How to Design a Loyalty Program

1. Six Critical Factors in Designing a Successful Loyalty Program Updated January 2017

2.  2017 Customer Insight Group, Inc. All rights reserved. Many Loyalty Programs Fail to Deliver Positive ROI • Failure to develop a shared management perspective of loyalty opportunity. • Quality of data not properly addressed (e.g., invalid customer info, too small of sales base) • Lack of clearly defined and measurable business objectives. • Little or no attention paid to employee skill sets and abilities; too great a focus on tools and hardware, not ongoing training about the program and the benefits to the organization. • Customers don’t understand what it takes to earn rewards or to achieve new status levels. • Data is not leveraged to communicate to customers. • Program was launched and went into “auto” drive. • Change behavior rather than just reinforce it. • Each year program results are analyzed to optimize customer enrollment, retention, redemption and ROI. • Build in time for testing and learning. • Over-invest in coordination with users and across functions. • Link technology implementation priorities to business objectives. • Advocacy by senior management. • Segment and tailor the program and offers. • Demonstrate innovation and regular re-invention. • Develop robust multi-channel communications to engage, keep and grow profitable customer relationships. • Understand customers and how segments differ from one another. What do winners do right?Where do they go wrong?

3. Six Critical Factors in Designing a Successful Loyalty Program Successful loyalty programs are strategic Trade-offs are required to realize financial goals Objectives must drive program strategy Leverage best practices of industry leaders Identity how program design delivers value Successful loyalty program are strategic 1 2 3 4 5 6  2017 Customer Insight Group, Inc. All rights reserved.

4. – What is the primary business objective goal for customer impact? (e.g., frequency, avg. sale, LTV) – Are potential benefits compelling enough to achieve required customer impact? – Do customers know what it takes to earn rewards? – Benefit mix (combination of soft and hard benefits) – Strategies to move customers up in tiers/spend? – Is value message simple to understand? – How deliver and reinforce engagement over time (e.g., POS technology, frontline training, mobile, social media, fulfillment, and marketing support)? – What distinctive assets can be leveraged? (e.g., assortment, receipts, community, mobile app, affinity programs) – How will these assets reshape economics and expected returns? Successful Loyalty Programs are Strategic Set realistic and targeted program objectives Make rigorous design trade-offs to achieve objectives Leverage distinctive assets to make economics work Execute skillfully and persistently to sustain impact Successful Loyalty Program  2017 Customer Insight Group, Inc. All rights reserved.

6. Which Customers are Targeted How and When Customers Are Enrolled Qualification & Re-qualification Criteria Value and Structure of Rewards How Program is Communicated • Breadth of appeal and participation • Level of participation over time • Types of customers participating • Degree of offer-tailoring • Types and degrees of impact • Depth and consistency of data capture • Level of frontline involvement • Culture to drive sales or margin • System capabilities • Cost of program • Long- and short-term measurement • Exit flexibility/cost Six Critical Factors in Designing a Successful Loyalty Program Program Elements Design Trade-offs  2017 Customer Insight Group, Inc. All rights reserved.

8. Objectives Must Drive Program Strategy Expand marketing channel with direct capabilities  Provide direct, targeted messages and offers across customer base  Target all segments, with limited ability to target and tailor between segments Collect data to be us used as a core b business asset  Collect customer data to make better decisions across the business  Target all segments, significant ability to target & tailor between and within segments No explicit strategy Build strong relationships with growth segments Business Objectives  Develop strong relationships with most valuable segment(s)  Target growth segments only, significant ability to target and tailor between and within segments  Continue to pursue defined initiatives Depth of Customer Information Low High BreadthofCustomerInformationLowHigh  2017 Customer Insight Group, Inc. All rights reserved.

9. Six Critical Factors in Designing a Successful Loyalty Program Successful loyalty program are strategic Trade-offs are required to realize financial goals Objectives must drive program strategy Leverage best practices of industry leaders Identity how program design delivers value Successful loyalty program are strategic 1 2 3 4 5 6  2017 Customer Insight Group, Inc. All rights reserved.

