"Progressive Rewards, Maximum Return"
October 21, 2002
How can companies inspire loyalty in today's market when battling the
scourges of reduced customer purchasing involvement and declining brand allegiance?
One compelling option is to establish a customer loyalty initiative offering ongoing,
progressive value incentives. Customers base their purchase (and repurchase)
decisions on perceptions of value (price/benefit), thus only the ongoing perception of
high value fuels purchase loyalty. Loyalty incentives -- which include options like
private label reward programs, coalition programs, continuity/club options, and more --
are all designed to encourage and reward loyal customers.
Regardless of program type or media, extensive evaluation and execution of loyalty
initiatives reveal the following guidelines for developing an optimal loyalty
Emphasize the relationship. Loyalty reward initiatives will fail if developed
as mere marketing promotions or customer bribes. They are relationships -- a means by
which the merchant shares value with the customer in proportion to the value the
customer's loyalty creates for the merchant. It is essentially giving back
a portion of the value that the customer, by being an ongoing source of revenue,
provides to the company. If the merchant thinks of the program as a gimmick, so will its
Personalized, sincere communication is the most important element of most
Target desired (profitable) customers. Detailed customer
segmentation and target audience analyses are essential to establishing a profitable
loyalty initiative. Reward programs should be designed to retain the very best customers,
not low-margin buyers. This may seem obvious, but many promotions end up attracting
exactly the wrong type of customer.
Deliver sustained and progressive value. One-time offers will deliver one-time
customers. For lifetime loyalty, the merchant must offer sustained service and rewards.
This means a never-ending promotion; therefore, prudent financial planning is essential.
While sustained rewards may be a costly investment for a merchant, the returns will be
enormous: consumers will stay with a merchant whose benefits are reliable and
Businesses must direct funds and efforts into retaining their best customers via a
tiered system. As a customer's purchase level and/or frequency increases, so should
the level of return to the customer. Also, if reward value increases with increased
participation, competitors will be unable to lure customers away given the increased
switching costs. Progressive reward levels encourage customers to shift their business
and concentrate their purchases with a single merchant.
Focus on the brand. When developing a loyalty program or initiative, merchants
must be cautious not to develop deal loyalty rather than brand loyalty. To bolster the
brand through rewards, the brand/product itself should comprise the incentive, as with
the typical frequent-flyer program. The reward is more of the service itself, not a
monetary incentive or some other merchant's service or product. A Sloan Management
Review study found that programs that reward customers with a free quantity of the
product or service following multiple purchases direct the customer's aspirations to
the product or service and not the deal, thereby encouraging brand loyalty.
Listen and communicate. Personalized, sincere communication is the most
important element of most loyalty initiatives. Programs that are impersonal, one-time
offers do not develop relationships. A smart loyalty program will seek to learn more
about the customer and remain in frequent contact. Without investing in meaningful,
individualized letters, messages, and offers, the program will die. Also, the
communication can't be one-way: sending only marketing materials is not a dialogue.
For the relationship to thrive, the merchant must solicit customer input and opinions.
This is especially important when dealing with customers that leave -- extra effort
must be expended to connect with him or her and find out why.
Personalize and customize incentives. To push the consumer toward his or her
next purchase, rewards or incentives must be personalized. To ensure that the customer
does not later defect to a competitor's reward program, the merchant's program must,
from the outset, offer increasing levels of rewards that reflect the customer's prior
purchases, preferences and interests. This is where the value of technology comes into
play: with comprehensive CRM and stellar customer support, the customer's experiences
feel increasingly intimate.
Countless studies have shown that customer satisfaction alone does not
equal customer loyalty.
Mix "hard" and "soft" rewards. Because
thousands of companies attempt to use loyalty initiatives, consumers are skeptical of
program requirements and rewards. Offering only "soft rewards" like improved
service may actually insult the customer (although, depending on the industry, service
or exclusive information may qualify as a "hard reward"). "Hard
rewards" are defined as something that the customer would have to pay for if
it were not for the reward program. Customers are looking for real value in the
program, and are very sophisticated in detecting a rip-off or gimmick. A combination of
benefits is best: while hard benefits are often copied, a program's soft benefits may
serve to distinguish the plan from others.
Avoid the satisfaction trap. Countless studies have shown that customer satisfaction
alone does not equal customer loyalty. When tracking repurchase loyalty, one car
manufacturer was dismayed to find that although 90 percent of its auto users described
themselves as "satisfied" or "very satisfied" with their vehicles,
their repurchase rate hovered around 30 to 40 percent. This puzzling phenomenon is due
to a vast and important gap between what consumers say and what they do. Or, as powerfully
expressed by loyalty guru Frederick Reichheld, "Companies can avoid the satisfaction
trap if they remember that what matters is not how satisfied you keep your customers, but
how many satisfied and profitable customers you keep." Don't confuse the
two -- measure the success of your program by retention.
Make participation easy. Consumers do not want to jump through hoops or fill
out innumerable forms to be members of a loyalty program. The merchant should aim to
make joining and participating as painless as possible. Loyalty initiatives with optimum
participation are hassle-free.
In conclusion, the best loyalty initiatives are designed to be sustainable, progressive
in reward-giving, and brand-centered. They are also personal, communicative, and geared
toward establishing a genuine dialogue for mutual learning and sharing. These elements,
when implemented correctly, give the consumer a strong incentive to purchase frequently
over time, as each transaction is increasingly personal, rich, and rewarding.
Channing Rollo is Business Intelligence Manager
at ClientLogic, a Nashville-based outsourcer in the contact center and