How to create a loyalty program your customers really love
A look into customer retention programs
By Lauren Gibbons Paul
It seems everyone from the corner sub shop to the biggest luxury retailer has customer loyalty programs (customer retention programs). Chances are good your wallet or keychain is packed with plastic program cards and private-label credit cards. But do any of them really make you loyal?
In Summary:
| • | Don't get sidetracked by creating customer retention programs that rewards frequency. |
| • | Get inside the customer experience to understand why they value your products and services. Then, plan rewards to match what your most profitable customers truly value. |
| • | best customer retention programs — whether aimed at businesses or consumers — engage their customers emotionally. |
When creating or enhancing your own company’s customer retention programs, forget cold plastic in favor of programs that strengthen the emotional connection between your brand and your most profitable customers.
The first step is to determine if you are offering loyalty programs, customer retention programs, for the right reasons. "Most midsize companies decide to do loyalty programs because they think they have to, because everyone else is doing it," says Martha Rogers, a founding partner of the customer relationship consulting firm Peppers & Rogers Group of Stamford, Conn. "That's the wrong reason to do it."
The right reason, she says, is to recognize and reward your most valuable customers in exchange for information that you can use to create products and services that more closely fit their needs and desires. As a hypothetical, if you work for a hotel company and discover that your best customers prefer to fly American Airlines rather than US Airways, you can use that information in a variety of ways — from becoming a partner in American's AAdvantage program to expanding your marketing in its elite flyer lounges.
When creating new customer retention programs, or revamping existing ones, avoid the trap of rewarding frequency rather than loyalty. Some of the best-known loyalty programs (such as airlines' frequent-flier clubs or grocery chain cards) encourage customers to chase points and discounts above all. Rogers calls these "anti-loyalty programs."
She explains: "I have nine frequent-flier numbers. When I reach platinum status on one program, I start flying another airline to try to reach the highest level on their program." Similarly, the typical grocery store program that gives discounts for certain items if you hand over your membership card at checkout delivers the wrong message: Pick a card, any card.
This is game of discount-chasing is not one that most midsize businesses will be able to win (or would want to win, for that matter), since the victor is whichever company can offer the lowest price.
Personalize your loyalty program through smart data analysis
A hallmark of a frequency program, as opposed to a true loyalty program, is it that competitors can easily copy it. Where frequency programs give a benefit (such as discounts or points) in exchange for transactions, true loyalty programs solicit customer information you can leverage to create a unique reward --- one that your competitors cannot easily duplicate. "It's a lot more work," Rogers says. "But it can give you a competitive advantage that has staying power." (See how Microsoft Dynamics CRM 3.0 can help you enhance your customer database.)
Rogers cites Tesco PLC, the United Kingdom-based grocer and retailer that is challenging Wal-Mart's expansion in Europe. Millions of consumers have given Tesco information about their personal preferences in exchange for the loyalty card. But rather than stopping at giving standard discounts on products, Tesco uses sophisticated data analysis to craft personalized offers on price-sensitive goods such as shampoo or margarine.
The scale of Tesco's program is awe-inspiring. "The regular mailing goes out to 12 million people in 5 million different versions," Rogers says. "It's mind-boggling. You only get stuff that is relevant to you."
The company outsources its Clubcard program to dunnhumby PLC of London. According to Simon Hay, chief executive of dunnhumby USA, the most important data analysis practice is to be selective in what you are looking for, before you start looking, and to know how you might put that knowledge to use if and when you obtain it.
So, if you're a grocery store and you find out your most frequent customers don't buy your produce but are in a high-income bracket, logically you would act to boost the appeal of your fruits and vegetable offerings. Consumers and business customers lose faith very quickly when they share personal and preference data with a company and then do not see the company act on it, Hay says. "Most customers have an expectation that you will do something sensible with the data they share with you," he says.
Another best practice is to examine the data to confirm or dispute assumptions about your business. Carrying on the grocer example above, if you and your colleagues perceive that customers dislike your produce selection, analyze the data to find out if that is in fact true.
Terri Gaughan, consulting program manager for COLLOQUY, a loyalty marketing publisher and consulting firm in Milford, Ohio, points to a customer of parent company Frequency Marketing as an example of a business-to-business loyalty program that has increased customer retention. Created 10 years ago to help Verizon retain its share of the long-distance business among small and midsize companies, Verizon Business Link allows elite members to choose from a flexible menu of benefits. For example, a small-business owner might elect to exchange his points to take his best customer to dinner at a fine restaurant, while another might use points to fund a team-building outing for his staff. Verizon Business Link has enlisted more than 200 program partners to give its members a wide array of benefits choices.
Do not discount the importance of personal touch
Often, Rogers says, the most effective loyalty programs are not formal at all but rather loyalty-boosting practices. For example, Zane's Cycles, in Branford, Conn., offers its customers free bicycle maintenance for life if they take the time to answer six questions (which owner Greg Zane then stores in his customer database). This was a master stroke, says Rogers, because only true bicycle enthusiasts care enough about bike maintenance to come down to the shop to fill out the questionnaire. Since Zane knows who the true cycling enthusiasts in his community are, he targets them with relevant offers and the special care that all aficionados appreciate.
The hospitality industry is a natural for the personal attention that makes customers' hearts sing. Rogers' favorite place to stay for business travel, Homestead Studio Suites in Norwalk, Conn., has two bottles of water in the fridge and the TV tuned to her favorite station when she arrives. That does far more to cement loyalty than amassing some points for a discount.
Says Rogers, "They asked me what I like, and then they paid attention. These are not expensive things to do."
Lauren Gibbons Paul, from Waban, Massachusetts, writes often on midsize business technology issues. Paul has 15 years of experience as a journalist, with previous staff positions at eWEEK and other business publications. She can be reached at Lauren.paul@comcast.net.
