The future of customer loyalty

How many customer loyalty cards do you have in your wallet?

Loyal customers are the Holy Grail for most businesses. With customers having so many different options for goods and services, developing long-term, loyal customers is critical for brands and companies. Not only is it easier to sell more things to customers who already love you, but raving fans will tell other customers about your brand or company. When you factor in the expense of trying to reach new customers and the high lifetime value of each individual customer, loyalty needs to be a top priority for every business.

However, many companies have approached this effort in very much the wrong way and are stuck in old-school, ineffective loyalty approaches. It is critical for companies that want to develop long-lasting customers and raving fans to start coming around to what I call Loyalty 3.0.

With very few companies even coming near Loyalty 3.0, there are unprecedented opportunities for forward-thinking companies to become leaders in this movement and gain competitive advantages by forging rock-solid customer relationships.

Loyalty 1.0 – This is where companies believe that by rewarding the customers who spent the most with them, that they are creating loyalty. This comes in programs like points-per-dollar spent or “buy nine, get the 10th free” cards. This form of loyalty looks an awful lot like bribery.There are several problems with 1.0:It creates loyalty to the program, not the brand or company; you are only as effective as your offer.It creates another form of price competition. Buy nine and get one free is akin to a 10 percent discount across the board.It only rewards the “spenders” — customers are only considered as important as their last set of purchases.

Loyalty 2.0- This evolved in the form of social media. Brands realized that it was not just the spenders who were important, but also the influencers who indirectly accounted for sales through brand advocacy. This was an important realization for companies and brands.

Loyalty 3.0 – Some companies have been doing this for a long time, but they are in the minority.It is a holistic approach that can be led with product functionality (think Apple), customer service (think Nordstrom), creating an affinity group or lifestyle association (think Harley-Davidson), creating an experience (think Disney theme parks) or even by creating a bridge to the customer with ancillary products, services, content or experiences that are important to the customer (think food companies with time-saving recipes), depending on what is of most importance to customers.

True customer loyalty stems from making your customer feel important — but in whatever way resonates with him or her. This is tricky territory because not all customers have the same wants or needs.

It isn’t easy — if it were, everyone would be doing it already. However, it is incredibly worthwhile, as nothing is more important to your business than solid, loyal customer relationships.

Loyalty trends in 2015

Loyalty programs have become an important tool for contribution in ROI of the company. The below mentioned trends are just sampling of what will come in 2015.

1. Touchier Transactions

One-touch ordering loyalty appear to be in its infancy but it will play an important role in changing trend of loyalty.eBay is working with several retailers to install touchscreen window displays so customers can shop even when stores are closed.Amazon, meanwhile, is investing in connected-home devices, including a WiFi tool that orders household items with the press of one button.These concept don’t mean a retailer won’t lose customers to competitors, but a good loyalty program with such facility will be seen as relevant and top of the consideration set.

2. Smartphones and  Currency Equality

Apple may change the point system. With its iPhone 6, the company has introduced a digital wallet that has the potential to usher in an age when all types of currency, real and virtual, can be interchanged. This applies to loyalty points. The test will be whether loyalty operators join in, but they may have no choice. As the New York Times put it, “Some companies might lose value in their loyalty programs, but others will find enormous value in issuing their own currencies for advertising or data-tracking purposes.”

3. They Want It Now

Technology has spawned a population of Wonkaesque Veruca Salts, getting what they want now. These consumers have diminishing patience for rewards that take years to accumulate, and marketers will be taxed to deliver. It can take years to earn $100 in rewards in some programs, based on “time to reward” research by Environics Research Group, while Canada’s AIR MILES Reward Program takes just six months.

4. Data For My Phone

16% of consumers expect advertising to be available on their clothing by 2024, according to a survey by the DMA.Today, companies are creating wearable devices for infants and pets in addition to our wrists. In the interim, loyalty operators should be investing in mobile rewards as it will likely guide the way. As Jeff Berry, research director of COLLOQUY, puts it: “We are at the early stage of learning how loyalty can intersect with mobile as it branches out beyond the rectangular phone.

Loyalty programs that reward activities from mobile devices – and that collect data to better understand their customers – will find it easier to integrate activity from wearables.” Doing this well requires optimizing websites to incorporate the data.

