The aim of most customer loyalty programs could be succinctly described as trying to motivate the customer to behave in a way that they would not have otherwise done. This generally means enticing them to the store and encouraging them to increase their spend and/or spend in areas they might not have considered. Too often though, organisations bring a "one-size-fits-all" approach to this challenge, when better results may be achieved through more direct and tailored engagement with customers.
Rewarding the Engaged
Most people would be familiar with the classic loyalty marketing model: customers accrue points through their purchasing behaviour and these points are redeemed for a reward. The idea is that customers will be motivated to spend more in order to achieve a reward more quickly.
There are a few problems with this model in terms of its ability to actually influence customer behaviour:
relevance: the program may not be "top of mind". It simply becomes something that "ticks along" in the background. If individuals are not engaged with the program, it is unlikely to alter their behaviour
ambivalence: people earn rewards over time without really having to change the way they behave. That is, customers don't have to increase spend to earn a reward. Rather, they have the mindset that it just takes a little longer to get there... and organisations that put a "sunset clause" on rewards (to force increased spending in the short term) run the risk of creating dissatisfied customers who feel something has been taken away from them
inequality: the program rewards both those who really want a reward and those who are less engaged (or dormant). This creates an issue when assessing the return on investment of the program as it prompts the question: of all the people who received rewards, what percentage actually increased their spend or changed their behaviour in a way that benefits the organisation? There is another downside to this - it creates difficulty in budgeting (when, if at all, are disengaged customers likely to redeem rewards?).
An important principle for all loyalty programs emerges from the preceding issues; we need to reward only those customers who are actually motivated to receive a reward and will change their behaviour to do so. They are the customers who can be influenced. Think, for example of a Qantas Silver member who needs just one more domestic flight to achieve Gold status (and the benefits that come with that).
We also need to make the dormant loyalty population more aware so that they too become engaged and, in doing so, motivated to behave in particular ways.
By doing rewarding the engaged, organisations create a "virtuous cycle": engaged and influenced customers spend more, creating a larger (self-funding) pool for rewards, motivating loyal customers to become ever more engaged and influenced.
In focussing on only engaged customers, organisations can reduce the reward spend on "irrelevant customers" (some would argue, of course, that there is no such thing as an irrelevant customer and, in most cases, we would agree. However, in this context, we are referring only to loyalty members who in turn form only one aspect of the typical customer base).
Fostering Relevant Engagement
Unfortunately, many organisations implement a loyalty program as a "one-off" exercise and see the launch of the program as the loyalty event itself... we tell people about the program, give them a loyalty card and our work is done. If the objective of a loyalty program is to just give away gifts or discounts, then do that - create a discount or gift-with-purchase offering (a defensible loyalty strategy, but only for the short term or for customer acquisition). This is unlikely, however, to build long-term customer retention, brand association and behavioural change.
If the objective of the program is to motivate and reinforce particular behaviours, to drive medium-to-long-term return on investment, then organisations need to work harder on achieving and maintaining engagement through direct and tailored communication. Put simply, the program, its benefits and a customer's personal reward status need to be "top of mind".
Given the changing demography of loyalty prospects, this not only requires the obvious ongoing and active program management, but personal and highly relevant communication. Today's loyalty program member needs to engage with the program in their own time; accessing their personal information, their status, and reward redemption history and targets. This can only be achieved, on a mass scale, through a combination of customer information management systems and electronic communication vehicles, like SMS, email and MMS. These solutions enable easy, even automatic, communications with loyalty program participants directly, cheaply, in a timely fashion and with personalised content.
For example, some better-known applications include communication to customers to recognise birthdays, anniversary dates and can take recent purchase history into account to promote relevant upcoming promotions or simply to reinforce how the program works and its benefits.
It is this one-on-one relationship with the customer, established through electronic means, that delivers a targeted flow of information, making the program relevant and engaging. Once customers are engaged, their behaviours can be influenced to benefit the organisation.
Emerging Trends in Direct Loyalty Marketing
If the objective of a loyalty program is to influence behaviour, then the rewards need to reflect customers' opinion about what it is they want. In the previous section, we discussed how electronic communications, together with a sophisticated customer information management system, can drive relevant and individualised communications to targeted customer segments. These tools also give customers the opportunity to let the organisation know what motivates them (and, surprisingly, not everyone wants an iPod... least of all, last year's iPod!). This, of course, drives greater engagement and brand loyalty.
A few emerging examples include the "points voucher" and "green rewards". The points voucher works by sending a unique code number to a customer, via SMS, email or any other form of direct communication. The customer is told that if they register the code, they will receive a reward or points toward a reward. As the code, and its communication, is personalised, the reward or points given can be controlled. To register the code, the customer is typically asked to visit a website, where the customer is further exposed to marketing messages.
Green rewards, such as carbon offsets, are another example of an emerging reward type. So too are donations. Customers want the flexibility to make these redemptions and, if such options are not part of the program, customers want the means to communicate their needs.
Ultimately, establishing intelligent, direct lines of communication to customers makes a loyalty program more relevant and targeted. Only then can the customer be influenced to behave in a way that benefits the organisation.
