Stop chasing loyalty program members — you have enough already!

Discussion
Oct 20, 2015

Through a special arrangement, what follows is a summary of an article from COLLOQUY, provider of loyalty-marketing publishing, education and research since 1990.

The lure of something new is of pretty much universal appeal, whether it’s a new car, a new outfit or a new friend. It’s no surprise, then, that loyalty programs spend a lot of time and money trying to attract new members.

The problem is when the shiny new object (a new member) is overemphasized over the tried-and-true standby (the longtime member), and when companies fail to distinguish between the two groups. How messages should be communicated to the two groups and the probability of selling to them are all quite different.

Many marketers split their investments almost evenly between member acquisition and member retention efforts. In fact, according to a 2014 Econsultancy survey, 47 percent of respondents indicated they would spend equally on both groups; 34 percent would invest more in acquisition, while only 18 percent would spend more on retention. Some programs, in fact, spend up to 75 percent of their time and money on acquisition.

Yet existing loyalty members are far more likely to spend more money, spend more frequently, try new products, refer potential new customers and contribute to profitability than are new members. Invesp Consulting says existing customers are 50 percent more likely to try new products and spend 31 percent more compared to new customers.

As programs let the customer’s life cycle guide communications (retention vs. acquisition), customer lifetime value increases as loyalty marketers take them further down the path of spend frequency, lift, redemption and loyalty.

This contrast between acquisition efforts and retention efforts is illustrated in several of the questions we asked in our COLLOQUY "Customer Loyalty in 2015 & Beyond" survey.

Chart - old vs new loyalty members

Source: COLLOQUY “Customer Loyalty in 2015 & Beyond”

Retention efforts should focus on emotional value, with an emphasis on topics such as the time to earn rewards, program simplicity and alignment with consumers’ values and interests. Acquisition efforts should focus on transactional value, emphasizing discounts, points and sign-up bonuses, for example. Once acquisition efforts land new members, they must still be persuaded to develop new behaviors.

Loyalty program developers should seriously think about spending 75 percent of their loyalty investments on retention, vs. the 75 percent that many programs currently spend on member acquisition. Mass appeal is overrated; don’t allow your thirst for appealing to everyone to dilute your attention and value for the best members.

Why do many retailers and brands overemphasize acquisition efforts over retention in their loyalty programs? What’s the trick to balancing programs to meet the needs of new recruits and longtime members?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Retailers focus on acquisition because it’s easier and cheaper than turning your existing members into more profitable shoppers. Many people get price incentives to join loyalty programs, never to shop at that retailer again."
"This study offers great insight into loyalty programs — but it strikes me as saying something much more profound about the relationship between retailers and consumers as well."
"There is definitely an inherent bias when it comes to programs aimed at existing customers, either "Why would I give customers a discount if they were going to shop with me anyway?" or "How do you know that this offer really changed their behavior — they might’ve been about to do that anyway.""

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21 Comments on "Stop chasing loyalty program members — you have enough already!"


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Dick Seesel
Guest
3 years 7 months ago

Retailers focus on acquisition because it’s easier and cheaper than turning your existing members into more profitable shoppers. Many people get price incentives to join loyalty programs, never to shop at that retailer again. Meanwhile, the base of customers with the strongest pattern of loyal behavior (recency, frequency and spending levels) are sometimes ignored. It’s these shoppers that probably provide the greatest shot at higher margins through price discrimination.

Ralph Jacobson
Guest
3 years 7 months ago

As is inferred, new members are far more expensive to capture than retaining existing members is. The retailer needs to generate compelling reasons for both of these types of members to shop more exclusively with the one retailer. There are still too many retailers that lose shoppers daily to their competitors that also have “loyalty” programs. Exclusivity is the key. That comes with brand enthusiasm and personalization.

Roger Saunders
Guest
3 years 7 months ago

Retailers and Brands who balance their loyalty programs by taking time to understand customers through a CRAFT process end up matching consumer needs with company needs. All firms travel a path of CONVERTING, RETENTION, ACQUIRING, FREQUENCY and TICKET in their relationship with customers.

By clearly understanding where their customers are in the path to purchase, retailers are better prepared to message their loyalty programs. Colloquy looks to be providing merchants with a stronger view of their customers as to what stage they might be in, in terms of that relationship.

Max Goldberg
Guest
3 years 7 months ago

It’s easy to sign people up for loyalty programs. It takes resources and effort to keep consumers engaged. This is where most loyalty programs fail. Too many are run as high-low incentives, rather than programs to increase lifetime value. Whether it’s a lack of funds or manpower, too many marketers devote too little attention to reviewing and manipulating data. It’s easier to just sign up more participants.

