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What are some common missteps when launching loyalty programs?
Lauren Wawrzyniak, Manager, Business Analysis & Strategy, LoyaltyOne Global Solutions
Through a special arrangement, what follows is a summary of an article from COLLOQUY, provider of loyalty marketing publishing, education and research since 1990.
Launching or relaunching a loyalty program is a monumental feat for many retailers. That’s especially true for those without any history of loyalty programs — and more so, those whose loyalty investments in the past never paid off.
Program operators typically evaluate three types of financial gains from loyalty — lift, retention and acquisition. But for some retailers, especially outside of the high-frequency space, it can be difficult to get an accurate read on the incremental impact. In addition, brands often fail to build a bridge between loyal existing customers and potential new customers. Transaction history and preferences from loyal customers should be used to identify similar new customers, as well as to target existing customers for more engagement.
Measuring lift, retention and acquisition with pinpoint accuracy requires a lot of time, resources and operational discipline. A lack of historical data, budget limitations, short pilot phase or even the corporate culture can present challenges.
One of the first ways to gauge or stress-test the potential upside to your program is by focusing on what you can control — the budget. By estimating total startup and ongoing costs, you can determine what type of customer behavior is required for your program to break even in a reasonable amount of time. How much more would your customer have to spend? How much attrition would you need to stop on an annual basis?
After launching your pilot, observation and measurement takes over. One of the key early indicators you should monitor is market lift. Compare the change in sales then and now between your pilot market and the designated control market to get a high-level, directional insight into pilot performance. Analyze the behavior of common customer groups or segments between test and control markets to find early performance indicators, and focus on the behavior of frequent customers pre-and-post launch.
Unfortunately, many retailers rely on annual metrics, but rarely do pilots run for an entire year before rolling out nationwide. Many also focus almost entirely on how customers earn rewards and not enough on how they’re redeemed.
Discussion Questions
DISCUSSION QUESTIONS: What are the biggest hurdles to overcome when launching or relaunching a loyalty program? Do you have any tips on gaining an early read on the incremental impact on lift, retention or acquisition of such programs?
Poll
BrainTrust
Michael La Kier
Vice President, Brand Development - IGA, Inc.
Cate Trotter
Head of Trends, Insider Trends
Loyalty programs are often polarizing — both to shoppers and inside organizations. The critical first step to any loyalty program is to ensure program alignment. For shoppers this means being absolutely clear on your program’s value proposition (including “what’s in it for me” and “how to participate”). Internally, it is making certain everyone is on board and what the metrics and expectations really are. Without alignment loyalty programs will fail.
The classic approach of loyalty programs in which shoppers collect points, rewards or other benefits that they can redeem is less suited to consumer behavior in the digital age, especially in the retail business. It may still be effective for airlines due to the robust rewards they can give.
Retailers should use technology to better analyze their customer purchase history loyalty trends and tiers, identify specific segments, growth opportunities, under served groups, shoppers DNA and more. Based on that they should tailor personalized offers to specific customers based on their unique characteristics. This is indeed a tedious task that requires the right technology coupled with a professional team that uses it right, but it pays off.
It is always advisable to test on specific groups and conduct AB testing to see what works. Common KPIs should be metrics such as visit frequency, basket size (items and value) and churn reduction.
The biggest challenge for retailers to launch loyalty programs remains the same one that we faced in the early 1980s when my employer launched theirs. These programs tend to result in mass, un-targeted frequent-shopper discounts that the shopper didn’t even ask for, rather than a compelling reason to shop your store as opposed to the competition. Overcome that challenge via differentiating services, content curation (like Nikki mentioned yesterday), etc.
Today’s sophisticated digital native shopper has far greater expectations of retailer loyalty programs. If executed strategically, a sophisticated program will add significant value to the customer and retailer relationship. Strategic execution includes having the loyalty programs seamlessly integrated within the retailer’s mobile apps along with mobile payment options, point collection, and third-party partnerships with apps such as Spotify which offer exclusive members-only added on benefits. The focus on value-added benefits for the consumer has to be paramount above any other considerations.