10. Expand marketing channel with direct capabilities Key areas of benefit Potential Types of impact Customer Segments Functions Growth segments Maintain segments Marketing Only • Improved efficiency of markdown spend through direct targeting and understanding of promo response “broad and shallow” Build strong relationships with growth segments • Limited customer insights to drive core function business decisions • Increased customer loyalty (e.g., greater margin, improved cross sell, higher frequency of purchase) • Enhanced customer perceptions (e.g., affordable indulgences positioning) • Targeted levers (e.g., conversion, frequency, UPT, and markdown) “narrow and deep” Collect data to use as core business asset • Robust customer insights drive business decisions • Strategic decision support (e.g., segment assortment preference) • Strategic choice evaluation (e.g., impact of merch. changes on core customer segments behavior) • Increased customer loyalty • Targeted levers “broad and deep” Growth segments Maintain segments Growth segments Maintain segments Marketing Distrib. Merch. Planning Buying Store Ops.Marketing Distrib. Merch. Planning Buying Store Ops. Limited data for all customers Robust data for all customers Deeper data for select segments Identify How Program Design Delivers Value  2017 Customer Insight Group, Inc. All rights reserved.

12. Superior Experience Multiple touch points, channels Build Platform for CRM Customer embedded in business decision-making. Mass market acceptance/confidence as a “gateway” to broader array of relevant products & services Able to identify high value/high priority individuals and deliver superior experience across touch points Engage Mass Market High customer data capture rate Strong core brand alignment Targeted communications and differentiated offers Target Priority Segments Targets a subset of important customers Tailored value proposition (e.g., pricing, service levels) based on behavioral insights to better meet needs Aspirational purchases to achieve greater status Examples HallmarksStrategies High free rider hurdle (not giving margin away to everyone) Tiered to focus resoures on high-value customersEmbrace Top Spenders Leverage Best Practices of Industry Leaders  2017 Customer Insight Group, Inc. All rights reserved.

13. Six Critical Factors in Designing a Successful Loyalty Program Successful loyalty program are strategic Trade-offs are required to realize financial goals Objectives must drive program strategy Leverage best practices of industry leaders Identity how program design delivers value Successful loyalty program are strategic 1 2 3 4 5 6

14. Align Loyalty Program with CRM Instant store discount “broad and shallow” Points based rewards “broad and deep” Segment specific “narrow and deep” • Markdown dollars distributed through card. • “Swipe Sweepstakes” element to encourage consistent use of card. • Mass consumer data insights to build tailored merchandising, pricing and promotional mix at store and customer level detail. • Everyone can join, but to earn rewards you have to give greater loyalty to the brand • Often phone number is member number • Mass consumer data insights to build tailored merchandising, pricing and promotional mix at store and customer level detail. • Program targeted to select group of customers • Brand distinctions leveraged against group for distinctive positioning and brand strength. • Purchase response to tailored messages drives follow-up communications and determination of need for additional customer data detail. • Highest participation. • Low customer upside. • Minimal incremental impact on UPTs, store trips and conversion. • High participation. • High free rider hurdle. • Aspirational purchases provide gains in UPTs, store trips and conversion. • High exit costs. • Select participation. • Greatest customer upside. • Enhanced loyalty to drive per cap and margin. • Strongest gains in conversion and UPTs. • Minimal exit costs. Program Type Execution Elements Economic Considerations  2017 Customer Insight Group, Inc. All rights reserved.

16. Customer relationships – Engage. Keep. Grow. Customer Insight Group, Inc. leads the way in the evolution of how companies engage their customers, positively motivate them and earn their long-term loyalty. Our extensive client list testimony to our depth of knowledge and ability to apply strategic insight and solutions to a wide variety of business objectives. Our client experience includes: Ashro, Affinity Plus Credit Union, A&P, The Bon Ton, Crate & Barrel, Dick’s Sporting Goods, Edwin Watts Golf, GE Consumer Finance, The Great Indoors, G.H. Bass, Golf Galaxy, Helzberg Diamonds, HSBC, Kohl’s, La-z-boy, Payless ShoeSource, Pier 1 Imports, Petco, PGA Tour, Proflowers.com, Regis University, Ruby Tuesday, Sierra Trading Post, Spencer Gifts Tommy Hilfiger, Ulta, as well as various other leading companies. Sallie Burnett, President Customer Insight Group, Inc. Email: sallie@customerinsightgroup.com Phone: 303.422.9758

How to Design a Loyalty Program

How to Design a Loyalty Program

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How to Design a Loyalty Program