Does Your Customer Loyalty Program “Go All the Way?”

February 26th, 2011

The opening lines of a recent newspaper article were: “One big-box book retailer, Borders, has toppled into bankruptcy protection.  E-books and Amazon.com are changing the fundamentals of how people read and buy books.” The gist of the story was how independent bookstores are surviving by being creative with how they attract, retain, and build customer loyalty. 

Their creativity didn’t involve cards or points or the traditional loyalty program approach. It was all about customers and knowing what they want and the environment in which they like to shop.  They got creative by paying attention to the entire customer experience.

 Let’s face it. The fundamentals of how customers shop and interact across all industries are changing.  Businesses need to take a cue from the independent bookstores and start paying attention to the entire customer experience – all 360 degrees of it.  To be truly effective, loyalty programs need to expand to encompass all customer interactions not just the rewards-for-shopping portion.

The article offered some examples of what these bookstores are doing to survive.  It was some really good stuff – stuff that can be applied to all industries. 

Being Recognized in a Crowd

Personal connection is the cornerstone of creating customer loyalty, and these independent bookshops create it by knowing their customers well enough to know what they’ll like as soon as they come in the door.  They can walk them right over to the “staff recommendations” section, point them to a book they will like, and be correct about it!  Larger companies can’t necessarily recognize customers within the crowd of individuals who pass through their doors daily, but they can leverage technology to know those customers. 

Individualized offers and recommendations right at POS are the equivalent of walking a customer to the “staff recommendations” section and pointing to a relevant book.  What would happen if the cashier at Macy’s hands my card back to me along with a coupon linked to it for shoes that match the outfit I’ve just purchased?  It’s actually easier than you think.  It’s all about using technology to a) identify your customers, b) make a suggestion of what they might like (based on that purchase or their purchase history), and c) communicate that merchandise recommendation in a convenient manner — right at POS.

 Staying Longer and Spending More

I’ll tell you what would happen, I would end up staying in the store longer and probably spending more money than I ordinarily would have.  Why – because I would have had no idea there was a gorgeous pair of shoes that would match my new outfit perfectly had it not been “recommended” to me at point of sale.  At a minimum, I would walk over to the footwear department to check it out.  (I am only human, after all and not impervious to a great looking pair of shoes!)  Create a meaningful shopping experience for me, and I will respond – with my wallet and with my loyalty.

But wait, there’s more

This is just one example of a learning we can glean from the survival of the independent bookstore.  There were more great ideas in the article than a single blog post can handle, so we’ll cover a few more of them over the next couple of posts.  Stand by – it’s really great stuff.

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When Loyalty Just Isn’t Enough

December 31st, 2010

I am a loyal Starbucks customer – have been for years.  Why – because according to my taste buds, a Starbucks non-fat latte is like nectar of the gods.  Every time; without fail, I receive a quality beverage.  Some people call my passion for a $4 cup of coffee crazy.  I call it an indulgence that I deserve, at least once a week.

I estimate that Starbuck’s receives around $200 a year from me.  So what now?  Should Starbuck’s be satisfied with the fact that I purchase my lattes only from them?  Should they be content with my $200 annual contribution?  I think not.  Sure, they want to retain me as a customer, and they will – unless they start serving “sucky” lattes.  But, Starbuck’s is missing an opportunity to grow my business – leverage my passion for non-fat lattes to increase my annual spend to $300 or even more.  So how might they do it?

1. Don’t reward me for buying weekly lattes

In the current program, rewards kick-in after 15 purchases.  So, in my case, I can start getting rewarded after about four months or even longer since I don’t think there’s a time requirement or expiration date.  Here’s the problem, I will receive rewards for doing the same thing I have done for years.  If Starbuck’s wanted to motivate incremental purchase activity, they might consider layering in a time frame.  So, for example, I might get an incentive if I make eight purchases in one month.  By doing this, Starbuck’s lowers the reward threshold but rewards me for my incremental behavior only – in this case, I’d be doubling my purchase visits.  Those incremental visits could actually fund my reward (You’re welcome, Starbuck’s).

2. Don’t reward me with lattes

I typically buy a latte regardless, so why not reward me with something I don’t purchase today but might be interested in purchasing (perhaps based on the behavior of other customers who drink non-fat lattes)?  If it’s free, I might try a menu item I’ve never tried before.  If I like it, who knows, I might just order it along with my latte on my next visit.  It’s called up-sell, and loyalty programs are tailor-made vehicles to up-sell customers and grow their value.

3. Recognize that my lattes are non-fat

Because all of my purchases are non-fat or light beverages, Starbuck’s can make some inferences about my preferences then use that information to determine my “up-sell” reward.  So, for example, when I am ordering my morning latte, perhaps my reward could be a cup of oatmeal.  I’ve not tried their oatmeal, but it is a healthier selection, and perhaps I might actually start ordering it on a regular basis.  It’s important to look at your customers’ purchase history to make sure your rewards and offers are meaningful.

What is one more purchase worth to you?

