What is loyalty program management?

What does a business need to do to manage its loyalty program effectively?  It does not matter if you are a small company or a large conglomerate, having a strong loyalty program management system in place will help you to leverage your program to maximize customer retention and lifetime value.

So, without further ado, here are the top things you need to take into consideration to effectively manage your loyalty program :

  • Lead your loyalty program with data

A good loyalty program is measured and driven by numbers. This approach gives you an indication of the direction that you need to go towards.  From data modelling before program launch, to extensive LTV or CLV analysis during the program, you should make data a priority as you manage the program. Data should drive your decisions in any marketing conversation, especially around retention or loyalty. A good loyalty program manager can help you track these important metrics.

  • Focus on Relevance

During the management of the program, make sure you are always “relevant and real” to the customer.  By asking questions like “Why is this relevant?” or “Are you pushing or asking?” you will ensure that you are aligned with the needs and expectations of the customer and not taking them for granted. Each message needs to be relatable and customer-centric, and not just as a piece of random communication or a statistic. Human experiences are made up of emotions, feelings and desires. Your loyalty program management should align with these nuances and go beyond being just a discount disbursal system. If you lead your loyalty management from this angle, then your brand can work towards unlimited possibilities.

It does not matter if your loyalty program is digital or an old-school punch card, it should be a go-to strategy or the foundation that your business is based on.  Implementing a loyalty program needn’t be a cumbersome task. In fact, even if you are a small business owner with limited resources, we would still recommend that you take the time out to conceptualize a brand loyalty program. It only takes a few extra minutes to implement one and the benefits are many: retain and reward existing customers, increase sales and gain new followers.

Here is a handy list to get you started with designing your own customer loyalty program.

  • Start with the end in mind

From the onset, you need to be very clear about the goals of your customer loyalty program; in short, what do you want to achieve with it?  Improve customer acquisition?  Decrease customer churn? Increase order size? Make these goals very specific and as measurable as possible.  Attach a timeframe to each goal. For example, “I want to decrease customer churn by 25 percent in the next two years.” Working with a timeline for each goal will help you stay focused and on track.

  • Invest in an automated loyalty program

There are many ways by which you can automate customer loyalty programs. The more automated your program is, the easier it is to manage and maintain it. This does not mean that you will be doing away with personalization.  These days, you can choose from several personalized loyalty program software to help you automate campaigns while still maintaining a personal touch.

  • Leverage the power of email

One of the easiest and most effective ways of staying in touch with your customers is to send them an email.  This is a great way to kick off your digital loyalty campaign. You could start by sending a steady stream of communication around your loyalty program. There are several free or low-cost email-marketing solutions that are all easy to use and can be tweaked or tailored to suit your business needs.

  • Go social

Social media is a powerful and effective way to engage with your existing customers on a regular basis. Take the time to understand and find out which social media channels — Facebook, Pinterest, Foursquare and Instagram to name a few — your customers are seen on the most. Once you have decided on the right network(s), build your social community around them, following through varied and engaging content and posts – giving many options to your followers for sharing and referring.

What is the bottom line?  What can be inferred from the above? For most businesses, it can cost up to five times more to acquire a new customer than to retain an existing one – all the more reason for customer loyalty.

How to measure the success of loyalty programs?

Loyalty programs are nothing new, but this does not mean that they are going out of fashion anytime soon.  Based on the research conducted by the group Colloquy, there are 2.65 billion loyalty program memberships in the U.S. alone. On an average, US households are involved in 21.9 loyalty programs, yet only actively participate in 9.5 of them. There are about $48 billion allocated towards loyalty programs each year, in the form of discounts, free rewards or special promotions.  Out of these, only two-thirds of the amount is ever redeemed by customers. That might sound great from a company perspective, but it is indicative of poor loyalty program management and worse, bad customer engagement.

A loyalty program that is well designed can boost customer satisfaction and repeat business. Given below are different loyalty programs.  Find out what works best for you and how to assess their effectiveness.

  • Points System

One of the easiest and simple loyalty programs is the points system. Frequent customers earn points with every purchase they make, usually with a loyalty card. These points accumulate into some sort of discount or other customer experiences.

A points system is a great loyalty program for businesses where customers make   frequent purchases that are small in value. For example, Starbucks’ “My Starbucks Rewards” is a point-based program.  It has over 10 million active users and it seems to be quite popular. However, at its core, it’s a simple points system. However, Starbucks cleverly throws in limited-period discounts and special birthday rewards to keep their customers from becoming used to this system.

If your business chooses to implement a point-based rewards program, remember to keep it easy for customers to sign-up and vary your reward offerings to keep customers interested.

