Home Articles Loyalty schemes: How to leverage the power in your customer networks

Loyalty schemes: How to leverage the power in your customer networks

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Loyalty schemes: they’re an established feature of our retail and service industries. They have become widespread, almost ubiquitous… and boring, writes Chintan Bharwada. However, there are three clear steps to getting it right.

When the first loyalty programs hit the market, uptake was significant and rewards for marketers were high.

Some years on, however, the market is now overrun with these schemes, each with a lack of something special when compared to the next. As a result, consumers have become difficult to please and the numbers of those joining these schemes is on the decline.

But what are the reasons for this?

Some say that consumer uptake is diminishing because the technology involved is becoming too complicated. However, this will invariably change with the emergence of more user-friendly options and loyalty programs will continue to work well, provided that the value proposition is attractive enough.

What really is needed is that ‘WOW’ factor.

Yet, in most cases, this usually means the offer of a reward with more soft benefits. Marketing departments, however, need to be very careful ensuring that an ROI is achieved to make this kind of deluxe loyalty scheme work.

Another factor undermining uptake is that loyalty schemes have a life-cycle.

Effectiveness diminishes over time. Attitudinal loyalty seems to last longer than behavioural loyalty, but as behavioural loyalty is the only form that translates to dollars; this is not good news for business.

What businesses need to do is to kick the tired, old loyalty scheme. They need to try something more ambitious — something innovative and untested that will capture the imagination of customers and stimulate both attitudinal and behavioural loyalty.

To do that, they’ll need to observe these three powers:

  1. The power of networks
  2. The power of data
  3. The power of convergence

Tips on leveraging the power of networks

Most loyalty networks will already have a membership base. Yet, few exploit these effectively.

1. Know your member base.

If your loyalty program serves a member base with highly specialised needs, then enabling members to connect with each other can build value. For larger organisations with programs that serve a larger and a more diverse audience, perhaps ask these two questions:

  1. What niche segments within your base can you better serve?
  2. Which niche segments have the most potential value?

In either case, your starting point is the analysis of existing customer behaviour patterns. Clustering techniques can adeptly segment customers for further exploration. Your next step is to research the underlying motivations of customer behaviour.

  1. Why are your customers switching to the competition?
  2. Why did they choose you in the first place?

By applying a disciplined analysis of what customers desire from their relationship with your brand, you can identify the relevant economic and emotional issues that can form the basis of community growth within your existing loyalty system.

2. Create virtual sharing environments

The growth of the Internet, with its inherent cost efficiencies, is the primary driver behind the evolution of community-forming networks. As you evolve your own loyalty strategy, it is now possible to build your own virtual communities for users.

Web-based communities have value when you create specialised, relevant content. Message boards, questions archived by category, “Ask the Expert” access, blogs, members-only content. These can instil brand and build a better brand.

They each also operate as a natural extension of a loyalty scheme.

3. Build community through tangible access.

As compelling and necessary as virtual network portals can be, there is no substitute for human interaction.

You can build emotional attachment to your network and your brand by creating access to members-only events within your loyalty strategy. Customers who build relationships through brand-sponsored gatherings will strengthen those relationships online.

4. Networks are a means to an end.

Leveraging the power of the network is just one element of the brand’s overall value proposition.

Access to communities is a meaningful recognition benefit, and one that you can and should add to a well-balanced diet of hard and soft benefits.

Also, remember the fundamental rule for loyalty marketers is this: just as all customers are not created equal, all communities are not created equal. Unless united by common interests and relevant dialogue, member communities will wither away.

By creating both virtual and tangible environments where like-minded members can assemble and share ideas, and then nurturing these communities so they flourish, loyalty marketers can build a core soft benefit around which their brands can develop a pristine oasis of customer relevance and advocacy.

Tips for leveraging the power of the data

Information can always be leveraged to enhance your core product, and you must understand what insights you can glean from your available data. Consider these best practices.

1. Cast a wide net.

Simply put, you cannot manage a relationship or enhance the in-store experience if you do not know who your customers are. The starting point is a sound loyalty program with broad appeal. The first step down this path is to put forth a value proposition that encourages customers to raise their hands and ask to be identified. Sophisticated application of recognition and reward is the foundation of your enterprise loyalty strategy.

2. Understand customer value.

You can start with a simple question: which of your customers are the most valuable? Yes, basic insight into which customers make up most of your sales will always be relevant. This can be simply: 1 percent of customers account for 10 percent of sales; 10 percent of customers account for 40 percent of their sales. That simple insight is the starting point for giving the businesses a better way to cultivate loyalty, one customer at a time.

Combine transactional and demographic data to enhance understanding of your customer base.

3. Personalisation drives relevance.

Use market basket analysis to target offers and identify new product opportunities.

Event-driven communications illustrate the importance we place on relevance. With customer value detectors as sharp as  scalpels and the din of marketing noise increasing every year, your communications to members should serve as a safe harbor of pristine, relevant and value-added communications.

Tips for leveraging the power of convergence

If you are a smaller player in the marketplace, gazing longingly at the mega-corporations with a combination of hope and trepidation, how can you seek their participation in a coalition program? And more importantly, why should you care?

When you are approached to join a coalition program, here are a few important considerations to bear in mind:

1. “What’s in it for me?”

A coalition means your customers can earn rewards and benefits even faster. In return, the increased earning velocity of coalitions drives behaviour shifts in ways that operators of proprietary loyalty programs can only dream of. The power of earning lots of currency quickly, at a variety of partner brands, makes a loyalty coalition a strong ally – or a formidable opponent.

2. The acquisition effect.

The “collector” mentality created by a well-formed coalition has a significant benefit: increased rates of acquiring customers from other sponsors in the program. This acquisition effect will leave competitors on the outside, looking in.

Of the three basic building blocks for generating ROI in your loyalty program – shift, lift and retain – the coalition model excels at the “shift” part of the equation

However, once you are in this coalition, remember that you are in it for the long haul. The acquisition effect can also work against you if you leave the coalition and a competitor steps in to take your slot.

3. Share of mind.

One of the more subtle strengths of coalition loyalty programs lies in their ability to influence share of mind in participating members. When a member produces their coalition card at the point-of-sale several times per week at the grocer, the fuel retailer and the bank, the repetition reinforces the strength of the coalition brand as an integral part of the consumer’s life – particularly if this “swiping power” is combined with accelerated earning velocity. This ability means that the first movers in a new coalition will enjoy a considerable advantage.

4. Brand alignment.

The ability to align your brand with other top-tier brands within a loyalty coalition is one of the strongest arguments for joining one. If you are a grocer approached to join a coalition, ask about your potential partners in other high-velocity sectors such as fuel retail and financial services. If you have the chance to join top-tier players in complementary sectors, jump at it. The move could quickly vault you from also-ran to leader in your sector.

Summary

So when you look at the future of loyalty marketing and the trends that will shape our space, you will see boundaries that continue to expand outward. The very concept of “loyalty marketing” will encompass many more ideas, strategies and tactics than it has in the past.

Grouping these micro revolutions into three macro trends will affect the evolution of your own customer loyalty strategy. These shifts will allow marketers to unleash new loyalty-marketing strategies and tactics that will power profits and growth well into the 21st-century.

And remember, success goes to the innovators. Innovation breeds success. The followers can only devote their time to playing catch-up.

Chintan Bharwada is a marketing expert with more than 13 years of hands-on marketing experience. Chintan specializes in Customer Acquisition & Retention, and Loyalty Marketing. Chintan writes a blog http://loyaltyandcustomers.com/.

Image by joelogon.

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