Progressive Rewards, Maximum Return

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Battling the scourges of reduced customer purchasing involvement and declining brand allegiance, how can companies inspire loyalty in today's market?


One compelling option is to establish a customer loyalty initiative offering ongoing, progressive value incentives. Customers base purchase (and repurchase) decisions on perceptions of value (price/benefit), thus only the ongoing perception of high value fuels purchase loyalty. Loyalty incentives, which include options like private-label reward programs, coalition programs and continuity/club options, aim to encourage and reward loyal customers.


Regardless of program type or media, extensive evaluation and execution of loyalty initiatives reveal the following guidelines for developing an optimal loyalty endeavor:


Emphasize the relationship. Loyalty reward initiatives will fail if developed as mere marketing promotions or customer bribes. They are relationships, a means by which the merchant shares value with the customer in proportion to the value the customer's loyalty creates for the merchant. It is essentially giving back part of the value that the customer, by being an ongoing source of revenue, provides to the company. If the merchant thinks of the program as a gimmick, so will customers.


Target desired (profitable) customers. Detailed customer segmentation and target audience analyses are essential to establish a profitable loyalty initiative. Reward programs should be designed to retain the very best customers, not low-margin buyers. This may seem obvious, but many promotions attract exactly the wrong type of customer.


Deliver sustained and progressive value. One-time offers deliver one-time customers. For lifetime loyalty, the merchant must offer sustained service and rewards. This means a never-ending promotion. Therefore, prudent financial planning is essential. Though sustained rewards may be a costly investment, the returns will be enormous. Consumers will stay with a merchant whose benefits are reliable and permanent.


Businesses must direct funds and efforts into retaining their best customers via a tiered system. As a customer's purchase level or frequency increases, so should the level of return to the customer. Also, if reward value increases with increased participation, competitors will be unable to lure customers away given the increased switching costs. Progressive reward levels encourage customers to shift their business and focus their purchases with a single merchant.


Focus on the brand. When developing a loyalty program or initiative, merchants must be cautious not to develop deal loyalty rather than brand loyalty. To bolster the brand through rewards, the brand/product itself should comprise the incentive, as with the typical frequent-flier program.


The reward is more of the service itself, not a monetary incentive or some other merchant's service or product. A Sloan Management Review study found that programs that reward customers with a free quantity of the product/service following multiple purchases direct the customer's aspirations to the product/service and not the deal, thereby encouraging brand loyalty.


Listen and communicate. Personalized, sincere communication is the most important element of most loyalty initiatives. Programs that are impersonal, one-time offers do not develop relationships. A smart loyalty program seeks to learn more about the customer and remain in frequent contact. Without investing in meaningful, individualized letters, messages and offers, the program dies.


Also, communication can't be one-way: sending only marketing materials is not a dialogue. For the relationship to thrive, the merchant must solicit customer input and opinions. This is especially important when dealing with customers that leave. Extra effort must be expended to connect with them and find out why.


Personalize and customize incentives. To push the consumer toward his next purchase, rewards or incentives must be personalized. To ensure that the customer does not later defect to a competitor's reward program, the merchant from the outset must offer increasing levels of rewards that reflect the customer's prior purchases, preferences and interests. This is where the value of technology comes into play. With comprehensive CRM and stellar customer support, the customer's experiences feel increasingly intimate.


Mix hard and soft rewards. Because thousands of companies try to use loyalty initiatives, consumers are skeptical of program requirements and rewards. Offering only soft rewards like improved service may insult the customer. Hard rewards are defined as something that the customer would have to pay for if it were not for the reward program. Customers look for real value in the program and are sophisticated in detecting a rip-off or gimmick. A combination of benefits is best: While hard benefits are often copied, a program's soft benefits may distinguish the plan from others.


Avoid the satisfaction trap. Countless studies show that customer satisfaction alone does not equal customer loyalty. When tracking repurchase loyalty, one car manufacturer was dismayed to find that though 90 percent of auto users described themselves as "satisfied" or "very satisfied" with their vehicles, their repurchase rate hovered around 30 percent to 40 percent.


This puzzling phenomenon results from a vast, important gap between what consumers say and what they do. As powerfully expressed by loyalty guru Frederick Reichheld, "Companies can avoid the satisfaction trap if they remember that what matters is not how satisfied you keep your customers, but how many satisfied and profitable customers you keep." Don't confuse the two; measure the success of your program by retention.


Make participation easy. Consumers do not want to jump through hoops or fill out innumerable forms to be members of a loyalty program. The merchant should aim to make joining and participating as painless as possible. Loyalty initiatives with optimum participation are hassle-free.


In conclusion, the best loyalty initiatives are designed to be sustainable, progressive in reward-giving and brand-centered. They are also personal, communicative and geared toward establishing a genuine dialogue for mutual learning and sharing. These elements, when implemented correctly, give the consumer a strong incentive to buy frequently over time, as each transaction is increasingly personal, rich and rewarding.


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