Acquiring customer data and sustaining customer loyalty for long periods is a never-ending challenge that every business faces. While most consumers are members of more than 12 customer loyalty programmes, they are active in less than 50% of those programmes. What makes some programmes more successful than others and how do you make your customer loyalty programme one of those that people use, share and talk about?
At Collinson we work tirelessly with customers to unlock the magic within their business, to design build and deliver the best loyalty programmes that set them apart from their competition and drive desired change – more mindshare, wallet share, advocacy, and Loyalty.
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To learn what we’ve done for businesses like yours and how we can leverage Salesforce loyalty management technology across Customer 360 to help you achieve your customer vision and bring your loyalty strategy to life, please get in touch.
IT’S A SHOCKER but we’re saying it out loud… loyalty programmes can fail. Sometimes spectacularly so. More often though, it’s a slow decline over time due to the business not being joined up, a disease of disunited business units if you will.
People from every function of the business that plays a pivotal role - from loyalty Management to Finance and from Marketing to Operations – might think that the programme is flourishing from their own perspective. But that is seeing things from a silo.
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Go broad or go home
Often, loyalty is managed like any other profit and loss (P & L) in the business, as a separate, vertical entity. However, this blinkered view can lead to misguided decisions. A broader cross-functional perspective allows loyalty to permeate the entire organisation because it is nothing less than the embodiment of a brand’s customer relationship vision. Loyalty should be part of the brand’s DNA – unique and omni-present.
And yet of course, commerciality comes into it. There are costs to be controlled and judged versus value creation or put another way, investment to be made based on manifold future returns. How best then to leverage long term future value from your loyalty programme?
Commercially excellent loyalty programmes keep a wider view on the balance between three things: Attributable costs, direct and indirect revenue contribution and suitable customer engagement mechanics.
Loyalty is not a department or just one function of the business, it’s a cross-organisational mission that’s in the company’s blood. Give loyalty broad sponsorship and plenty of room to breathe in your business and you’ll be rewarded with optimal returns.
For loyalty success, the customer experience is an even more important consideration compared to when simply just selling products, as customer expectations are highest for the brands they have spent the most time, money and effort building an relationship with. As with all good relationships they want to see their favourite brands sending the love back in the form of a relevant, value-added and ideally exciting set of interactions. The minimum expectation is a seamless, frictionless ‘swan like’ journey, while higher level expectations include being surprised and delighted in a way that is engaging and keeps them coming back for more.
Data plays a key part in all of this but so does treating the customer as a human, with human interactions and understanding their emotional, not just behavioural, needs. So, it’s not surprising that it takes a lot of moving parts behind the scenes to get ‘it’ right and very few, if any, brands ever really do to the extent that their most loyal customers might expect.
As we have said before, a loyalty programme is a complex machine with many moving parts working together to deliver the above the surface experience. Breaking down this experience into its dynamic components, understanding options and balancing them carefully in consideration is all part of the engineering task in not just building a loyalty programme but operating it to maximum efficiency and effectiveness.
So what does it take?
Don’t count on breakage
CFO’s and accountants, cover your ears: Breakage is not an objective! It’s a related outcome to any points-based loyalty programme but must be monitored and managed. Ultimately, breakage means sub-optimal customer engagement and a broken promise. Good programme design encourages customers to value the loyalty currency from the moment they start earning and gives them opportunity to use that currency immediately. Studies show that customers with frequent micro-redemptions stay more commercially engaged and lead to increased interaction over time.
Paid loyalty is an interesting complementary strategy that puts the breakage concern back with the customer. On the basis of pure programme cost, there will be a proportion of customers who ‘get their money’s worth’ (i.e. the opposite of breakage) while some generate breakage favourable to the programme.
A well-designed paid proposition should, however, have the majority break even. This view, of course, is too narrow to start with, as it’s not advisable to look at the programme P&L in isolation (as argued earlier). Paid loyalty’s objective is to encourage long-term transactional loyalty, so having a number of customers generate a loss at a pure programme level is not a problem.
Don’t count on breakage
Don’t let accounting dictate design
Loyalty programmes that issue a currency for future redemptions are very appealing to many types of businesses. However, there is significant variation in how such currencies are valued financially, despite accounting guidelines. Poor internal valuation choices lead to sub-optimal programme design and ultimately, performance.
Blockchain-based points management and financial tracking are now available and loyalty managers should consider these as the best means of truly understanding the value of a point issued, held and ultimately redeemed. The true value of a point issued by a partner will differ from a point issued from the brand directly and the same applies to redemptions. This means there is benefit (arbitrage) to encourage customers’ loyalty currency behaviour. Equally, partner negotiations that better reflect the true value of the relationship to both businesses are now possible.
Don’t let accounting dictate design
Model at a customer segment level
Averages hide truth and opportunity. Loyalty programme success relies on careful and considered market segmentation. Each segment requires a different set of incentives and rewards, which will generate different commercial outcomes. This means that each segment will have a different ROI.
For example, your most valuable customers potentially can’t give you much more business and are harder to incentivise, as they are already receiving a plethora of loyalty benefits. At the other end of the spectrum, your least valuable customers may not be able to reach minimum thresholds and therefore rewards are out of reach. Often, mid-value customers present the largest opportunity as they have the greatest ‘headroom’ – this is where loyalty benefits are most likely to incentivise spend and show the best ROI across your customer base.
Model at a customer segment level
Understand the direct and indirect impact of your programme
This is significant: Loyalty’s primary objective is to create and sustain a long-term commercial relationship with your customers, typically measured in lifetime value. To manage a loyalty programme on a narrow annual cost vs. revenue P&L will lead to adverse programme design.
A great loyalty programme is structured in a way that provides rapid, tangible benefits to attract new customers but then sets clear and ambitious commercial milestones for future benefits. This is referred to as the ‘benefits curve’ of a programme and helps to map costs against customer value over a longer period.
Commercial loyalty management needs to balance directly attributable costs (such as benefits provision) with long-term value creation. Indirect revenue contribution also requires recognition. This is particularly pertinent in the growing area of paid loyalty where fee income should be dwarfed by core revenue uplift.
Understand the direct and indirect impact of your programme
Embed your brand’s customer experience philosophy
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Here are five tips for getting that fine balancing act just right
Embed your brand’s customer experience philosophy
Loyalty programmes should absolutely mirror your brand’s customer experience (CX). After all, a loyalty interaction is part of CX. So the policies and procedures of both should align. For example, generous return policies should not result in customers having to wait for loyalty points attribution until after the return window closes. Here, linking inventory and payment systems to the loyalty engine and enabling retro credits and debits is the solution.
A loyal customer expects an enhanced experience compared to others. If you want your loyalty programme to work well, your entire customer experience framework must be set up such that there is room to reward, surprise and delight members of the loyalty programme specifically. This could be direct access to a customer support function or providing free services that are typically chargeable.
Commercial
Awny Elafghany
Head of Sales - Middle East & Africa
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