Avoiding Pitfalls in Loyalty Programs

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What is loyalty? Recently, I had a chance to address this question with a group of marketing professionals during a tutorial session I was leading on loyalty marketing. Not surprisingly, every person brave enough to answer this question in front of the crowd provided a different answer.


Loyalty was defined as everything from strong customer satisfaction, to intent to repurchase, to an emotional bond with a brand. A person from a utility company in a monopoly market defined loyalty through customer satisfaction. A wholesaler defined loyalty as a store's decision to carry her product; a person from a consumer packaged-goods company defined loyalty as frequent purchase; and an industrial design company marketing manager equated loyalty with a client "believing" in the brand.


After leaving the sessions, I was more curious than ever about how different types of companies and industries are addressing loyalty marketing. To try to understand the ideas and executions comprising today's loyalty marketing efforts, I contracted an independent research company to interview marketing professionals responsible for their companies' loyalty marketing efforts. Individuals from 17 companies, representing 11 industries, were interviewed. The sample included marketing executives in industries ranging from airlines, hotels and fast food, to banking and insurance.


I learned that the nature of customer loyalty programs, how they are implemented, the degree of success and future plans all varied tremendously from company to company and from industry to industry. The one common factor among these companies was their decision to have an online component for their loyalty marketing efforts.


The best word to describe our sample's online loyalty program experience is experimentation. These companies have been experimenting with technology, program structure, incentives and their loyalty marketing and incentive fulfillment vendors. The ongoing experimentation has resulted in programs that are increasingly meeting their objectives.


Companies say the online portions of their loyalty programs outperform the offline portions in powerful ways, including cost, flexibility and accountability. From a cost perspective, online programs have lower labor costs (online programs require fewer people to run than offline loyalty programs do) and lower implementation costs (no printing of materials and limited media support are required).


Increased flexibility is achieved by letting companies communicate more easily with their international consumers, and letting all of their consumers interact with the program, 24 hours a day.


Finally, and perhaps most important, online loyalty programs allow higher levels of program accountability. Because these programs have sophisticated behavioral tracking capabilities and instant reporting options, marketers can constantly evaluate the program response rates, the demographic and behavioral profiles of program participants and redemption activity.


Though all the companies were pleased with their program results, they encountered pitfalls that serve as worthy lessons for anyone involved in online loyalty marketing. Pitfalls to watch for include:


o Failure to communicate the program to consumers. ("If you build it, they will come" doesn't work for online marketing programs; consumers need to know the program exists in order to participate.)


o Choosing a loyalty marketing vendor that does not share your strategic vision.


o Not realizing your company's resource restraints. (Some companies stated that running the program internally required too many internal staff resources.)


o Not creating realistic Web site and program development timetables. (Developing a good online program and site takes time.)


o Creating Web sites that are too graphically intense for your average consumers. (Most consumers aren't using the same high-speed connections that we do in our offices and become frustrated when intensive graphics slow download speed.)


Beyond these pitfalls, many study participants stated two barriers: failure to identify the target consumers for the program, and failure to quantify program success.


About half the companies noted that they continue to have difficulty identifying the appropriate target consumers for their online loyalty programs. Companies stated that they often choose not to target specific consumer segments for their loyalty programs because they have difficulty identifying a "good" (i.e., valuable) consumer.


The most powerful, effective and efficient loyalty programs are ones that target specific consumer segments. A thorough segmentation analysis before the launch of a loyalty program will help you identify the segments of consumers who make the best targets for loyalty programs (i.e., those who are valuable to the brand and have a propensity to participate in your loyalty program). A well-executed segmentation analysis also will help identify the appropriate reward structure, and communication tone and architecture. The result is a more loyal consumer.


The second barrier -- failure to quantify program success -- also can be overcome with advance planning. The first thing a company must do to ensure the program has measurable results is to decide what "loyalty" means. As noted earlier, loyalty can be defined with a broad array of measures, from the behavioral to the attitudinal. After deciding how you will define loyalty, you will want to collect a set of base line measures against which you can gauge your program's success (e.g., what was the market share for your brand among your target consumers before and after the program?).


Finally, companies don't appear to be customizing their loyalty programs to the individual needs of their consumers. By using the behavioral data generated on the loyalty site, a company can create profiles of consumers based on their responsiveness to promotions and then customize the promotional offerings to consumers with the highest propensity to respond.


There is a lot of room to improve and enhance online customer loyalty programs. Nonetheless, based on the companies interviewed, a high level of attention and commitment is focused on making these programs work.
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