Don't Underestimate the Value of a Network Loyalty Program

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In today's fiercely competitive marketplace, high-performance retailers understand that success is about building relationships with customers by giving them what they want - when, where and how they want it.


It is a journey that involves building, strengthening and retaining a loyal and profitable customer base.


Many loyalty companies would have you believe that loyalty is about offering rewards and collecting data. This is not true.


Loyalty is about building relationships over time, based on trust and dialogue. It is about using data to get to know each customer, and then offering meaningful products and services based on that information. It is about providing excellent customer service. Finally, loyalty is about surprising and delighting your most profitable customers with an extra benefit in appreciation for their business.


This extra benefit is not about what the company is trying to sell. It is more of a bonus, but one that is strategic in nature. This is where offering the right reward becomes very important. Rewards - when integrated into an overall loyalty initiative - are simply the final piece of the puzzle. A well-designed loyalty program should help a company attract and retain the right customers - those who will help drive incremental profits.


Once a company has decided to implement a loyalty program, it must decide on the type of program as well as the nature of the reward. Should it build a proprietary inhouse program or join a network? What shall the reward be - points, miles, cash, merchandise, etc.? How much control should it have over the program? Are there other factors to consider?


When choosing between building a proprietary program or joining a network program, two of the most important factors to consider are cost and time commitment. Proprietary programs can be very successful, but they are expensive to build and maintain, and require a great deal of time and effort. Conversely, network programs allow the participants to share costs among partners and to join in relatively short order.


Network loyalty programs offer many valuable features, including:


•Shared program costs for improved return on investment.


•Higher value rewards, which increase customer motivation.


•Ability to cross-promote with other network partners.


•Existing, secure infrastructure for quick and easy implementation.


•Flexibility and opportunity to customize programs to best meet objectives.


Through a network program, customers earn rewards from multiple retailers for a wide variety of shopping behaviors. This means consumers can earn awards quickly as a reward for everyday spending. This motivates consumers to stay active and engaged in the program. It also lets companies reap the benefits of sharing program costs with other businesses, including costs of administration, technology, customer service and marketing.


In addition, network programs offer a cost-effective channel for acquiring new customers. And not just any new customers, but those with a high probability of generating profits. Since participating retailers share the program costs, they can offer higher value awards (such as free travel) that appeal to a very attractive consumer demographic.


Through cross-promotional campaigns, partners can target these consumers with relevant offers. This works especially well with complementary businesses such as car rental companies, hotels and restaurants. By offering the same reward for frequenting these businesses with a focused promotion, consumers are encouraged to alter their purchasing decisions in order to stay within the network and to keep earning rewards.


By leveraging an existing, secure infrastructure, companies can quickly and easily implement a loyalty program. Rather than waiting months to implement based upon the availability of internal resources, implementation in a network program can take weeks or just days, depending upon the degree of customization required. Program administration and management are also handled externally - once again freeing up internal resources to do other important business tasks.


The value of the reward. As part of a loyalty program, it is important to select a reward that will stimulate the customer behavior you are seeking. Short-term awards, such as merchandise, cash and rebates, provide quick customer interest and can help drive acquisition. However, they can be easily duplicated and do not provide a long-term hook.


It is better to focus on rewards that customers need to accumulate over a reasonable amount of time and make sure the reward is easy to redeem. This allows time to develop an ongoing dialogue with the customer as the company builds brand equity. By seeking out reward programs that provide a competitive edge, companies establish a level of distinction in the market. This helps maximize the reward investment.


Typically businesses spend between 2 and 4 percent of revenues on loyalty. So it is important to find a program that has a reward with a higher perceived value than actual cash. An example is airline miles. Months ago, a particular online broker ran a successful promotion that offered consumers who opened an account with a minimum of $30,000 a reward of 3,000 airline miles. This reward had a much higher perceived value than if the company simply provided a comparable cash incentive. By sharing the costs on a program with a high-value reward, companies can reduce the individual customer investment while maximizing the potential sales lift.


Other factors to consider. When creating or investing in a customer loyalty program and focusing on retention, the company should ask the following questions:


•What reward would have the most appeal to the "best" customers? Be sure to pick rewards that are most appealing to the targeted customers.


•Will the rewards offered stimulate profitable behaviors?


•Is the loyalty program flexible? Is it easy to control or customize?


•Does the reward require consumers to earn over time? A reward such as free travel has been proven to alter buying behavior and takes time to acquire.


•Is the reward unique? Does it offer the company a sustainable competitive advantage?


•Does the reward program provide customer data to help build long-term relationships with a captured audience?


•Does the reward program work for both online and offline channels of distribution so that programs are consistent?


•Is the reward easy to acquire and redeem? A reward that provides multiple levels for redemption provides broad appeal.


For a loyalty program to be successful it needs to reward customers for both online and offline activity. Be aware of how incentive programs differ from loyalty programs in their objectives and results. Companies should not assume that an investment in an incentive program will drive long-term customer relationships.


There are many programs in the market today which merely create high acquisition costs with little to no long-term profit, because they fail to include retention and loyalty measurements - a critical mistake that many dot-com businesses regretfully made prior to going out of business. Finally, never underestimate the power of a network loyalty program. It can help companies reach their customer goals faster and farther than if they did it on their own.


Jennifer Case-Cooper is vice president of marketing at WebMiles Inc., Sandy, UT. Reach her at jcooper@webmiles.com.
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