Business and Operations
Key considerations for customer loyalty programs
By Jeffrey Harris
By Jeffrey Harris
Jan. 21, 2010 – Imagine for a moment that you are engaged in a discussion
with an industry colleague who is a marketing leader of your acquaintance from
another brand. The topic of discussion is the loyalty program recently launched
by your peer.
What would your response be if in answer
to your question concerning the level of planning that went into getting ready
to launch the initiative, the person with whom you were speaking replied: “Well
we felt as though we had better have some kind of program since a number of our
competitors have them. We don’t have in-house expertise in loyalty programs so
we looked at what was out there, took what we liked from this one and that one,
found a low cost provider of loyalty cards, were careful not to decide on what
kind of program rewards we should offer, printed up enrollment forms and off we
Presumably, you’d feel that what you had
just heard was a recipe for failure on all possible fronts, ranging from the
absence of much of anything to create customer interest right on through the
inability to perform useful measurement of results. And yet, while this kind of
approach to launching a new loyalty program is unquestionably a bad idea, it’s
not, in varying degrees, particularly uncommon.
Here’s a suggestion: If you are
exploring the viability of launching a loyalty program – whether it is your
intention to work with a resource partner or manage the program internally –
you will be well served to carefully consider the types of questions posed in
the balance of this article.
a formal, card-based loyalty program what you really need?
Assuming your POS system has the basic
capability of linking a customer identity number (email address or even phone number)
to a specific transaction, you are in a position to begin the process of
gaining insight into all the important aspects of your customer’s purchasing
Being able to collect this type of data,
the question becomes whether or not you have internal resources to optimize its
usefulness. Do you have experts on staff to create behaviour based segmentation
models and to perform the intense analysis that will enable you not only to
develop ROI producing customer contact strategies, but also to make profit
enhancing decisions relating to in-store product placement and/or special offer
If not – and most retailers don’t – find
an expert partner. Allow that partner to help you learn about your customer
base. Engage in insight-driven data base marketing and in the process you will
(in all likelihood) also reduce your direct marketing expense. Incidentally,
while allowing yourself time to contemplate whether or not you really do need
to offer a formal card based loyalty program, you will avoid various
significant costs associated with the creation and distribution of program
materials, maintaining a program website, providing program related customer
service and, of course, issuing hard dollar rewards.
are the primary objectives associated with offering a loyalty program?
Let’s say you have determined that you
want to offer a formal customer membership rewards program. Thoughtful
determination of specific, clearly identified program objectives will result in
a more meaningful planning process. What, for instance, designed into the
program will most effectively encourage customer retention, bring about overall
increases in visit frequency and improve average transaction value? How will
the program be used as a tool to aid new customer acquisition? What will
constitute overall success and what measurements must be in place from day one?
will a new program affect other marketing initiatives already in place?
If, for example, there is currently a
private label or co-branded credit card program in place, how will it be
affected by the introduction of this new initiative? Will your new program
incorporate and encourage card usage or is it to be targeted at non-card
Don’t forget to consider the extent to
which discounting and couponing already factor into promotional out-reach to
the customer base and how that out-reach will have to be adjusted once the
program is launched. Will rewards issued in the program be in place of or in
addition to the discounts customers have been trained to expect and how will
margin be affected?
What kind of program structure will be most consistent
with your store brand image?
What’s the right
membership reward model for your customer base? Various reward models offer
points based on spending, a combination of frequency and spending, a members
only standard discount, or permanent discounts for members after achieving a
certain level of spending, and there are other options as well. The important
question is what reward model will be attractive to your customers and
affordable to the brand? Of course there are a host of other reward related
considerations, such as how often rewards should be issued, how to deal with
returns, expiration of rewards, method of reward delivery, etc.
Can program costs be offset by
charging for membership or tiered participation?
clientele accept the notion of paid membership? Or, if a higher tiered, paid
membership option is offered, what will the consistently experienced special
benefits associated with paid membership be? There had better be some. One
foolproof technique for arousing customer anger is to sell a promise, and then
fail to deliver.
What will ensure a successful
What will your system allow? What
enrollment method will be most acceptable to your customers? Will they respond
happily to a request by the store associate for name and email address or phone
number? Can we ask them to complete an enrollment while on-site for data entry
at a later time? And let’s not ignore the matter of how much training will be
required of your store associates to prepare them to appropriately present the
program so that customers want to join.
How will you know your program is
It is of the utmost importance to have
determined what measurements you will have in place during the testing phase of
your program and subsequent full program roll-out. That is also why it will be
helpful early in the planning process to establish what ROI model to use for
ongoing evaluation, determining how program liability will be accrued for and
making sure that there is a clear understanding from day one that program costs
will be readily evident well before any measurement of longer term benefits can
Determine the loyalty cultivation
approach that is right for your brand, either on your own by devoting necessary
time and attention to the effort and/or by engaging with a loyalty solutions
provider who, in addition to offering the technical, analytical and marketing
expertise you need, seeks to understand your business and, above all, is first
and foremost interested in assisting you in the achievement of the customer
relationship marketing objectives associated with your business vision. That is the path to success.
Harris founded SHC Direct and leads its management team. Jeffrey has more than
20 years of marketing, sales, sales management and client services/operations
experience in the incentive marketing and loyalty marketing fields. Prior to
founding SHC Direct, he held the position of executive vice president of
marketing and client Services for S&H Citadel, Inc., Chicago, IL. Jeffrey
has been an active member of The Executive Committee since 1998. For more information, please visit www.shcdirect.com.