The most valuable part of a digital-first loyalty program is the invaluable consumer insights you as the retailer can leverage. The consumer has already entrusted you with their data, built a relationship with the brand and now it’s up to the retailer to leverage these customer journey insights to drive meaningful personalization strategies, curated assortments and, most critically, a seamless in-store and online experience.
One big idea to consider is what the loyalty program is all about. Is it really rewarding loyalty? Or is it a cleverly disguised marketing program? Or stated a different way, are you making your customer loyal to the company or the loyalty program? Take away the loyalty program and will anyone notice? In addition to all that has been said by my fellow BrainTrust members, these questions need to be considered. And by the way: no matter how good the loyalty program is on paper, if your product and customer service don’t, at a minimum, meet your customers’ expectations — if not exceed them — the best loyalty program will fail.
Loyalty isn’t just about customer loyalty; it’s about customer data. And gathering, understanding and using customer data is critical these days. Used right, the “loyalty” program becomes a medium to connect the online world with brick and mortar to ultimately drive value for the consumer. These programs are a value exchange where their success is contingent not only in internal alignment, but a meaningful value proposition for the consumer.
Starting a loyalty program with so many others already in the market is very challenging. I agree with all that advocate first creating a “strawman” program that contains the key elements of:
Once those elements are devised and deemed competitive or superior to existing competitor programs, creating a pro forma of projected impact to margin, expense and sales so that the necessary thresholds of success can be identified.
Then there is the all-important link between marketing, analytics and merchandising that must work in concert to produce positive results for the enterprise and speak with one voice to the brand and sponsor community. This step is often very difficult and often a source of problems for true loyalty marketing to occur. If the program ultimately becomes isolated away from the mainstream of merchandising, the rewards are likely to become weak and ineffective.
Finally, starting a program with the primary aim of building a customer data is, (in and of itself), bad rationale for entry the loyalty market place. But done correctly with the aforementioned in mind, the information and access to shoppers that in turn benefits the customer, is the difference between a good program and a great one.
There’s often little that distinguishes loyalty programmes from others (it’s all points, stamps, etc.) — customers can end up signing up to any number of them, but they don’t necessarily influence their buying habits. A good loyalty programme should offer real value to a customer who regularly visits that retailer, otherwise it’s just another card in their purse or wallet. I think there’s also a need for a general shake-up of loyalty programmes — retailers should be thinking about what would make a difference to their customers. Personalisation is going to be a big factor in the future, I think. If you can offer customers different benefits, which are tailored to them, then that’s going to have an impact.
They key to loyalty programs going forward is to match the interests of the customer more precisely with the potential rewards provided for being loyal to the store, site or brand. And the key to matching those interests with rewards is collecting data on the customer’s buying habits and desires from transaction logs and social media outlets. Only by truly understanding the environment each customer lives, works and plays in can a retailer or brand extend the kind of offers that will drive loyalty.
The greatest misstep in most loyalty programs is approaching it as a one-size-fits-all initiative. It’s true that everybody loves a discount or a reward, but you’ll get a bigger impact if you truly understand the motivators behind purchasing decisions beyond simply saving money. Offering rewards that appeal to shoppers’ emotional needs will create far more loyalty in the long run.
The shortfall in many retail loyalty programs is the under-utilization of rich data, often because of an over-emphasis on its targeting and delivery of price-oriented promotions. While effective in the short term, like any continuity-based promotion, retailers are training the shopper to “wait” for the incentive and the lines between base and promoted price becomes blurred.
The way to get true ROI from a loyalty program is to embrace the Big Data and mine it until your back breaks. Inside this dig site, the miners will uncover three precious stones: 1.) data to gain new insights about each shopper’s path-to-purchase, details on what they buy, when they buy it and how often, and how they choose who to buy it from, 2.) data that is transformed into insights which can be shared the basis for collaborative planning between the retailer and its vendor partners and, 3.) insights to create a customized shopping experience.
Using the data gathered, along with technology such as smartphone apps or smart shelves, the shopping experience moves to a much more intimate program where each shopper is receiving rewards, discounts and coupons that appeal to them specifically.