5. Generation Regeneration

The currently emerging generation, is savvier about social sharing. Sixty percent of teen Facebook users keep their profiles private, according to Pew research. Drewitz suggests the “planting-a-redwood strategy” for engaging teens while targeting consumer based on behavior, not just age.

6.Frequent Flyer Blowback

As Delta Air Lines and United Airlines prepare to shift the earnings models on their frequent flyer programs, competition may emerge from an unlikely place – smaller, regional carriers. Major airlines offer fewer direct flights these days, and  some small carriers already collaborate with the majors. Further, regionals with little flight overlap could partner for points and peanuts, giving consumers more incentive to throw their business to a coalition that operates under one program.


Using loyalty programs to reach retailers’ best customers

Loyalty programs are not a new concept in the world of retail, but, like today’s customer base, they are in a critical state of flux in the current digital era. Both for retailers looking to create loyalty programs from scratch and for those looking to adapt existing programs to appeal to shifting consumers, engaging today’s connected consumer is key, and developing engaging programs was the topic of a session at National Retail Federation’s BIG Show this week in New York.

According to Caroline Papadatos, senior vice president of international corporate marketing at Loyalty One, there has been an “explosion of channels” recently among consumers. She noted during the session that smartphones are often the first thing consumers pick up when they wake up in the morning and the last thing they put down before they go to sleep at night, and it is the responsibility of retailers to make sure that they let that kind of behavior shape their loyalty programs.

“What we’re seeing is that savvy retailers are adapting and they’re getting ahead of the customer,” she said.Shoppers are increasingly looking for personalization and they are looking to have experiences in everything they do from shopping to ordering pizza, Papadatos said, and loyalty programs are a great way for retailers to not only offer shoppers a unique experience but also to collect the kinds of data they need to create a truly personalized shopping experience.

“To create real personalization you need data,” and the well-positioned retailers are the ones that are using that to fuel their loyalty programs, she said.For Walgreens, it took longer than other retailers to really get into the loyalty game. In the early 2000s, the retailer relied on stores for growth, but there came appoint where Walgreens reached a saturation point and had to restrategize. So in 2013 the company turned to loyalty programs as a way to figure out how to better leverage its network of stores and get a deeper understanding of customers, with the goal of transforming the retailer’s image from a drugstore to a wellness destination, Walgreens Senior Manager of Loyalty Strategy and Insights David Zychinski said during the session.

In the two years since the chain launched its rewards program, Walgreens has really worked to create an engaging and dynamic program that includes its regular Balanced Rewards, pharmacy rewards and Balance Rewards for healthy choices, Zychinski said. And the retailer’s goal is to focus its loyalty strategy on its best customers.

“It’s not about having a loyalty rewards strategy, it’s about having a customer loyalty strategy,” he said.For Walgreens, the direct benefits of its loyalty programs are important, but the indirect benefits like gaining insights into product assortment, pricing, promotions and store layout also carry real value for the retailer, Zychinski said. And focusing its loyalty strategy on its best customers creates opportunities for retention, greater access to those customers and a deeper understanding of the “share of mind” of Walgreens customers, he said. And the strategy is paying off. Since its launch, Walgreens’ loyalty program has seen more than 1 million customers download coupons, 120 million registrations, more than 80 million active members and 500 billion loyalty points earned.

All in all, Zychinski said important things to keep in mind when it comes to loyalty programs include aligning loyalty strategies with corporate strategies, focusing loyalty strategies on the best customers, establishing a foundation of insights into and segmentation of those customers and using those insights to drive loyalty and behavior changes among the best customers.

“It’s a really exciting time to be in loyalty,” he said.The main goals retailers should keep in mind when it comes to loyalty programs are acquiring customers, increasing basket size, drawing shoppers to stores and achieving a status among customers that has them choosing you over your competitors, according to Papadatos.

“It’s not much more complicated than that,” she said.But it doesn’t end with just establishing a loyalty program.“Loyalty programs are an important tool, but they’re not the only tool in the tool set,” Papadatos said.

It’s also about knowing what to do with the data collected through loyalty programs and bringing the different aspects of loyalty programs like promotional pricing, points programs and perks together into a single platform. Data can only become a decision-making tool after retailers take the time to prioritize and when they apply the data to other aspects of their businesses like merchandising, Papadatos said.

