Loyalty programs are often part and parcel of a comprehensive customer relationship strategy.
Why build on a loyaltyprogram? The basic benefits of using a loyalty program to obtain customer information are summarized below: Shift - Acquire new customers Lift - Increase the spending of existing customers Retention - Improve the natural churn rate of customers Profit mix - Shift spending to higher margin products These loyalty program benefits form the basis for all loyalty program initiatives.
Fundamentals of LoyaltyMarketing Commoditization of loyalty programs. desire for possessions to a desire for experiences - partly due to changing demographics. Overall, consumers are looking for the meaningful (which includes value and relevance).
The Space Graphics It is estimated by Colloquy (2009) that there are 1.807 billion loyalty program memberships in the US (a 25% increase from their 2006 census) - with the average US household participating in 14.1 programs. Approximately 56% of those memberships were inactive (defined as no engagement within a 12 month period), bringing the average household active participation to 6.2 programs. That is a lot to compete with
Trend in the Loyalty space Not surprising, loyalty varies across industries. As reported in the New York Times, Forrester Research found that across 12 industries, retailers inspire the most loyalty While others, like TV service providers and internet service providers proved more fickle.
Principles of Loyalty Marketing Relevance is the key to Loyalty Marketing The magnitude of the reward is less important that the perceived value of the reward ○ Benefits - Intermittent scheduling of rewards (“surprises”) can be more effective than regular scheduling ○ Special treatment ○ Recognition
Loyalty Marketing reduces the consumer’s decision-making complexity Loyalty Marketing reinforces the rightness or wrongness of the consumer’s choice Loyalists represent an incremental sales force Loyalty Marketing is information-dependent
What is Loyalty? The consumer is loyal to you is s/he frequently buys your product Desired Behaviour Loyal Behaviour Low High
The consumer is not necessarilydesirable... Desired Behaviour Loyal Behaviour Low High If you have had to subsidize their purchases If s/he buys your product because of inertia or absence of an alternative
Commitment is an emotionalbonding The actively loyal customer is the only (long High Potentiall Actively term) profitable y Loyal customer Loyal Behaviour Behaviou r Passively Loyal Low Behaviour Low High Desired Behaviour
Extend the relationship fromProduct to Brand HighDepth of Involvementreflects moving from anarrow relationship withan individual product to Low Highbroad usage of the Desired Behaviourfull range ofproductsmarketedunder the brand
HighAMEXAn index of behaviours Commitmentthat reflect a CM’sattachment to AMEX- Tenure of membership-Total number of trans. per month- Months active- Total number of services Total $ revenue from all AMEX currently active products and services- Share of plastic spending - Total $ spending across all AMEX cards- Survey responding and - Total $ annual card fees responses - Total revolving balances on Optima Low High Desired Behaviour An index of the number of points of connection with AMEX - Total number of types of cards held - Total number of basic cards - Total number of services currently enrolled in
Loyalty Programs • Rebate Programs/Cash Back • Discount Programs • Points Program
Economic Value of a Customer 1. The top 20% of customers tend to produce 80% (varying by industry) of the profits. 2. Not all customers are equally profitable - this we know. But did you know that the bottom 30% can eat up to half the profits generated by the others? 3. Understanding the economic value of your customers, not just your loyal customers, can save you tremendous amounts of revenue and effort
As such, the idea of"firing" your mostunprofitable customersis becoming moreattractive.Even in the supermarketsector, by someestimates, 7 out of every10 customers cost moreto serve than theycontribute in profits.
Understanding loyalty program economics is essential as running theseprograms isnt cheap.A study by McKinsey & Company estimated that aprograms first year can cost as much as $30million, with annual maintenance and marketingcosts reaching $5 million to $10 million.
Building a Winning Loyalty ProgramProgram ObjectivesProgram PositioningProgram StrategiesFinancial Analysis/ModellingValue PropositionCurrency strategyBusiness AnalysisData AnalysisPlatform SelectionSegmentation & test PlanMeasurement planExit strategiesKeep in mind even if the above list is followed your loyalty program willnot be successful until you are actively evolvong the program basis theprevailing trends & circumstances.
FUTURE Loyalty ProgramsAs loyalty programs become ubiquitous, we believe some interesting dynamicswill evolve in the loyalty marketplace: 1) Companies will continue to look for ways to differentiate their loyalty programs, while balancing program revenue and costs to achieve favorable economics. 2) Newer loyalty programs will be more segmented e.g. targeting life stages, lifestyles and interests 3) Existing loyalty programs will become more tiered i.e. concentrating resources on high potential and high value customers.
Holistic View * Focused4) Loyalty programs will begin to take a more holistic view of customers- focusing on broadening customer relationships (i.e. "relationshiprewards") - offering awards and recognition for broadened existingrelationships - resulting in a strengthened hold on their customers. Thistakes on increased importance for program administrators as thecustomers sense of entitlement rises.5) Instant point redemption at merchant partners. Making it easier toredeem your points, program sponsors will begin to develop merchantrelationships whereby loyalty program members will be able to converttheir loyalty points on-site at the merchant partner for discounts,merchandise and/or services.
Value Proposition Through Coalition6) Coalition Programs. We never thought wed see the day inthe India. While Coalition programs have proved to be verysuccessful around the world (e.g. Air Miles in Canada), thismodel has had considerable difficulty making head way here inIndia, given the fragmented market and the resources requiredto get such a program up and running. That is about to change.As compelling value propositions become harder to come by,the importance of coalition programs increase.