Secret Value of Loyalty Programs

The number of loyalty programs is rapidly increasing as the stalwarts of South African loyalty, including Discovery, eBucks, Clicks Club Card and Edgars Club dominate and grow.

I am involved in many workshops with executives and there is a lot of debate on the value of Loyalty programs. Ironically, loyalty programs using loyal behaviour as a reward mechanism only achieve their true value through active engagement of the customers. Let’s face it, the amount of behavioural change that incentives within a loyalty program can achieve is limited. If, for example, a lender incentivises customers to pay more reliably, it is unlikely that the customer is going to change their payment behaviour based on small increments of reward. If an airline is charging too much and the service is poor, it is equally unlikely that the airline will change customer buying behaviour based on a loyalty program.

So what is the value in a loyalty program? Loyalty programs, are, in fact, invaluable tools to engage customers. As a supplier, you are offering small rewards (which hopefully will add up to something more substantial over time) but in exchange, you get the opportunity to regularly engage with your customers. Customers have needs and those needs evolve – they shop for products and services and they are continuously evaluating value propositions. With the amount of information available online today, they are often looking for this information on the web and in social networks. From a customer point of view, without a very good reason to interact with your company, there is simply no way to gain insight into the purchasing intent of the customer – all the investigation will happen anonymously in cyberspace. In the “Most Engaged Customer” survey conducted in 2010 by PeopleMetrics, it was shown that for customers where the engagement metric dropped by 5 points, that the average share price appreciation was 22% while for those customers where the customer engagement score increased by 5 points, the average share price appreciation was 56%. A well structured loyalty program is an excellent vehicle to increase customer engagement and you can expect that sales to your existing base will increase and that retention for annuity products will also increase.

There is a second significant benefit to loyalty programs and that is the “selection effect”. Loyalty programs tend to attract customers that are orientated to display the behaviour the incentive or loyalty program is incentivising. This means, for example, that if you incentivise wellness behaviour, you will attract healthy lives. If you incentivise multiple product purchases, then you are more likely to attract customers that are comfortable with buying all of their products from one provider, likewise if you incentivise regular flying, you are more likely to attract regular travellers!

Of course there is a lot more to constructing and operating a value adding loyalty program that adds to the customer experience as opposed to one that is seen as divisive, inefficient, unengaging  and cheap. Marketing professionals often massively underestimate the complexity of constructing a self funding loyalty program that truly enhances the customer lifetime value.  There are many dimensions to a well run program such as the product design, the commercial framework, understanding and managing the business case, constructing an appropriate marketing and campaign approach and capability, ensuring loyalty program engagement, ensuring operational delivery and having the depth of systems to support all of the preceding points.

Implementing an effective program is not easy but the returns can be massive when the secret value is unlocked when correctly executed.

 

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