Ben Ball
Guest
3 years 7 months ago
This study offers great insight into loyalty programs — but it strikes me as saying something much more profound about the relationship between retailers and consumers as well. Isn’t it ironic that retailers don’t emphasize retention (i.e., “loyalty”) enough — even in their “loyalty programs”?! And how about those “loyal customers” the programs create? You know, the ones who abandon the programs because the free stuff is either irrelevant to them or too hard to get. Am I a steady repeat customer of Marriott, American and Hertz? You bet! I’ve been earning those points and miles as a frequent business traveler for years. But am I loyal to American? Or their AAdvantage program? Marriott? Or the free nights? I am a loyal customer of L.L.Bean, DR (Country Home Products), Griot’s Garage, Rockler, Bosch, Browning and a number of other retailers. And I don’t get any points from any of them. I get great products, great customer service and great follow up if I do have any problems with their products. That’s how you earn loyalty. The rest… Read more »
Nikki Baird
Guest
Nikki Baird
3 years 7 months ago

I don’t think it’s because acquisition is easy — there are multiple studies that have shown it is actually more expensive to acquire a new customer than to retain an existing one. I think it’s because acquisition measurement is easier than retention measurement. There is definitely an inherent bias when it comes to programs aimed at existing customers, either “Why would I give customers a discount if they were going to shop with me anyway?” or “How do you know that this offer really changed their behavior — they might’ve been about to do that anyway.”

Measurement has gotten more sophisticated — you can answer that last question, and you can design programs for existing customers that don’t cannibalize sales. But that takes more effort than acquiring new customers. It’s still harder to measure even though it’s not as hard as it was before. And I’m sure internal incentives aren’t aligned to encourage a focus on existing customers anyway.

vic gallese
Guest
3 years 7 months ago

The contrast is a good one. The companies we see focusing on acquisition need to do it because it is a straightforward process (maybe expensive and time consuming, but straightforward). The success metrics are also easy to measure and understand.

The value to longtime members is more complicated to both execute and measure. It takes creativity, trial and error, change and some risk to deliver on part two. The metrics are also a bit cloudy when one considers margin, share of wallet, visits, etc.

Brian Kelly
Guest
3 years 7 months ago

Loyalty Schmoyalty! It’s about having a file upon which to append behavior, and spiff them from time to time to goose sales. Oh, and personalize their experiences so they keep shopping. Preference maybe, but forget about loyalty.

Or as we like to say, “retail ain’t for sissies!”

Mark Heckman
Guest
3 years 7 months ago
In the grocery channel, chasing new shoppers is in the DNA of every merchandiser and marketer. Each week the ad changes and the chase is on to have the best prices and programs to compete for the fickle shoppers who have no loyalty to anything other than their own budget. With a few exceptions, that is how the system works and has worked since the days of our forefathers. In my view that mentality has transcended into these retailers’ loyalty programs, where gaining new members is at least on equal footing with retaining those members once on-board. Consequently few grocery channel retailers have been able to garner enough content and value to provide relevant rewards as the majority of the brand’s promotional dollars and the retailer’s own markdown dollars are still invested in “attracting new shoppers” each week in mass advertising. Compelling data is the answer. For those that have long-standing loyalty programs, calculating and communicating the “value” of a loyal shopper vis-a-vis those that are driven by hot weekly prices in the ad is… Read more »
Shep Hyken
Guest
3 years 7 months ago

Several thoughts come to mind after reading this article.

  1. It costs more to acquire than to keep existing customers. Nothing new there.
  2. Having more people in your loyalty program doesn’t mean you have more loyal customers. You just have more people that are willing to sign up.
  3. Many businesses don’t do enough to cultivate their truly loyal customers, and this is the true opportunity!
Dave Wendland
Guest
3 years 7 months ago

Loyalty programs used to entice and attract new shoppers rather than build lasting relationships have no sustaining power. Retailers will lose and consumers will lose in this proposition.

Assessing programs that sounded great to me initially versus those that have continued to honor my loyalty and reward my patronage with consistent experiences and products/services has produced interesting observations. I’d be the first to tell you that the bait-and-switch, too-good-to-be-true programs not only averted my loyalty, but also invited me to share my disappointment. Conversely, those focused on retention are often praised.

Retailers should look to earn praise and gain longtime, loyal customers by creating programs that focus on retention. If not, the consequences will be irreversibly damaging.

Lee Kent
Guest
3 years 7 months ago

There is something amiss here. Just because someone is a loyalty program participant doesn’t mean they are either a loyal or even desired shopper. What is far more important is identifying those truly loyal customers along with those who make up your most profitable, thus desirable.

Marketing to the above customers is where the smart money should go.

But, to answer the question posed? Most retailers go for acquisition to keep the numbers up in order to maybe get a few more of the more desirable loyal customers. Since they aren’t measuring or marketing specifically to these, it becomes purely a numbers game.

And that’s my 2 cents.

Michael Greenberg
Guest
Michael Greenberg
3 years 7 months ago

It’s likely the analysis is flawed. Sorry.

Most retention efforts are paid for in other budgets—direct mail, web, promotions, email, mobile, social, merchant markdowns, etc., that benefit from the segmentation and response improvement of loyalty insights. But acquisition is directly billed to the loyalty group.

Peter Charness
Guest
3 years 7 months ago

The trick is to have a few, simple KPIs that drive incentives and shape behavior. If the measurement is quantity, then it’s likely that the emphasis will be on recruitment so marketing can claim “a big successful program.” If it’s on results, then a smaller, more productive client base with retention of best clients will happen.