What if you could get your customers to purchase one additional item when they are shopping with you?  I’ve done that calculation for clients before, and the potential impact to their sales is tremendous.  Remember, good loyalty programs build loyalty.  Great loyalty programs build loyalty and steadily increase the value of their members over time.

What is your loyalty program doing for you?

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The Ultimate Sugar Substitute

November 17th, 2010

Thanksgiving and Christmas – the one/two punch of calories at the end of each year.  (Yesss!)  Unfortunately, not only are our diets sugar-laden these days, so are our loyalty programs.  

 I read an article earlier this year on how loyalty programs have become “more elaborate and offer more rewards and discounts than in the past.”  Discounts off every purchase and rewards for ordinary behavior may energize customer spending but like all sugar-fueled energy, it is short-lived and will fade quickly.  Then what, deeper discounts?  Where does it end?  I like sugar as much as the next person, but we need to be judicious with when and where we apply it. 

 Limit it with Loyalty

The performance of your loyalty program may have become sluggish, and in your efforts to invigorate it, you’re probably tempted to sweeten your program rewards.  But resist that sugary allure.  Loyalty programs are long-term initiatives that need to be treated as such.  There are other ways to optimize your loyalty program to meet immediate needs yet keep it nutritionally balanced for energy over the long haul.

 Replace it with Relevance

Loyalty programs typically deliver a cornucopia of customer information.  Use it as the basis of your member communications and offers.  For example, I am a Most Valuable member of a certain retailer’s loyalty program.  Recently, as a “valued member,” I received an extra special offer in the mail.  When I opened my invitation, I found that the savings was indeed “extra special” but the offer was not.  My savings invitation was only for the purchase of “full-figured” apparel.   That would be nice except for the fact that I am not full-figured.  There’s nothing wrong with being full-figured just like there’s nothing wrong with being petite, but, I am neither of those. Furthermore, my shopping history should have indicated that – had this retailer bothered to analyze it.  So, rather than feeling extra special, I felt nothing as I tossed the invitation directly into the recycle bin.  Not the result this retailer intended, no doubt.

 Use those generous servings of customer transaction history and preferences to construct special offers that are appealing to your program members.  They don’t necessarily need to be sugar-coated to motivate their shopping behavior and make them feel special.  They just need to be meaningful.

 Pour it on Promotions

Promotions are short term initiatives, and coincidently, sugar delivers a short burst of energy, so if you’re going to pour it on something, pour it on promotions.  Customer spending is lethargic these days, so sweetening the promotional pot will help attract customers and energize their shopping.  Plus, sweet promotions will help you keep up with what your competitors are doing.  If you’re the only sugar-free dessert on the table, guess what – the sugary treats sitting next to you will get consumed first.  Understand though, sweetened deals such as 50% or more off of purchases should be restricted to promotional campaigns only. 

 The Ultimate Sugar Substitute

So, keep the added sugar away from your loyalty program.  Instead of sweeter rewards and deep discounts, try mixing in some relevance.   Just like Splenda or some other sugar substitute – a little relevance goes a long way, and the end result will be just as delicious.

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Has Your Loyalty Program Hit a Pothole?

October 8th, 2010

Here we are — already in October, and the snowy weather is right around the corner.  The problem with winter – aside from the bitter cold, early sunsets, and the extra 5 or 10 pounds – is potholes.  I know potholes naturally occur, but the additional stress of snow, cold, and roadway salt can really wreak havoc.  Regardless of how careful I drive, I always seem to hit one or two holes that completely knock my tires out of alignment.

While I’m unenthused about the onset of winter, businesses have been dealing with the cold for quite a while now.  Bumps in the road are a natural occurrence, but the added strain of an uncertain economy along with apprehensive spending and fluctuating customer attitudes have created an abundance of massive potholes.   It is nearly impossible to avoid damage – especially for loyalty programs.  Hitting just one or two can easily knock your program right out of alignment.  And a misaligned loyalty program is a bumpy ride indeed.

Ensuring a Smoother Ride

Your program will be much easier to handle and the ride will be smoother if you align in three areas:

1.  Vision

2.  Customers

3.  Marketing

Vision Calibration

I worked with a retailer that identified the expansion of private brands as a key growth strategy yet its loyalty program offered nothing in support.  Had the program kept up, it would have integrated awareness initiatives and purchase motivators for this profitable category.  But it missed this prime opportunity because it was out of alignment with the needs of the business.

You’ll want to ensure that your loyalty program is aligned with your company’s objectives and vision for the future.  There are scores of dynamic factors that cause objectives and plans to shift, and if your program isn’t shifting along with them, it’s time to realign. 

Aligning the Front-end

Your customers are front and center, so don’t forget about them as their needs have changed as well.  Moreover, the adoption of diverse channels and the embrace of social media have accelerated a shift in customer preferences and expectations.  The impact your program has on customer behavior can quickly deteriorate if you are not aligned with those expectations.  Listen to your customers through periodic surveys and focus groups.  They will let you know how they feel and what they expect from you. 

Four-Wheel Alignment

Often, marketing initiatives are planned and executed in individual silos, but hitting the road in separate directions means each program has to work harder to get to where it needs to go.  To maximize impact, marketing programs need to work together – completely balanced and in unison.  They can still retain their own identity but to drive ROI, they should overlap in planning and roll-out.

