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Retail Loyalty 101 - The greatest
growth area for customer relationship programs today is
retail.
A recent survey reported that, among multi-channel retailers
without an existing loyalty program, 43 percent planned to
introduce some kind of program within the next year. That’s
an astonishing figure; and powerful proof that interest in
customer loyalty continues to strengthen.
But what kind of programs will all these eager retailers
bring to market?
All too often we’ve watched retailers, who obviously feel
the hot breath of their competition, push to get to market
quickly by making compromises that in turn compromise the
success of their program. Some key examples are:
Implementing a manual program (e.g., a punchcard) to get
around point of sale technology limitations – an approach
that usually lacks the ability to gather customer data or
track individual behavior.
Building a program around a private label credit card in the
hopes that it will stimulate acquisition and usage – thus
losing the ability to track activity by customers using
other forms of payment.
Excluding online (or offline) purchases because the
different channels are managed separately – an
organizational issue that prevents retailers from tracking,
recognizing or rewarding a customer’s contribution.
Basing rewards totally on short term opportunistic
promotions that may drive traffic but fail to provide longer
term incentives for profitable customer behavior and brand
involvement.
When many people think about customer loyalty, they still
think about the granddaddy of all loyalty programs, the
airline mileage programs. But Granddad isn’t the leader of
the pack anymore. In fact, the airline reward model may be
entirely inappropriate for most retailers (we’re not even
convinced it’s the right model for airlines anymore). Such
programs, as
we’ve said before, may have serious pitfalls for the unwary:
Many reward programs treat all customers alike regardless of
their potential for incremental business.
Those programs that do differentiate among customers with
elite status based on frequency find that frequency doesn’t
necessarily correlate with profitability, and may not
support the segmentation of customer needs.
They can be too expensive to be supported by some retailers’
margins.
Consumers have a decreasing attention span and declining
bandwidth; they already carry too many mileage cards, hotel
cards, supermarket club cards and punch cards from their
carwash or dry cleaner.
And the most serious drawback is that many structured reward
programs fail to motivate incremental business, while
rewarding purchases that would have been made anyway.
But many loyalty practitioners still recommend their clients
use earning-and-reward programs built on the old airline
model. We think it’s important to consider a wide range of
options before launching a program.
These options include:
Earning points toward rewards or free or discounted
merchandise.
Using third-party partner currencies, such as airline miles
for retail purchases.
Offering rebates or discounts for using a store-branded
credit card.
Providing information that is relevant, valuable and
exclusive.
Allowing members access to products, services and experience
otherwise unavailable to the public.
Recognizing best customers with "elite status."
Inviting customer involvement in opportunities such as beta
testing, first access to new products, participating in an
"advisory board," creating and submitting advertising ideas,
even inviting best customers to parties and special events.
It is important to remember that the “right” program for
your industry, your business model – and most of all, your
customers’ unique needs and preferences – will most likely
blend a number of these approaches. Some “programs” may best
be delivered transparently, as an integral part of the way
you do business, rather than as a visible program. Think of
it as
“programmatic loyalty initiatives” instead of a loyalty
program. Finally, any program should always be designed to
generate incremental sales while reinforcing your company’s
brand message and personality; a program should be a
logical, comfortable extension of your core business, rather
than a random appendage any marketer could offer.
The best programs are seldom off-the-shelf
points-and-rewards schemes. Such programs may be the
easiest and cheapest for the marketer to develop; but in the
long run, they are often expensive, inflexible and worst of
all, ineffective at reaching what should be the goal of any
well-designed customer relationship program: increasing your
return on your marketing
investment and maximizing lifetime customer value.
©2005 Kate Baumgart Hogenson for
Metzner Schneider Associates, Inc.
Kate Hogenson, Richard Metzner and Howard Schneider are
veteran loyalty practitioners and principals of Metzner
Schneider Associates, a leading consulting and marketing
services firm specializing in strategies to maximize
lifetime customer value.
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