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Removing the Obstacles to Customer Loyalty

The most common challenges to successful customer loyalty programs can be overcome with the right solutions. Here are the five key challenges, and how marketers are finding ways to solve them.

1. Difficulty in measuring and using data

Senior management wants to know that a marketing investment is well spent. But loyalty programs cannot be measured in traditional ways. In fact, three of the top five reported challenges are measurement related. Measurement needs to take a triangulated approach, focusing on these three areas:

  • Specific changes in the customer value equation
  • Shifts in consumer value
  • Customer engagement and advocacy

Triangulation provides a view of impact from multiple angles that gives insight into performance. So, each metric needs a clear definition of success for now and the future. Measurement then becomes part of continuous loyalty loop, in which customer intelligence creates customer insights, which feed into the loyalty program and creates more customer data to start the loop again

2. Picking the right mix of rewards and benefits

Most loyalty rewards involve discounts, but this becomes difficult to execute as everyone has the same offerings and retailers have trained consumers to look for nothing but discounts. This is a delicate tightrope act: give rewards that are too expensive or popular and the budget gets blown. Starbucks, Virgin Airlines, and National Car Rental offer just a few of the programs that earn rave reviews with customers, without breaking the bank to do it. The key to success is activating “soft benefits” that have high perceived value.

  • Look at the portfolio of hard and soft benefits
  • Assess what benefits you and your competition use today
  • Assess current business goals and objectives
  • Rate each potential proposition on alignment with goals, customer interest, operational ease, and cost
  • Test your new value proposition in a limited scale
  • Have clear time frame for go/no-go decision on roll-out

3.  Programs lack true innovation

The average customer is a member of more than 10 loyalty programs. As more and more retailers launch programs, making a splash with a new program isn’t easy. Before loyalty programs, customers would stay with their favorite retailers based primarily on price or location. Loyalty broke this inertia, giving customers a reason to shop another retailer. If faced with a choice between companies, loyalty broke the tie.

But, as more companies start programs, a new inertia has formed. Nearly 60% of consumers state they only participate in a few loyalty programs. Loyalty has become the new normal and customers need something special to truly shift their business. Meanwhile, customers feel they are getting less out of programs. About 30% of consumers feel that there is little or no value in joining a program.

Offering differentiated benefits gives customers a reason to engage. Assess the competition and do customer research to find these benefits. Carefully test to pick the winners.

4. Choosing to build, buy, or partner

To run a loyalty program, retailers face the tough decision of whether to build, buy, or partner. Two thirds of all retailers have less than four people devoted to loyalty and 20% have no one, so most firms go the partner approach.

Partnering can augment internal staff with specialized skills. Building internally gives company complete control at the expense of time and resources. Buying allows for fast deployment at the expense of future scalability. Most companies actually leverage all three tactics to some degree. Using all three tactics is needed as aspects of loyalty grow into mobile, web, social, and other channels.

Regardless of the decision on this important matter, having one person or agency ultimately accountable for the program is vital to success. Loyalty needs to have one singular goal in the organization while minimizing resource needs.

5. Marketing and operations are not on the same page

Selecting the right value propositions is an important program component. Often overlooked, ensuring execution is just as important. Customers can receive years of good interaction with a brand and program only to have it all ruined by one negative experience.

Executing a program happens on two levels: systems to identify the customer and present them with the right reward/recognition, and store operations to carry out the needed tactics. System issues are frustrating but easy to explain, while in-store issues cause more frustration.

Soft benefits are ideal because customer benefit outweighs cost. Failed execution means customers will not trust the company in the future; so, operations need to deliver on marketing promises.

Dennis Goodman is director of loyalty programs at 89 Degrees

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