There’s a bit of a lifecycle to this as well. New programs start with recruitment, mature programs look to more financial measurements of success. I think a fair objective once the database is mature would be to add new members at 2X or more the rate of inactives.

Li McClelland
Guest
Li McClelland
3 years 7 months ago

A pet supply company I utilize does two things to show me that they recognize loyalty is a two way street.

1. They email me to notify when a particular brand and can size of specialty cat food we have bought before for our allergic feline goes on sale. They email me when the big bags of specialty litter go on sale.

2. As a “thank you,” they send a coupon for x dollars off a purchase of $30.00 or more with no restricted items about once every two months.

They get it. It’s a relationship. They give me absolutely no reason to think about shopping for pet supplies any where else. We have four animals.

Matt Talbot
Guest
3 years 7 months ago

I agree with many of the commenters below: acquisition is easier than retention. Often, potential customers will sign up for a loyalty program because of a promotion or marketing initiative. However, customers involved with a loyalty program expect to keep receiving benefits or, reasonably so, many will no longer want to receive emails or be a part of the program any longer.

Also, there are benefits to loyal customers which should not be overlooked, and also cannot be replicated within a group of newly acquired customers. A good example of one of these benefits is word-of-mouth. Loyal customers who have had years of experience with a certain brand or retailer are likely to spread their good experience and help the brand gain a following.

In theory, a dedicated group of loyal customers will do much of the work for a brand when garnering a “new” group of loyal customers. This is yet another reason to focus on satisfying the needs of existing customers rather than put a large amount of effort into acquisition.

Mark Burr
Guest
3 years 7 months ago
We (in the industry) continue to call these types of endeavors “loyalty programs” when they are nothing more than a promotional effort whether you are a “member” or not. As Ben Ball so aptly put it: “I am a loyal customer of L.L.Bean, DR (Country Home Products), Griot’s Garage, Rockler, Bosch, Browning and a number of other retailers. And I don’t get any points from any of them. I get great products, great customer service and great follow up if I do have any problems with their products. That’s how you earn loyalty. The rest is just figuring out the price of retailing poker.” True enough. The idea that retailers still believe that loyalty is a program still baffles me. The best example of spending all your dime on new customers is Comcast/Xfinity. They increase pricing on their longest customers while offering the best pricing and effort to the “New” customer. Yet, in spite of their efforts, there customer base has shrunk drastically. Nevertheless, the effort still remains on the “New” customer, or the angry… Read more »
Arie Shpanya
Guest
3 years 7 months ago

I think focusing on acquisition is easier, but it isn’t effective in the long run. Getting a shopper in the door with a too-good-to-be-true deal and promise of rewards doesn’t take as much effort as spending time and money on on-going employee training, BOPIS, or great product quality.

Acquiring new loyal customers is a big part of sustaining a retail business, but increasing loyalty among existing customers can take some of the work out of the process. If your customers love your store, products, and values, then they will tell all their friends and you won’t have to spend much to get new customers.

Kai Clarke
Guest
3 years 7 months ago

The real issue here is the usage of data to manage key metrics within a loyalty program, or even to use this data at all! Perhaps the true question is using the data to both manage their loyalty program longtime members, and also to define and target the needs of potential new recruits. Both of these are usually done poorly by almost all loyalty programs, because of the tremendous amount of raw data that the programs drive.

Erin Calvo-Bacci
Guest
Erin Calvo-Bacci
3 years 7 months ago

Many retailers and brands overemphasize acquisition efforts over retention in loyalty programs because they believe “if you build it they will come.” Yes, building the numbers will convert at some time and amount to sales, but focusing on the longtime members will get them to feel good about the brand, spend more often and become brand ambassadors to generate new recruits for the company.

Seeta Hariharan
Guest
3 years 7 months ago
I agree with Ben Ball’s definition of what makes a customer loyal to a brand or vendor. Engagement and experience are priority. A rewarding exchange received at the right time and in the right place is what will determine whether a customer returns or not. In my opinion, most retail loyalty programs today do little to improve customer lifetime value, and even less to retain longtime members. Considering it costs six to seven times more to gain a new customer than to retain an existing one, it is shocking that most loyalty programs target new customers. A balance needs to be struck on both accounts. Retailers should be careful to honor existing members in the same ways that they seek to attract new ones. All too often the perks of new membership overshadow incentives for long-time members. I liken the scenario to tactics commonly applied to successful fundraising. For example, personally, I am more inclined to commit to give a lesser monthly contribution that is automatically deducted from my bank account than write a much… Read more »
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Braintrust
"Retailers focus on acquisition because it’s easier and cheaper than turning your existing members into more profitable shoppers. Many people get price incentives to join loyalty programs, never to shop at that retailer again."
"This study offers great insight into loyalty programs — but it strikes me as saying something much more profound about the relationship between retailers and consumers as well."
"There is definitely an inherent bias when it comes to programs aimed at existing customers, either "Why would I give customers a discount if they were going to shop with me anyway?" or "How do you know that this offer really changed their behavior — they might’ve been about to do that anyway.""

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