Editor’s note: Terry Vavra and Doug Pruden are partners at research firm Customer Experience Partners. Vavra is based in Allendale, N.J. Pruden is based in Darien, Conn. This is an edited version of a post that originally appeared on the Customer Experience Partners’ blog under the title “Loyalty programs: Lots of hidden challenges.”
When thinking about ways to increase your customers’ loyalty it’s not surprising to consider adopting some form of a rewards program. Many have. The fact is, effective or not loyalty programs are being offered by just about everyone. From your corner dry cleaner to American Airlines, marketers everywhere seem convinced that a loyalty program is a “must have.” With such universal acceptance we didn’t find the results of the 2013 Loyalty Census from Colloquy very surprising. According to the investigation:
- The average U.S. household is enrolled in 22 loyalty programs (that’s a 17 percent increase over 2010′s 18 programs);.
- However, each U.S. household is active in only nine programs!
- And, the proportion of programs in which a household is active appears to have peaked (2010′s 46 percent exceeding 2012′s 44 percent).
We all know that averages are deceiving. The Hannifin Loyalty blog reports that in one specialized segment of consumers – business travelers – the average number of loyalty program memberships is as high as 40 programs per traveler!
Are we asking the wrong question?
Membership numbers, active or not, can be a fickle indicator of effectiveness. As opposed to mere belonging, a better question to ask might be how many programs are top of mind for customers. That is, how many programs are truly engaging members of the program? More importantly, from the sponsor’s side, how many loyalty programs are actually influencing members’ behavior – increasing spending?
We use a value equation as our model in considering how customers make decisions about repurchasing brands, products and services. If effective, the loyalty programs in which a customer is enrolled should become components in each customer’s value equation calculation for a brand. The more effective the program, the more weight the program component should exert in urging repurchase. This being said, here are several actions loyalty program owners should be considering:
- Is your loyalty program stimulating active engagement or does your structure condone passivity – merely setting membership hurdles but failing to involve members in your brand?
- Have you truly identified the behavior you want your program to influence? While it sounds trivial, many loyalty programs suffer from weak or non-existent goals. Be specific. Do you want: to retain customers, to broaden the range of products they buy from you or to increase the frequency of their purchases? The way you structure your program can help accomplish very specific behaviors.
- Do you recognize that your loyalty program is part of the total experience you provide your customers, not an isolated adjunct? Whatever your loyalty program offers, however it’s conducted, all of the program’s components contribute to the total experience you offer your customers.
- Are your program’s rewards significant, relevant and desired such that they actually possess motivating power? Are your customers sufficiently familiar with your rewards so that they strengthen their emotional bonding to your brand?
- Does your program offer specialized rewards consistent with your typical customer’s needs and interests as determined by his/her status in their life cycle with your brand.
- Do your program members spend more and behave more positively toward your brand than they did prior to becoming members? Is that increased spending more or less than the total cost of planning and executing the loyalty program?
- Are you certain your loyalty program is more than just a mileage program? A mileage program will only perpetuate current purchasing. A true loyalty program should impact many different aspects of your customers’ interactions with you.
All said and done, creating a loyalty program may be your easiest task; keeping it engaging and motivating is the real chore. And there’s also the frequently overlooked implicit obligation of justifying your program by tracking its ROI.