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Ways to promote a loyalty program

Launching a rewards program is only the first step in nurturing long-term customer loyalty. A well-conceived planning and engaging system where the benefits of membership are clear and relevant is critical.If marketers want their loyalty programs to grow legs, then they’ll need to have them stand for something more than points.

Launching a program is relatively easy compared with the task of ensuring its consistent relevance among an organization’s target customers. Gaining this relevance requires a tightly weaved promotional program, delivered across channels, that is as well tailored as the offers and communications the program itself promotes.

Let’s look at some of the ways loyalty programs needs to be promoted.

1.Demonstrate value during browsing – It is essential that a brand embeds its loyalty program name and information – highlighting key benefits – throughout its website, making it clear to the customer what she can gain through participation. The reason is simple: Whether an organization is selling luxury clothing or hotel rooms, its loyalty program should be considered as important as the product or service in which is specializes.

2. Reward for customer account creation – Loyalty program should always be encouraging customers to register for an account. No loyalty program will be effective if no one is enrolled in the program.There are a few ways to encourage your customers to register for an account. Here are some best practices. When a customer is about to checkout, make sure you show them the point balance and rewards they will be missing if they choose to proceed as a guest.

3. Build Buzz – A brand’s most valuable customers are typically also the most likely to respond to, and talk about, new services or offers. One way companies can achieve this is by inviting their best customers to be part of something exclusive.An invitation to join a new program before it is extended to the public, for example, is more likely to produce brand and program enthusiasm that can be spread by word of mouth.

4. Promote in stages-There is no rule stating a loyalty program should offer all its features from the get-go. Rather, a program that offers a wide variety of features is more likely to confuse and overwhelm members. When a program rolls out in stages – giving brands the chance to focus on one element or channel at a time – it offers time to let organizations work out functionality issues while amply promoting the feature.

5. Give it onmipresence – Anywhere a loyalty program member’s eyes wander is where the program should be advertised. That said, there are guidelines, such as the degree to which best customers use different channels. But once established, the messaging should be seamless and integrated across the brand.

Removing the obstacles to customer loyalty

The most common challenges to successful customer loyalty programs can be overcome with the right solutions. Here are the five key challenges, and how marketers are finding ways to solve them.

1. Difficulty in measuring and using data

Senior management wants to know that a marketing investment is well spent. But loyalty programs cannot be measured in traditional ways. In fact, three of the top five reported challenges are measurement related. Measurement needs to take a triangulated approach, focusing on these three areas:

  • Specific changes in the customer value equation
  • Shifts in consumer value
  • Customer engagement and advocacy

Triangulation provides a view of impact from multiple angles that gives insight into performance. So, each metric needs a clear definition of success for now and the future. Measurement then becomes part of continuous loyalty loop, in which customer intelligence creates customer insights, which feed into the loyalty program and creates more customer data to start the loop again.

2. Picking the right mix of rewards and benefits

Most loyalty rewards involve discounts, but this becomes difficult to execute as everyone has the same offerings and retailers have trained consumers to look for nothing but discounts. This is a delicate tightrope act: give rewards that are too expensive or popular and the budget gets blown. Starbucks, Virgin Airlines, and National Car Rental offer just a few of the programs that earn rave reviews with customers, without breaking the bank to do it. The key to success is activating “soft benefits” that have high perceived value.

  • Look at the portfolio of hard and soft benefits
  • Assess what benefits you and your competition use today
  • Assess current business goals and objectives
  • Rate each potential proposition on alignment with goals, customer interest, operational ease, and cost
  • Test your new value proposition in a limited scale
  • Have clear time frame for go/no-go decision on roll-out

3.  Programs lack true innovation

The average customer is a member of more than 10 loyalty programs. As more and more retailers launch programs, making a splash with a new program isn’t easy. Before loyalty programs, customers would stay with their favorite retailers based primarily on price or location. Loyalty broke this inertia, giving customers a reason to shop another retailer. If faced with a choice between companies, loyalty broke the tie.

But, as more companies start programs, a new inertia has formed. Nearly 60% of consumers state they only participate in a few loyalty programs. Loyalty has become the new normal and customers need something special to truly shift their business. Meanwhile, customers feel they are getting less out of programs. About 30% of consumers feel that there is little or no value in joining a program.

