Creating the Lean Mean Loyalty Machine

he global recession has created difficult challenges for all industries, and the need to streamline your loyalty programme is now more important than ever. Our specialists recommend that you look at three key areas of your loyalty programme to improve efficiency and enhance effectiveness.

Use customer knowledge and analytics

Through analysing your customer database, you can determine what new customers you should target to fast track them to the top tier, who your most valuable customers are (not necessarily the ones with the most points), and those customers who are becoming more valuable or changing their behaviour with you.

You can drive further insight from your data if you also conduct predictive modelling. This enables you to identify and score those members in your programme who are most in danger of leaving or switching to a rival's brand to better understand why a member is at risk.

But the key is to use the insight from data analytics and predictive modelling to drive greater results from your programme. You can organize your customers into segments based on their needs, predicted behaviour and their overall value enabling you to take action and target your communications to focus on those customers who have the most value or potential value.

Recognize and maximise the middle tail
A tremendous opportunity, which is often overlooked exists among a sizeable group of customers that ICLP call "the middle tail". Take the airline industry as an example, where frequent flyer programmes tend to concentrate almost exclusively on heavy flyers.

Our research indicates that 40% of those who took 5-14 trips on their preferred airline also took between 5-14 trips on other airlines and only 7% of this group claimed 100% loyalty to their preferred airline.

This group of moderate flyers, 'the middle tail', is a lucrative although largely ignored 'sweet spot.' The middle tail represents a huge opportunity for airlines to generate recurring ancillary revenue from products and services as this group have largely unserved travel needs such as insurance and ground arrangements.

Although, airlines will need to accept that they may never be able to achieve 100% of these customers' business, they can keep their brand front-of-mind, and increase their share of customer wallet through a focused ancillary revenue strategy.

In other sectors, the same thinking can be applied by first recognizing those customers in your middle tier that have unserved needs and developing an ancillary revenue strategy to target them.

Outsourcing the right competencies
Everyone is being made to do more with less resource today. But is there a way to right size your programme resources based on programme size? Amongst our clients and projects across a variety of industry sectors, we have observed a wide range and disparity in how resources are organized.

Take the airline industry as an example where Airline A has 4000 members per internal head with no outsourced resources and Airline B has 160000 members per internal head plus a 60 strong team of outsourced services, yet both airlines run profitable loyalty programmes. From our experience, there is no right formula for how to organize resources based on programme size.

Ultimately, what you should be considering is outsourcing services that are not regarded as core competencies within your business. Outsourcing to trusted vendors can make your company more efficient and reduce costs while at the same time increase the value proposition and thereby enhance the overall customer experience.

In many cases, loyalty programme owners outsource marketing communications and member servicing to trusted partners allowing them to concentrate on more strategic activities to drive improvements in overall business performance.

Streamline your programme for growth
Streamlining your programme is all about focusing on the 'right' customers to drive your performance. This must start with defining who those 'right' customers are and better understanding them through the data you have available.

Having the ability to accurately predict customer behaviour and to identify recurring revenue potential within your programme are key opportunities for not only streamlining your programme but also identifying potential growth areas.

Utilizing these strategies will help you target and grow your programme profitability despite the economic downturn, and will leave you in a strong strategic position to capitalise when the economy begins to improve and beyond.