Alignment Diagnostic

Proper alignment prolongs the life of your program and makes for better handling and easier steering.  Ask yourself the following questions to determine where you need to realign.

1.  What components of my program support the business goals and vision of my company?

2.  When was the last time I gathered and applied customer feedback?

3.  How integrated is my program with my other marketing initiatives?

 So, how is your loyalty program handling?

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Did You Know You’re Riding Shotgun?

August 27th, 2010

I discovered the joy of On-Demand TV this week.  Okay, I know I’m probably years behind most people in that regard, but until just recently, the option was never available to me.  I honestly didn’t think I’d ever use it but on a boring Sunday night when “absolutely nothing” was on my 75 channels, I decided to give it a whirl.  I instantly loved it!  There they were – all those missed episodes of Covert Affairs (USA Network spy show – pretty good, I recommend it!) were at my disposal.  I was in control.  I could watch them whenever I wanted not just when they appeared on the TV schedule.  I have to say, I am totally loving my new-found power.

Not your father’s Oldsmobile

On-Demand TV is just one of many examples of customer migration to the driver’s seat.  The explosion of social media has given customers an outlet for sharing their experiences with your company and its products (which, like it or not, assumes some of the control over your brand image); shopping comparison sites such as NexTag and PriceGrabber enable shoppers to compare your prices with your competitors before they even walk through your door, and web customization tools allow customers to choose what news they want and how they receive it.  The list goes on and on – suffice it say, the bus has a new driver, and it’s not you.

I don’t mean to say that like it’s a bad thing.  It’s certainly not.  Customers having more control means that marketers need to work differently – not necessarily harder – just differently.  It means that the product-centric approaches will have to give way to customer-centric ones.  That applies to loyalty programs as well.  The name, “customer loyalty program”, tends to imply that the customer is the central point.  That’s not necessarily the case.  I venture to guess that many loyalty programs out there are not customer-centric but rather crowd-centric – utilizing the old one-size-fits-all approach.  They were probably designed ions ago when customers wielded a bit less power and had access to far less information.  But those times have changed, my friend.  Programs that haven’t kept up with the changing times are programs that are growing in expense while declining in results.   It’s time to focus on your program and bring it up to speed.  It’s time to optimize.

Loyalty Optimization Quiz

The first step to optimizing your loyalty program is to understand how it’s performing for you today.  Where it is working well; where it is not working well; and where have you missed the boat entirely.  How do your customers feel about it?  They may not always tell you with their voice, but you will definitely tell you through their behavior.  So, look into their behavior.  Understand how it compares to last year or the year before that. 

Without this knowledge under your belt, you run the risk of tinkering with something that doesn’t need tinkering or allowing something to continue that shouldn’t continue. 

Here’s a brief quiz to determine how your loyalty program is working for you.  A=1 point; B=2 points; and C=3 points. 

  1. Does your loyalty program drive customer behavior that will help you achieve your current business needs and support your growth plans?
    1. Not sure of what our specific needs and areas of growth are these days
    2. Maybe but unlikely since our needs change regularly and our growth plans have evolved  since we built the program
    3. Yes, our loyalty program gets refreshed periodically so we can make sure our program is aligned with both our immediate needs and our bigger picture growth
  2. Do you know the type of customers your program is attracting? Specifically, are they of high value or high potential value you?
    1. Not sure, don’t have any benchmarks or value calculations in place
    2. Maybe, but unlikely since it seems like everyone is in it for the discounts
    3. Yes, we have profiles and value/potential value algorithms in place so we can tell exactly the type of customers who are enrolling in our program
  3. Does your program drive incremental customer behavior rather than reward existing behavior?
    1. Not sure, haven’t checked it lately
    2. Maybe but unlikely since we haven’t really defined what incremental behavior is
    3. Yes, our benefits structure has been set up to be largely funded by incremental behavior
  4. Do you incorporate customer preferences in your promotional content and channel delivery?
    1. Not sure that we even capture our customers’ communication preferences and we only use transaction behavior at a cursory level
    2. Maybe but unlikely since we pretty much send everyone the same promotional message
    3. Yes, we leverage preferences and transaction information to target our promotional messages to ensure they are relevant to each customer. We have found that this has significantly improved our response rates and program ROI.
  5. Do you periodically solicit customer feedback?
    1. Not sure that we’ve ever had a customer survey or focus group. 
    2. No,  we don’t do it on a regular basis
    3. Yes, we survey our customers and conduct periodic focus groups.  We also listen to what they’re saying and are prepared to make changes based on feedback.

 

Okay, now total your points.  How does your score rate?

Your Point Total How  Your Rank
5-9 points:  Your program is trouble and requires immediate attention
10-14 points: Some of the pieces are in place, but optimization is recommended
15 points: Congratulations, you have a solid program!  Keep it up
16+ points: You can’t do math. 

 

Not overly thrilled with your results.  That’s okay, our next post will focus on the “do’s” of optimizing your program.

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