Originally posted on Merkle’s Retail blog:
While there are now more than 3.3 billion loyalty program memberships in the U.S., only half of enrolled consumers are active. Why is that?
Since the purpose of a loyalty program is to influence consumer behavior, companies need to plan and execute their programs very strategically and wisely to achieve the goals they want. Among the growing selective member base, this is where many leading organizations may fall behind. Make sure to think about providing a “fair exchange of value” – I’ll give you my personal contact information if you deliver additional value – as the consumer strategy upon which all loyalty programs are developed. Creating an ecosystem of engaging content, enticing brand experiences, and preferential valuable services that go beyond the core product or service is where loyalty programs can have a huge impact. Points are a tactic, apps an operational enabler. It’s time to take a step back and think strategically about your consumers’ loyalty before your competitors do!
Many retailers have loyalty programs in place, but without effective planning, more and more may end up struggling to prove their ROI – driving sales or retaining healthy margins. While the underlying goal of many loyalty programs may be to keep customers away from competitors, Merkle’s recent consumer survey found that less than one-fifth of consumers cite today’s loyalty programs as a main differentiator between competitors.
On the flip side of the coin, when done correctly – strategically guided and well executed – retail loyalty programs can have a huge pay-off. In one example, a major retailer’s loyalty program was successful in increasing average spend by 20% per member, program enrollment by 45%, and repurchase rate by 14%. Retailers who master a personalized, omni-channel approach to loyalty increase their revenue upwards of 10X.
Deep Dive Example
One major luxury footwear company used their retail outlet to actively solicit consumer’s contact information, rewarding associates based on how many consumers they individually acquired. When queried about how they used this information, they proudly reported that they sent them a promotional email every week. Customers who visited branded retail locations are likely high-value customers. Bombarding them with promotional messages not only erodes the brand’s luxury positioning, but could be perceived as annoying spam and worse yet erode margins of full-price customers.
What was the missed opportunity?
- Engaging Content – High-quality leather shoes need TLC if they’re to last. My grandfather used shoe trees to keep his shoes stretched out – should we all be using them too? How do we get these annoying winter salt stains off our uber expensive shoes?
- Analytic Insights – Transactional data could be used to upsell and cross sell. If you love your black loafers/boots, then how about a pair in another color? Geolocation could help you highlight the retail locations that carry your brand which are closest to that consumer’s home address.
Loyalty Program Best Practices
1. Start With Specific Behavioral Objectives – Think about “shift, lift, or mix.” Do you want to shift the relationship to a broader base and transform top customers into devotees and advocates? Or is your goal to lift customers into higher LTV tiers? Expanding your mix of products and services across your portfolio can improve margins, decreasing operational costs associated with seasonal demand spikes, increasing average order value, and more.
2. Use Analytic Insights to Inform Loyalty Marketing – We have data at our fingertips and it needs to become an integral part of your loyalty program. You want to ask your customers what they want in their program and what perks or rewards are most compelling for them. Then use these insights to segment loyalty program members and begin personalizing their treatment.
For example, don’t keep sending lapsed users more coupons. With an integrated view of the customer, use the data to understand:
- Department – Personal-shopping request may indicate either “fashion challenged” or like “high touch”
- Spent $X – LTV Tier ‘Most Growable’
- Customer Service – Complained to the store manager about the atrocious service levels.
So what reactivation or win-back message would be the “Next Best Offer”?
3. Operational Entanglement – Starbucks and Dunkin’ Donuts have done this right. Apps that enable people to pay and order from their smartphones make these coffee chains easier to do business with. When I tweet my order to my neighborhood barista, my coffee is ready and waiting for me when I arrive.
4. Add Value – Preferred access, like airlines use, is a great example of added value. We all like to board a plane first because there is actually room for our carry-on luggage. The three magazines I still subscribe to have increased my readership because they’re available anytime and anywhere I have a moment to read – improving their stickiness by providing omni-channel content. Think about your consumer’s journey. Identify opportunities and touchpoints where you’re able provide additional value – first to loyalty program members and then, perhaps, beyond.
Loyalty done right is fertile ground for changing consumer behavior by engaging and immersing your customers in an enriching brand experience. This creates true competitive advantage and measurable results, not to mention happy, loyal customers!