A loyalty program is table stakes in today’s competitive marketplace. But are you getting the results you expected? If not, you may be making the following mistakes in how you approach thinking about your loyalty program.
Rule #1: Invest in acquiring new retaining current customers
Marketers are constantly faced with the challenge of growing the customer base. Most marketing dollars are spent on finding new customers while neglecting the opportunity with customers you already have.
There are many reasons why paying attention to your loyalty program is essential:
- Acquiring a new customer can cost five times more than retaining an existing customer.
- Studies have shown that increasing customer retention by five percent can increase profits from 25-95 percent.
- The success rate of selling to a customer you already have is 60-70 percent, while the success rate of selling to a new customer is 5-20 percent.
Having a loyalty program in place with an adequate marketing budget is an essential first step. This means investing in the appropriate technology, setting offer-marketing dollars aside for discounts and promotions, and having the proper resources on your team for creating, deploying, and analyzing all aspects of the program.
Rule #2: Reward
expected incremental behaviors
Just like at teacher wouldn’t reward a student for turning in their homework on time and complete—but would offer extra credit for additional work and effort—we need to minimize rewarding our loyalty members for things they would have done without the program. By looking at the current activity levels of our loyalty members, we can determine how to best drive behavioral changes that result in incremental value, not expected value.
One of the most important things to focus on first is frequency. When we think through the lens of frequency alone, marketing goals differ greatly.
|Purchase frequency||Loyalty program marketing goal||Example tactics|
|Inactive||Renew interest and demonstrate the value of the program.||High-value, win-back offers with urgency regarding expiration.|
|Infrequent||Inspire new ways to think about the brand.||Offers to try new items, and bonus points for low-volume times and days of week or year.|
|Occasional||Encourage additional patronage.||Frequency challenges that require a minimum level of purchases in a time period in order to earn a future reward.|
|Often||Appreciate and create an emotional connection.||Content and offer strategy that deepens interest, engagement, and builds social community.|
|Frequent||Celebrate and engage to make loyalty contagious.||Exclusive events, previews, and rewards for these brand zealots.|
Rule #3: Focus on your
best “okayest” customers
Loyalty programs are for rewarding your BEST customers, right? Wrong. Loyalty programs are effectively the trojan horses of customer activation. On the outside, they may look like programs that reward your best customers with the best offers, but that is only a small part of the program’s purpose.
On the inside, the program allows marketers to customize and track offers to all members with special focus on the less frequent customers where opportunity is substantially larger. Even small changes in purchase frequency from your large volume of infrequent and occasional members can really add value to the bottom line.
Focusing your marketing dollars on your OKAYEST customers can be enough to pay for the program itself, and more. By approaching your program in this way, your loyalty program becomes a true growth engine.
Rule #4: Use segmentation one-to-one personalization to achieve the best response rates
Having a loyalty program in place allows marketers to track member behavior at an individual level. Each member has a unique ID in which we can record every email open, click, transaction, and reward redemption. In addition, you are able to ask customers for location and store-specific preferences using a profile center. This single view of the customer can then be appended with additional demographic and psychographic data.
These customer insights are critical to creating, personalizing, testing, and optimizing relevant offers to achieve behavior change that will drive incremental visits and spend. You are no longer relying on a segmentation model, but instead trying to achieve a one-to-one marketing program.
The rules of loyalty programs may be different than you have thought. Have you evolved your program with the right strategy and technology to compete for your customers’ loyalty?