With all the data being collected today on customers and how challenging it is to capture their attention, it is easy to see why loyalty programs are so popular for marketing. Developing a loyal customer base is the Holy Grail of every business, yet achieving an effective loyalty programme can be challenging.
It is generally believed that the concept of a loyalty program began in Germany in response to the government’s prohibition of selling the same product to different customers at different prices. German marketers were forced to develop loyalty programmes that created loyalty without financial incentives.
In the 1950’s, the US company S&H Green Stamps offered stamps at grocery stores and gas stations that customers put in books and redeemed for products. In 1981, American Airlines launched what might be looked on as the first modern-day loyalty program that was quickly copied by every airline.
Loyalty programs can be a significant element of a business. While only 12 to 15 percent of customers are loyal to a single brand, that small group can generate 55 to 70 percent of a company’s business, says the Center for Retail Management at Northwestern University!
Today’s digitally saturated world requires a different kind of loyalty programme than its predecessors of the last century. Today’s customers may have multiple devices and they are demanding more and more that their digital experiences be highly personalized, contextually relevant, and in real time. With today’s devices, one finger swipe can eliminate your offer and bring up that of your competitor.
The basic principles of a loyalty program are still pretty much the same as they have always been:
- Acquire new customers
- Retain the best, most profitable customers
- Reconnect lapsed customers
- Increase the spending of existing customers
- Improve the natural churn rate of customers
- Shift spending to higher margin products
But the fundamental reasons that customers choose to participate in loyalty program has changed dramatically, affecting the design of your program.
- MEET HIGHER EXPECTATIONS
Customers are looking for VALUE, RELEVANCE, and MEANING. Gone are the days when you could just say what you were offering was bigger, better, faster, and easier. Today’s customer is looking for EXPERIENCES that are of VALUE. They base their choices on reviews and are looking for more than just a discount.
- ESTABLISH RELEVANCE
LOYALTY is not just providing REWARDS. Marketers often make this mistake. A loyalty program is designed to generate advocacy and commitment, not just a one-time purchase. The size of the reward is less important than the perceived value of the reward. A customer who you have had to subsidize with constant offers of a lower price is not necessarily loyal.
- REDUCE COMPLEXITY
A good loyalty program reduces the customer’s decision-making and reinforces the rightness of a choice.
- CREATE AN EMOTIONAL CONNECTION
You have to position your products and service in terms that make the customer see the value and relevance. To do that, you have to map out the complete customer journey with your brand at every touch point on every channel. You have to make it clear how you want to be perceived.
- GO MOBILE
While many customers are OK with plastic cards, an increasing number of users want their smartphones and other mobile devices to be used. Going mobile also give you the opportunity to use geolocation capabilities, wearables, near-field communications, and games to incentivize customer behaviour.
The Scandic Friends loyalty program, launched by Scandic in 2008, is the biggest loyalty program in the Nordic hotel industry. The program is considered the most beneficial and popular loyalty program in the industry, offering customers points towards free or upgraded stays, but also special activities and offers tailored to the specific customer’s interests.
Alpine destination owner SkiStar has a dynamic loyalty program. When a customer passes through any of the lift scanners at any of their facilities, it registers on their SkiPass. By connecting their SkiPass number to their account, they can track their skiing and statistics like the lifts’ height and length. Much more data is automatically calculated depending on how well you ski. The more information you fill in about yourself, the more detailed the statistics you receive. It can even tell you how many calories you have burned!
It is also very important to take into account regional preferences. For example, Norwegian consumers are more concerned with food safety and animal welfare issues than prices.
To develop a quality loyalty program that justifies the return on your investment, you would be advised to make use of the plentiful analytic data available. But as I said in a previous post, the data you choose has to be used carefully and thoughtfully. Once you are sure that you are complying with legal guidelines, you want to make sure you are doing things that don’t stretch the comfort level of your customers too far.
A loyalty program can dramatically improve your business, but you must update it and make it relevant to today’s digital world.