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Turning Loyalty Right-Side Up Again

Guest post by: Mark Johnson

Article Overview: As brands plan their continued (and often increased) investment in loyalty programs, they need to stop, take a step back, and ask themselves a few key critical questions: What is customer loyalty? What is the end-goal? How is it achieved? How is it measured?

Turning Loyalty Right-Side Up Again

Customer loyalty programs have been around for more than a century and, over the years; marketers have used them effectively for rewarding loyal customer behavior, especially repeat purchase. Remember S&H Green Stamps? Dating back to the 1930s, this was one of the earliest initiatives to drive customer loyalty and brand engagement. Consumers received stamps when they made purchases from participating merchants, glued them onto pages of booklets, and redeemed them for products when the accumulated stamps reached a certain value. These early “loyalty” efforts had very high levels of customer engagement and emotional attachment – what person 35 or older does not remember your mom giving you the stamps that you could lick and insert onto the book? What an effective program to get two core constituents engaged.

Since then, programs have evolved and brands industry wide has joined the customer loyalty program bandwagon. Sure, estimates as to the amount companies spend on loyalty programs differ, but no matter what report you look at the dollar amounts are high ---- and growing. According to Gartner, U.S. companies spend more than $1.2 billion per year on customer loyalty programs. Promo Magazine puts that number at $2 billion annually. This industry has been benchmarked by Maritz to be growing at 5%+a year.

Whatever the exact dollar figure is, the key point is that investments in loyalty programs will continue as research shows that nearly 80% of marketers are committed to maintaining or further funding loyalty programs as customer retention and relationship building vehicles. The ability to effectively administer a loyalty program is significantly more cost effective than attaining a new customer (“Customer Loyalty Techniques For Business to Business Marketing Programs,” white paper by SAS and Loyalty 360, 2010)

As brands plan their continued (and often increased) investment in loyalty programs, they need to stop, take a step back, and ask themselves a few key critical questions: What is customer loyalty? What is the end-goal? How is it achieved? How is it measured?

Taking a holistic, data-driven and customer focused (input, feedback and response) approach when answering these questions is needed to understanding the explicit and implicit needs, interests, life-style stage, and communication/interaction requirements of each segment. The key is to have access to disparate data sources and media channels to satiate your customers; harking back to the days of the corner drug store or “Cheers” where everyone knew your name (and preferences).

While these seem like basic questions, the discussion of “customer loyalty” has evolved quickly and exponentially over the past several years. Fueled significantly by the troubled economy, brands’ need to cultivate a base of loyal and devoted customers is paramount to driving the long-term, sustainable success of any business. But faced with the popularity of punch cards, explosion of social media, growth of mobile marketing, etc there is a temptation for marketers to jump into the “latest and greatest” technology program that may or may not create brand loyalty.

Loyalty is a process, not a destination --- and the ability to meld these ever- changing technologies effectively into the program is the key to creating the engaged constituents brands need. All one has to do is look at the comprehensive nature of the My Panera and Sears Loyalty programs to see how they have changed behavior and engagement levels to the brand.

From a strategic marketing perspective, however, customer loyalty is much more than creating and implementing programs. Yes, loyalty initiatives are an important part of “loyalty,” but they are just one aspect of a bigger picture. True loyalty is a journey that is guided by the overall customer experience --- and this is still a relatively new and burgeoning area for marketers. The challenge for some brands is to understand who they should be listening to and how they should be responding to their brand participants. Also, the willingness to engage in best practices across organizations and share with non-competitive business entities is a trend that gained steam in 2010 and will further develop in 2011.

Starting with customer acquisition, the steps of the loyalty journey include engagement (a reason to “try” a brand), experience, satisfaction (and effective, honest response if not satisfied), analysis (and understanding), response and finally advocacy from those who commit to the turnkey nature of the loyalty journey.

Fueled by the explosion of social media and web 2.0 technologies, peer recommendation is becoming increasingly influential in a consumer’s purchasing decision. Yet the peer purchasing process is the first step in the journey and if the other phases are not complete, it is wasted opportunity. Voice-of-customer, customer service/experience delivery, and an integrated mix of data-centric loyalty programs/initiatives work together to move brands along this loyalty continuum. Finally, key metrics need to be in place to gauge the effectiveness of what brands are doing at each of these steps, to identify potential stumbling blocks/areas for improvement, an executive backer / support to address the programs shortcoming and to highlight / learn and expand on its successes.

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Article Tags: critical questions, loyalty 360, loyalty programs, what is customer loyalty



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