Offering differentiated benefits gives customers a reason to engage. Assess the competition and do customer research to find these benefits. Carefully test to pick the winners.

4. Choosing to build, buy, or partner

To run a loyalty program, retailers face the tough decision of whether to build, buy, or partner. Two thirds of all retailers have less than four people devoted to loyalty and 20% have no one, so most firms go the partner approach.

Partnering can augment internal staff with specialized skills. Building internally gives company complete control at the expense of time and resources. Buying allows for fast deployment at the expense of future scalability. Most companies actually leverage all three tactics to some degree. Using all three tactics is needed as aspects of loyalty grow into mobile, web, social, and other channels.

Regardless of the decision on this important matter, having one person or agency ultimately accountable for the program is vital to success. Loyalty needs to have one singular goal in the organization while minimizing resource needs.

5. Marketing and operations are not on the same page

Selecting the right value propositions is an important program component. Often overlooked, ensuring execution is just as important. Customers can receive years of good interaction with a brand and program only to have it all ruined by one negative experience.

Executing a program happens on two levels: systems to identify the customer and present them with the right reward/recognition, and store operations to carry out the needed tactics. System issues are frustrating but easy to explain, while in-store issues cause more frustration.

Soft benefits are ideal because customer benefit outweighs cost. Failed execution means customers will not trust the company in the future; so, operations need to deliver on marketing promises.

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How to choose the best rewards for your loyalty program

There’s no question about the importance of having a loyalty program in place in order to increase brand loyalty and maintain relationships with valuable customers. But once you’ve made the decision to implement a program, you need to decide exactly what kind of system you want to use and what type of rewards you will give out.

For restaurants, and especially fast casual and quick-serve restaurants, there are three different types of loyalty programs that are the most popular and effective: Product Frequency Program, Automatic Rewards Program and Visit Frequency Program.

Product frequency program

A product frequency program is possibly the most popular loyalty program because it rewards customers for continually purchasing a specific product. This can also be referred to as a “punch program” because rewards are given after a customer earns a certain amount of punches, with a punch being given each time the specified product is purchased. All of those “Buy 10 Get 1 Free” promotions you see are product frequency programs.

This type of loyalty program works great for businesses that offer a simple menu with one item being the most popular. For example, a smoothie restaurant could easily implement a product frequency program because most of its customers come in for a smoothie, and therefore they can easily offer “buy 10 smoothies, get one free,” and it will be a reward that their customers actually want to receive and redeem.

Automatic rewards program

Automatic rewards programs are probably better known as a “points program” because customers earn a point for each dollar they spend and then are automatically given their reward once they reach a certain spending threshold.  There are two different types of rewards that can be given once the threshold is met: a product reward or a dollar reward.

A product reward would be something like: Earn 100 points and receive a free dessert, whereas a dollar reward would be: Earn 100 points and get $10 off your next purchase.

Both rewards are attractive to consumers, so you just need to decide what makes the most sense for your business.  If there is a product you offer that people love and would want to get for free, then offer that as the reward for earning points. If consumers often spend over $10 on a meal, then maybe you should give them the $10 off reward.

It really comes down to which is going to be easier for your business to compensate for after the coupons are redeemed.  For example, do you make enough desserts to give free ones away every day? Can you afford to lose the $10 off a purchase? Once you figure out the logistics, you can easily choose which reward to offer.

Visit frequency program

The visit frequency program is almost like the product frequency and automatic rewards programs combined.  Each time a customer comes to your restaurant and makes a purchase, they are given a punch/point. Then, after a certain amount of visits, they receive their reward, which can be a product reward, dollar reward, or a discount. For example, after 10 visits you can give a customer a free dessert, $10 off their next purchasloyaltye, or 10 percent off their next purchase.

The main differentiator of the visit frequency program from the other two is that you get to decide the minimum dollar amount spent that qualifies as a visit.  In other words, you can say that a customer must spend at least $10 in order to receive their “punch” for that visit.  This helps encourage buying behavior that is more beneficial for your business.  However, when deciding on this program, it’s important to set the minimum purchase amount at a reasonable level so that customers don’t get frustrated that they are never earning punches and thus feel like it’s not worth it to try and earn the reward.

