loyal…

The virtuous circle of ‘customer – employee – shareholder – customer’ has become well known in loyalty marketing. These groups go together and if the loyalty or even co-operation of any of the groups is lost, the chain breaks. To be completely successful, they must all work together, supporting each other, to build strong relationships. According to loyalty expert Frederick Reichheld the only way a company can build a loyal customer base is by building committed relationships with the employees responsible for serving those customers. In fact, without the support of loyal employees at every level of the company, even the most sophisticated and costly customer loyalty or CRM programme will simply not work.

Be keen, but careful, if you’re taking loyalty online…

Customer loyalty on the internet has arrived, developed, and matured over the past few years. The concept of using the internet both as a loyalty marketing channel and as a platform for creating and running loyalty initiatives has developed so far now that it is increasingly hard to distinguish customer loyalty mechanisms from other parts of the enterprise. Internet-based loyalty initiatives have generally been integrated tightly with every other aspect of the online enterprise. For consumers, this is a good thing: it means, for example, that member of an airline’s frequent flyer programme have now mainly come to think of the programme’s web site as being the programme itself. This also affords the marketer some unique opportunities for brand reinforcement and more regular, relevance-based communications.

Consumers can be unexpectedly loyal to a brand…

There would be no point in spending marketing dollars building brand awareness if customers don’t buy the brand again after they’ve tried it the first time. Today’s brand marketers all have the same aim: to encourage brand loyalty – the situation where consumers choose a brand over its competitors and private label equivalents because they want to. It must never be forgotten that brands exist in the minds of consumers. A brand is not a finite thing like a building, that will remain unchanged no matter what people think of it. As public perceptions change, brands change with them. A brand can change without the brand owner making any changes simply because, for some reason, public perception of it has changed. That’s why much of this chapter is devoted to the consumer’s perception of brands. Brand development and brand marketing are inextricably tied to brand loyalty. And companies that tie brand development to top level corporate goals deliver better shareholder value and build stronger brands.

Business-to-business (B2B) loyalty can be a reality…

Business to business loyalty programmes and incentive schemes seem, on first consideration, to be a great idea: a way of encouraging one business to continue doing business with another. But they also come with their own pitfalls that don’t occur in consumer-based loyalty programmes. For example, is it ethical to reward a client’s employees to make decisions based on personal gain? And who should be rewarded: the business owner, management, employees, the business itself, or all of them? And is the person who gets the benefits always the one who makes the actual purchase decisions? The list of problems grows or shrinks depending on the industry sector involved, and on how well the relationship between supplier and client is defined and controlled.

The Loyalty Guide, our comprehensive guide to customer loyalty, explains every aspect of loyalty programmes, best practices, concepts, models and innovations, all backed up with case studies, original research, illustrations, charts, graphs, tables, and presentation material. Find out about the principles, practicalities, metrics, analysis, and bottom-line effects of loyalty, and gain the expert guidance of dozens of loyalty and relationship marketing thought-leaders, worldwide.

It will show you exactly how to use customer data to increase profits, reduce churn, and increase frequency, spend, and share of wallet. See how and why others have already succeeded, what works, and – more importantly – what doesn’t work. The report’s full executive summary, table of contents, downloadable samplers, and pricing/ordering are all available online – click here.

Loyalty marketing… for real facts, figures, research, case studies, best practices, practical how-to’s, technologies & examples, The Loyalty Guide 5 is the world’s most complete report (1,300+ pages) that covers it all. Costing less than a conference pass, details of this electronic report’s contents, chapter samples, pricing, and ordering details are online now at www.TheLoyaltyGuide.com.