Customer Loyalty Programs

In its simplest form, there are two primary reasons for customer loyalty programs to exist:

• Create loyalty

• Collect data

As technology advances, the customer has an increasing number of touch points with the company: online, mobile, retail and call centers all allow the customer access to what they want.  Additionally, customers are far more aware of what information they are relinquishing and what they can expect in return.  This increase in customer expectation leads to a complex algorithm for a successful customer loyalty program.

Create Loyalty

The idea of saying that in order to have a good customer loyalty program you must create loyalty makes me think of those old Russian nesting dolls, where you’d open the doll only to find a smaller version of the same thing inside.  No?  I digress…

The Customer Experience

The truth is that the majority of loyalty programs in existence today are primarily purchase-based.  If you buy a certain amount of our product, we’ll reward you with a deal.  The more you purchase, the faster you’ll get that reward.  But if we really think about what defines loyalty, it is not simply based on purchase behavior.  The most loyal customers are those who are out there as your brand ambassadors.  They tweet about your great customer service and check-in on Foursquare every time they visit.  The natural evolution in managing a customer loyalty program comes in the form of integrating all of these customer interactions into one seamless experience.  As a company, we high five our most loyal customers for continuing to purchase our products.  But what’s to say that a more convenient store location or price cut from a competitor wouldn’t remove a bit of that loyalty?  The relationship must be deeper than the purchase in order to ensure that long-term loyalty.

As companies continue to engage their customers through such things as online promotions and mobile gamification, they must also now interpret this engagement as a form of customer loyalty.  This being the case, they should be rewarded accordingly.  A recent article on Forbes.com stated that the next step is to “create a layer of technology that integrates all forms of participation”[1].  It would be counter-productive to offer rewards for all of the various ways in which customers participate.  Instead, creating something like simple points system, where customers receive points for various levels of participation and can ultimately redeem these points for valuable rewards.  One reward system, many ways to show your loyalty.

Rewarding the Loyalty

This brings up another important factor in creating loyalty with your program: perceived value of the reward.  Offering a comprehensive loyalty program without ultimately providing rewards that your customers value is…well…pointless.  To make my point more obvious, imagine a bicycle shop offering a loyalty program that rewarded its customers with gift cards for gasoline.  There should be an obvious correlation between the rewards offered and the type of customer redeeming them.  I’m even tempted to dust off the old phrase, consumption constellation (see The Yuppie Handbook[2]).  The idea that people are likely to consume based on specified social norms.  For example, if I am a runner, I am likely to also enjoy hiking, purchase athletic shoes frequently and eat healthy.  So if I’m a running shoe retailer, it might make sense for my loyalty program to offer rewards that center towards my customer’s consumption constellation, such as a coupon to the local vegan restaurant.  Regardless of the marketing terminology, a company must be conscious of what their customers perceive to be valuable.  Base the rewards on that.

Collect Data

As a lover of all things customer insights, I often find myself quoting Star Wars as I do my research, “You must use your powers for good, not evil”.  It’s far too easy now for companies to teeter the line between knowing their customer and knowing too much about their customer.  Depending on who you ask though, customers are more willing than you might think to submit to tracking in exchange for a personalized experience.  The trick is to be tactful and genuine in how this knowledge is used.  Target got themselves into a bit of a bind in 2012 when it used its customer insights for the dark side (notice the Star Wars reference there), when they successfully predicted that their customer was pregnant.  Upon predicting this new life stage, they promptly began sending targeted content for this future mom.  The problem…it was the teenage daughter of the unsuspecting Target shopper who was actually pregnant [3].  Surprise!…Congratulations grandma and grandpa!

Big data is one of those office buzz words that you wish the intern would just stop using.  But the truth is, its here and it is, in fact, big.  Practices such as predictive modeling have taken our rather subjective view on customer behavior and marketing tactics and built them into a sort of insights machine.  Data in, Insights out.  Don Draper would be out of job.  In reality though, Mr. Draper and his deep knowledge of the customer and industry is still incredibly valuable.  And may have saved Target from such an embarrassing mishap.  A company can collect data from any number of touch points and produce the most statistically significant model that  states what WILL sell more. What that model can’t do is understand the nature of the output – how will this action impact my brand?  How will my customer receive this message? As a loyal customer of Target, how will I know that my last purchase of lotion, vitamins and a larger t-shirt size is not going to land me a coupon for diapers and baby formula.

I mentioned earlier that one tactic for rewarding customer loyalty was based on aspirational goals.  The practice of segmenting customers based on any number of variables – whether through social media activity or product reviews to survey responses.  Its less about purchase behavior and more about what they want people to think.  This tactic, coupled with strong historical purchasing behaviors would produce an educated model based on objective data and strategically segmented audiences.  Would Target have knowingly segmented a group of shoppers as “Soon-to-be-Parents” without knowing all of the facts?  Or did they let their big data model decide for them?

My point…and I have one!  Customer Loyalty is vital for businesses of all sizes to thrive.  Reward the customer the way they want to be rewarded.  And target them based on a combination of data-driven decision making and strategic, thoughtful segmentation.

[1] (Clay, 2012)

[2] (Amazon.com, 2013)

[3] (Forbes.com, 2012)