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How big data is remaking customer loyalty programs

Retailers spend about $2 billion every year to build and run loyalty card programs in the hopes of creating lifelong, devoted customers. However, those loyalty programs often fail to deliver as advertised. But now, advanced analytic techniques running on big data platforms like Hadoop promise to help retailers get closer than ever to realizing their “one-to-one” marketing dreams.

Part of the problem with traditional loyalty programs is the lack of good, clean data. When people sign up for programs, they often refuse to answer questions in the questionnaire, or they intentionally lie about their age, marital status, or whether they have kids. In many cases, all they care about is getting the 5 percent “Club Price” on broccoli at Von’s or getting the 12th tall coffee for free at Starbucks. They could care less about whether the retail has accurate data.

All that bad information meant companies often scale back on their plans of running highly targeted marketing campaigns, says Andrew Robbins, the CEO and founder of Paytronix, which helps companies execute customer loyalty programs.

“There are things every marketer in the world knows: You should segment your guest base, you should think of targeted rewards, and you should run targeted campaigns,” Robbins says. “We were finding customers weren’t doing that. They were just blasting everyone.”

Marketers had grown sour on loyalty programs due to a “relevancy gap,” Robbins says. Instead of sending offers to specific customer segments, the lack of trust in the makeup of those segments was leading to a shotgun approach. While a single man in his mid-30s may appreciate an offer for $5 off a kid’s meal composed of a grilled cheese sandwich and an 8-ounce apple juice, a more effective offer, research has shown, may involve a half-pound cheeseburger and a 16-ounce beer.

Age is a critical factor in marketing, but it turns out that people lie about how old they are. “About 10 percent of people lie, and another 20 to 25 percent won’t answer,” Robbins says. Getting information about children in the household is also tricky. “There are lots of moms who don’t want to tell you they have kids because they’re afraid for their kids’ safety. We ask these questions 50 different ways and all of them generate pretty bad data.”

That’s where big data comes in. Instead of taking the direct approach and asking people todescribe themselves, the modern marketer can use external sources of data and advanced analytics to infer things about her customers. Instead of asking customers to describe themselves, one can accurately ascertain facts just by observing their behavior. For example, if somebody buys a cheese pizza and a milk, “it’s much more likely to be a substitute for a kids meal than it is for an adult,” Robbins says. Similarly, mining for likes on Facebook and Twitter can reveal very detailed preference data for individuals.

Using this approach, a marketer can segment their customer base with 95 percent accuracy, Robbins says. The downside of this approach is that it requires more data. In fact, it requires about 1,000 times more data than the old approach, according to Robbins. That’s why Paytronix decided to abandon SQL Server as a data warehousing platform and invest in Hadoop.


Big Data Validation

Today, Paytronix runs Cloudera‘s Distribution of Hadoop (CDH) on Amazon’s cloud service. SQL Server still has a role in serving insights directly to Paytronix’s customers, which includes companies like Panera Breads and Outback Steakhouse. But for advanced analytics, the relational data store is no more.

Before Hadoop, Paytronix only stored the demographic and loyalty data. But with CDH, a big data application from Platfora, the power of R, and BI tools from Pentaho, a relatively small groups of data engineers at Paytronix has the tools to dive inside the fine-grained data and pull out relevant patterns.

The bulk of the additional data is contained in the “checks,” or the customer receipts generated by each restaurant transaction pulled from the point of sale (POS) system. That’s the gold that Paytronix was after. But keeping track of all that data is no easy task, and requires powerful tools for validating and mixing the data.

“You want to make sure that each field within a check makes sense: How they paid the cashier, the table they sat at, the memo information that’s just typed into the check that says ‘Salad dressing on side–peanut allergy,’” Robbins says. “A lot of this information might be just typed into check in free-form fields.”

Being “close enough” is not good enough in this line of work, so Paytronix takes steps to ensure the data is accurate before a customer acts upon it. “When you have thousands and thousands of these stores all throwing data in, their data could look good. It could be 90 percent correct, but portions of it could be horrible,” says Robbins, a veteran in this field who has degrees from Princeton, MIT, and Harvard. “That’s a data validation problem, and if you don’t try to fix that before you mix it with something else,” you’re asking for trouble.

