Rethinking approaches to customer loyalty

In Data & Analytics, Loyalty & CRM by Krista

Bernard Chung

This is a guest blog written by Bernard Chung, Senior Director of Solution Marketing at SAP Labs, LLC.

"In my work with forward-thinking enterprises around the world, it's clear that customer loyalty is a top priority. The focus today is on customer centricity, and no wonder – not only are customers expensive to attract, but long-term customer engagement is highly valued. Loyal customers can become passionate advocates for your brand and provide you with insights to co-create profitable new products and services.

A key component of many businesses' customer loyalty initiatives is the loyalty card program. Check the wallet of nearly any consumer, and chances are it will be thick with laminated cards from their grocer, drugstore, apparel store, bookstore, bagel shop and more. According to the 2011 Colloquy Loyalty Census, the average U.S. household is signed up for 18.4 programs, and the national total of loyalty membership is 2.1 billion (a 60% increase from 2008).

The intent behind these loyalty card programs becomes clear in a recent survey that we conducted with Forrester Research of 166 decision-makers. Business leaders said the key business objectives for their loyalty initiatives were customer retention (72% of respondents) and customer satisfaction (54%). The goal: drive customer loyalty to their brands and products.

It's just too bad these programs don't work. While customers may grow loyal to the discounts and savings that loyalty programs offer, there is little evidence that they drive loyalty to the provider's brands, products and services. In fact, the 2010 Accenture Consumer Survey reports that two out of three consumers have switched to a competitor in the past year.

Clearly, many loyalty programs, as they're designed today, have little perceived value. Of the roughly $48 billion that U.S. businesses issue per year to consumers in the form of rewards, at least one-third goes unredeemed by consumers, according to Colloquy. In fact, only 46% of loyalty memberships are "active," according to the firm, meaning the member uses the card at least once per year. Translation: If you're planning to launch a loyatly program, there is a less than 50% chance that the program will be successful.

What's wrong with today's loyalty card programs? A CMO Council study says customers are fed up with irrelevant messages, low-value rewards and impersonal engagements, with 54% of consumers voicing these complaints. Nearly 20% had never received a personalized communication that was based on their individual preferences or behaviors, and an overwhelming majority (73%) admitted to receiving promotions for products or services they already owned.

The council summarizes that while these programs can be an ideal channel for delivering deep discounts, savings, freebies and perks to drive incremental revenue growth, companies are not fully leveraging data analytics, insights and relationships drawn from their loyalty and rewards programs.

It's not time to give up on loyalty programs; businesses just need to adjust their approach to these initiatives to increase their value to customers. Here are three ideas to do just that:

1) Differentiate: One solution is to personalize the experience you provide to loyalty members, in order to differentiate your offering. Today, any one loyalty program works just like another. Of the 18 cards in my own wallet, three are for drugstores that are all within two miles of my home. But because their programs are all pretty interchangeable, none entices me to pull into their parking lot more frequently than another.

Businesses need to get beyond offering generic discounts and focus on delivering an "experience," in the form of individual moments of positive engagement that, over time, grow into loyalty. To do that, they need to deliver rewards and benefits that are more personalized and relevant to the customer, to convey the sense that when the customer hands the card to the cashier, they feel "known."

I can't help but think of my Saturday morning ritual of visiting our neighborhood bagel shop with my two school-age kids. As soon as we approach the counter, the owner knows just what we want and even asks about the kids' last soccer game. This is the type of interaction that a loyalty program can offer – the customer's preferences should be knowable to front-line employees so they have relevant information to deliver a meaningful and positive engagement.

2) Empower: Similarly, customer-facing employees need to be trained and empowered to deliver personalized services and take that extra step that will create a memorable moment. Disney's tagline of "creating memories that last a lifetime" comes to mind. In one Disney ad, a young girl is being handed her breakfast – a plate full of pancakes in the shape of Mickey Mouse – and the look on her face is one of delight, amazement and surprise. How much did it cost to turn a regular, everyday breakfast into an unforgettable moment? Not much – the server just took an extra moment to create a delightful experience. Companies today need to indoctrinate their employees with the idea of taking the initiative to deliver loyalty-worthy experiences.

3) Tailor: One man's discount is another's trash. Loyalty programs need to dig into their customer data and perform analysis that results in relevant rewards that customers will highly value. Marketers need to do a better job of targeting their programs to their various audience segments. Say you categorize customers into three groups: long-term/loyal, at-risk and prospective. Since the loyal group already frequents your store, they may value personalized service over a discount. Meanwhile, at-risk customers and prospective ones might need a deep discount to get them in the door. Performing analytics on customer information is essential for developing the knowledge and insights to deliver on this type of customer-segmented strategy.

What has worked for your business, in terms of increasing customer loyalty? Are your customers loyal to your brand or the discounts you offer? Please share your story or tips with us."

[Bernard Chung has 15 years experience in enterprise CRM software product management and marketing, covering exclusively on marketing technologies and solutions. He has written blogs, thought leadership papers and articles on trends and issues that matter to marketing professionals.  In his capacity as Senior Director of Solution Marketing at SAP Labs, LLC in Palo Alto, CA. ,responsible for the global messaging and positioning of SAP solutions to marketing professionals. He started his career in database marketing in Financial Services organizations, including American Express and Wells Fargo. Prior to joining SAP, he was part of the product management team at PeopleSoft and also at Oracle. He holds a mechanical engineering degree from the University of Washington and an MBA from Carnegie Mellon University.]