  • Tier System

The difference between a tiered program and a points program is that a tiered program is in for the long-haul.  It can offer greater rewards in the long term. The tiered system is like a step-ladder.  Firstly, it offers small rewards for joining the program and getting the interest of the customer.  Then the value of the rewards increases as customers become more loyal on the program.

Southwest Airlines’ successful Rapid Rewards program is a points system that has three different tiers of rewards: A-list, A-list preferred, and Companion Pass. Moving up the points ladder unlocks privileges such as priority boarding, free in-flight Wi-Fi, a 100% points earning bonus and eventually a companion pass that allows one friend to ride one free round-trip flight.

Tiered loyalty programs work best for businesses that require a higher commitment such as insurance, hospitality or travel. If your customer-base primarily purchases small items, then a tiered system might not work for them, as the effort required to move up the next level usually doesn’t justify the end reward.

  • VIP Status

Although getting customers to pay upfront for privileges in the future can be a difficult sell, e-commerce giant Amazon.com has shown that it can certainly be done. For seventy-nine dollars per year, Amazon Prime members receive free two-day shipping on all items sold by Amazon or select partners. Members also have access to Amazon’s streaming video service and the privilege to borrow one free Kindle book per month.

While a VIP rewards program is tempting from a business perspective, you will definitely want to make sure that the perk you are offering to customers is worth the money that they will be paying.  If you’re not offering a substantial service, you’ll risk being seen as trying to fool your customers or being out-of-touch.

Loyalty

Assessing the Effectiveness of your Rewards Program

A vital aspect of loyalty program management is measuring its effectiveness – in terms of increased customer retention or satisfaction. There are many different ways to analyze this, thanks to the availability of user-friendly loyalty program software. Here are a few metrics you should be measuring to understand the success of a reward program.

Customer Retention Rate

The customer retention rate is a measurement of how long customers stay with your brand. The bottom line of a loyalty program is to increase the number of customers who stay with your business for a long period of time. Finding out the difference in customer retention between program members and non-program members is one of the best ways to find out if your loyalty program is effective.

Customer Effort Score

The Customer Effort Score (CES) measures your business’ customer service based on actual experiences of customers; especially after-sales customer service that they have had with your company. CES asks customers how much effort they had to put forth to pursue the executives of your company to solve a problem. Loyalty programs that address expedited requests, such as Amazon Prime’s free shipping, will likely improve your business’ CES and general perception.

Negative Churn

Churn is the measure of how many customers leave your business overnight. The measurement of customers who instead of leaving, upgrade their membership and purchase added services is called negative churn. In order to properly measure this, you’ll need to be able to attribute purchases to individual users or customers and track the purchases of customers over a period of time. Most loyalty program management software will help you calculate Negative Churn with ease.

Net Promoter Score

Net Promoter Score (NPS) is a metric that is received from customer feedback. NPS measures the recommendation of your business by customers to friends, relatives etc., based on a scale from one to ten. Subtracting the percentage of detractors from the percentage of promoters is how the NPS score is arrived at. Scores can range from -100 to +100 and any positive score is considered good. While investing in a loyalty program software, make sure that it has the provision to calculate the NPS Score.

Digital technologies has led to an increase in customer expectations, especially around faster service and support. Companies need to invest in digital solutions to stay consumer ready. Loyalty programs are a great step in this direction, especially when implemented with a long-term strategy and using tools for analyzing customer data.

How to restructure an existing loyalty program, to improve its effectiveness?

The primary focus should be the alignment between your customer and the loyalty program. For example, the program should support customer experiences and not vice-versa.

Keep your customers engaged

Target communication in such a way that it piques your customers’ interests and preferences. For example, if you have 15 customers who want to buy yellow rain boots, you can engage with these customers by sending each an email with information about a complementary yellow umbrella. Invest in a  great customer relationship management software and email automation solution to create personalized customer communication.

Given below is a comprehensive loyalty checklist developed by a top Ogilvy & Mather strategist, Michael Szego. Do note that there is nothing called a perfect loyalty program, even if you follow the below list, to the T.  You need to keep evolving and changing with the market and your customer.  In fact, you need to be a few steps ahead of them, in order to make your loyalty program management a success.

Simplicity = Make my life simple, don’t confuse me with too much information

Benevolence = Understand my issue and take my side in finding a resolution

Trust = Doing what’s right, honouring promises and protecting customer’s privacy

Transparency = Rates and fees are crystal clear and comparisons are available

So there you go, these are some of the elements that you should keep track of, to ensure that your loyalty program is effective and engaging for your customers.

Vishakha Sen
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