In the old days, Paytronix would have used ETL tools to build multi- dimensional cubes to validate the data before acting upon it. But that was a slow and time-consuming process. Instead, the company now speeds up the process with Platfora. “They have this really elegant tool that lets you point at raw data in Hadoop, define a cube in an abstract language they call it Lens, and then visualize it. That can be done by a business user, not a software engineer,” Robbins says.

Data in the Mix

“For most retailers, to get to one to one, you’re probably talking about 100 to 1,000 segments, overlaid with personalized communication,” Robbins says. “Maybe the strategy would be, for this segment, I’m going to give them a discount on the last item they bought. In the end, it’s a one to one strategy.”

This is where getting the small things right–like the peanut allergy, the preference for soy milk in coffee, or the preference for hand-tossed pizza–counts a lot. No one person or team of people can be expected to track all this data manually. But thanks to big data tools and technologies, companies can act on this data, and do so with confidence. For marketers looking to build a customer loyalty program, that’s a potential game-winner that can’t be ignored.


Businesses aim for 2015 growth by betting on customer loyalty

The top strategies for mid-market businesses over the next 12 months are increasing customer loyalty and reducing operating costs, according to a survey of over 2,000 decision-makers in mid-market businesses.

Sage commissioned Populus to interview businesses with 100+ employees as part of an annual Business Index Survey, which gathers insights across 18 countries around the world. It was found that more than a third of respondents saw increased customer loyalty as the means by which they would grow their business over the next year.

As confidence for mid-market companies reaches new highs, businesses are planning for growth by focusing on increased customer loyalty. We also found that Europe’s mid-market companies are pinning their hopes for growth on strengthening their product and services portfolios and marketing.

Growth and exporting

In the UK, our mid-market companies account for more than a third of the UK’s GDP and have the highest levels of business confidence in Europe.

The UK’s ‘Mittelstand’ is expected to surge over the next 12 months, with 68 per cent of businesses anticipating growth in their turnover. This confidence is all built on strong momentum in exporting this year and an expected surge next year – 34 per cent of UK mid-market companies saw their levels of exporting grow in the last year, while a whopping two thirds (65 per cent) expect to see export turnover growth in the coming twelve months. While they increase export turnover, Sage Mid-Market’s research suggests that much of this will be underpinned by a drive for greater customer loyalty.

Customer loyalty – communication and collaboration

By focusing on customer loyalty, businesses are demonstrating realism and pragmatism. They have understood the huge value that happy customers bring. Gaining new customers is expensive and time consuming, and customer churn means that is multiplied many times over. Dissatisfied customers can also spread the news of their unhappiness far and wide and a negative sentiment can have a huge effect on profitability.

A content customer is your advocate: the happiest will go out of their way to sing your praises, recruit new customers and provide constructive feedback on your products and services. There are knock-on effects too. Employees who feel they’re doing something worthwhile, and who work with satisfied, positive customers, tend to stick around longer – and provide better service, because they’re happier doing their job, too.

Customer loyalty really comes into its own when a business is in a growth market. Customers spend more – making them more valuable and helping to boost growth organically. It also requires less outlay than recruiting new customers.

Being customer centric

There are many reasons why a culture of customer centricity makes even more sense these days. The emergence of the social customer – who can react to a bad experience on social media with catastrophic repercussions – is one reason why customer satisfaction has become a mission-critical issue for many businesses.

Driven by technology opportunities people want to communicate and collaborate more in business, as they do in their personal lives. Gartner predicts that by 2016, more than 1.5bn people will use social networks. There is a huge opportunity here for customer loyalty.

By incorporating social media into sales, marketing and customer service activities, businesses can learn more about their customers’ likes and dislikes. By leveraging the information available they uncover more leads and boost the overall customer experience with greater personalisation and timeliness.

Beginners on this journey will find that by broadening their presence on social media they create an extra avenue to generate interest. If people can find the business in multiple places they are more likely to make that connection between the brand and their need when they are ready to buy.

Customer centricity is not just about offering great service, it means offering a great experience all the way through the customer journey, from initial awareness through purchasing and finally the post-purchase process. Companies that are committed to customer centricity focus on what the customer wants and needs, and develop products and services around that.

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