Giving loyalty a boost

Loyalty programmes have been around for more than 30 years, but are brands moving with the times? With customer behaviours shifting at an alarming rate, brands must adapt their loyalty strategies to be sufficiently engaging, and to differentiate themselves from competitors.

But before brand marketers can decide how to improve their loyalty programmes, they must re-evaluate their objectives, and this could differ by geographical region. In mature markets such as Europe and the US, brands with existing programmes are trying to re-energise them with innovative approaches, mainly driven by the need to differentiate and provide additional value. However, in China and other emerging markets, the focus is still mainly on customer acquisition - although this will shift towards retention and loyalty initiatives in time.

Research has repeatedly shown that customers are motivated by loyalty programmes. For instance, during the programme's first year, eBay Bucks members spent five times as much on eBay as did non-members. Most customers feel they should be rewarded for choosing one brand over another in a saturated market, and the greater the perception of rewards, the more attractive the loyalty programme.

The good news for brands is that there are ways to rejuvenate loyalty activities and help drive incremental revenue and value for customers. Let's look at some of the characteristics and developments that can be integrated into today's three most popular types of loyalty programme:

1. 1.      Reward Programmes

Rewards form the foundation of most loyalty initiates, particularly in the airline, hotel and retail industries which have a legacy stretching back more than three decades.

However, in recent years, many businesses have found it difficult to deliver rewards due to problems with availability.  Redemption is always a behaviour that should be encouraged, so customers can see and feel the value of collecting points or miles. However there is always a financial balancing act in allowing loyalty members to redeem for flights, rooms or goods as opposed to keeping them for cash-paying customers.   Well, the answer is that whilst it is proven customers who redeem their points to stay longer, spend more, and talk about their experiences positively with their friends - it still needs to be quantified in a business case.

In addition, there are challenges in terms of managing liability - the more points or miles earned, the greater the future liability. Added to this are the complications of GAAP and IFRIC13 regulations, which have different ways of determining the liability and revenue that are recorded in financial accounts.

And from the customer's perspective, the threshold for reward redemption is often set too high and so for the occasional flyer, stayer or spender they seldom experience any real value.  Brands need to energise their programmes to better cater for these members, and at the same time proactively seek to reduce liability. Here are a few ways in which brands can achieve this:

• The option of part-cash/part-points redemption seen in many loyalty programmes today, such as airline and retail, goes some way toward solving this, but brands must still find more innovative ways to engage customers earlier on in the redemption cycle.
• Offering redemption options outside of the core product is something that can be used to extend the loyalty proposition and create additional value for customers.
• Introducing tactical promotions and incentives such as auctions, competitions and lower-value product redemptions.

1. 2.      Recognition

Recognition programmes are also popular in the market, with some brands using the technique very successfully (such as Mandarin Oriental and American Express). Such programmes are often combined with reward programmes but can often be standalone, depending on the commercial objectives of the programme and business.

However, many programmes are not necessarily using the right metrics to allocate customers to particular loyalty tiers, and this means there is a risk that they are not categorised and recognised as they should be.

Programme operators could be missing a valuable opportunity here to renew and re-establish their segmentation approach that meets their business objectives.  They must refocus more on identifying individual behaviour and its associated value.  Ultimately one of the most effective initiatives to consider is how customer understanding and intimate knowledge can be combined with predictive modelling to treat people in a way that you expect them to develop, then pre-empt with relevant recognition offers.

1. 3.      'Me Too' Programmes

Perhaps more common in today's loyalty marketplace is the 'Me Too' programme. These are usually points-based (or even stamp-based) schemes that have been created where the main business objective is simply to maintain market share, and they are really just an alternative to discounting. Therefore from a strategic perspective, they have little differentiation.

For most 'Me Too' programmes they are often challenged to provide true value for the customer, resulting in low activity and redemption rates.  There are many examples in the marketplace, and they often take the shape of the 'Buy 10, Get 1 Free' proposition. The problem with this is that the company can miss the opportunity to collect valuable data or engage with customers throughout their brand relationship.

Those with such a programme must consider how they can stand out, be different and more attractive to the customer.  For example, GHA Discovery specifically set out to be different and, as a result, delivered a customer proposition based on relevant local experiences. The programme delivers genuine and relevant value for the customer while providing real differentiation from most other hotel loyalty programmes.

So what can be done to give your programme a boost?

For a successful loyalty programme, the objectives and ROI metrics must be crystal clear. Is the data being leveraged sufficiently? Are the right customers in the right tiers? Which customers are most beneficial, and which have the potential to be more valuable? And, most importantly, how can the programme improve its differentiation to inject new value for both the customer and the business?

At astrategic level, brands must strive to create a real point of differentiation and then implement a programme to sustain this advantage by adopting a greater focus on data segmentation and customer insight.

At atactical levelthere are many different initiatives and promotions that brands can launch to create value for customers, and also for their programme - as liabilities are also reduced.  This really can be a win-win for both parties.

Overall, it's important to balance focus between both strategic and tactical initiatives that create value to inspire customers to engage with the programme, whatever the channel.