Your Loyalty Program Isn't Creating Loyal Customers

How Marketers Can Use Customer Data and Insights to Build Effective Loyalty Programs

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It's harder than ever to earn your customers' loyalty. They are "always on," have instant access to myriad choices, and can easily find the cheapest prices from any supplier. Many companies think they've solved this with a loyalty program, but the competition is stiff there, too. On average, consumers belong to eight loyalty programs -- the majority of which are ruled by points, discounts and financial rewards. And let's face it: These transactional benefits are more about increasing frequency and spend than influencing emotional loyalty and devotion to a company.

The bad news? Traditional approaches to loyalty don't cut it anymore.

The good news? I'm not going to tell you to scrap your loyalty program. But I am going to tell you to reframe how you think about your program. It should be treated as one of several tools -- alongside customer experience, brand and customer service -- that helps foster customer loyalty wherever customers interact. Marketers have a huge opportunity to help their firms gain insight about who their customers are, what motivates them and how they currently interact with their products and services -- an opportunity that just 26% of marketers currently cite as a top business objective from their loyalty programs.

Be a loyalty company, not a company with a loyalty program

It's time for marketers to evolve their approach to loyalty with a greater focus on the total customer relationship, engagement and advocacy.

Truly great loyalty strategies create a meaningful exchange of value between the company and the customer. This exchange encourages customers to share all kinds of profile, preference and behavioral data. And the insights derived from that customer knowledge have broad applications for all customer-facing strategies, and should radiate out across the enterprise to do the following:

Unite acquisition and retention marketing efforts. The insights gleaned from loyalty data -- encompassing transactions, preferences and profiles, help identify the "right" kind of new customer to attract and the types of marketing initiatives that retain existing customers.

Inform customer experience design. Forrester's research shows that great customer experience correlates to loyalty metrics like retention, enrichment and advocacy. But it's difficult to build differentiated experiences based on what you think you know about your customers. Loyalty insights, combined with other sources of customer data, can help customer experience teams create and deliver personalized experiences that inherently exceed expectations.

Develop emotionally resonant brand experiences. Today's CMOs are tasked with the uphill battle of creating brand experiences that transcend products and service transactions. Loyalty insights provide customer-centric input for brand experience development and assessment. For example, after examining the data from its loyalty program, an online retailer was able to course-correct a branding strategy that largely targeted a mercenary and high-churn customer segment.

Use loyalty insights to put the customer back in customer loyalty

Loyalty insights also inform and reinforce the customer relationship at every stage of the customer life cycle -- not just when a customer shows their loyalty card at the cash register to redeem a reward.

For example, these insights can help customers discover new products -- as a food manufacturing brand did through a direct mail piece to loyalty card members. It drove the discovery of a new instant coffee brand, resulting in 50,000 customer sales, 60% of which were from new-to-the-brand customers, some of whom had previously purchased a competitor's product.

Loyalty insights can also lead to better customer service. A large financial institution feeds real-time customer web activity, such as multiple clicks on a web page, to call center agents so they can resolve issues or answer customer questions more quickly.

The bottom line here is that loyalty as we know it today -- ruled by points, discounts, and rewards -- is dead. It's time to get smarter about your approach to loyalty and build a multi-faceted strategy that starts with customer understanding and impacts both behavioral and attitudinal loyalty. Here are three steps to get you started:

1. Repair and optimize your loyalty program. I meant it when I said you don't need to scrap your loyalty program. Instead, evolve your loyalty program strategy away from a transactional program to one that's actually focused on improving customer relationships. Incorporate experiential benefits that engage customers at an emotional level and refine your data management processes to optimize and apply the insights you're gathering from the program.

2. Implement an enterprise-level loyalty metric. Loyalty is an outcome of many company activities, including branding, marketing, customer experience and customer service. As such, companies need an executive-level metric or set of metrics -- such as lifetime value, NPS or brand health -- that track loyalty over time. This centralized approach helps everyone understand whether their particular initiatives -- which in their own right may be considered a success -- actually contribute to the long-term loyalty of customers.

3. Get inspired by companies with cult loyalty. Companies with a public reputation for loyalty like Starbucks, Amazon and USAA just do business differently. Don't expect to replicate their business model exactly, but take a page from their loyalty playbooks. Identify why customers are loyal to your brand or company and use those findings to guide all loyalty initiatives going forward.

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