- Posted by careers 15 Jan
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To follow up on our last write-up on ‘The Major Factors Behind a Successful Customer Loyalty Program’ as promised, here are the first 5 factors that make customer loyalty programs pay. Over the last 15 years, we have had a lot of clients who though they are running successful loyalty programs, faced challenges with optimizing their customer relationships. Our research indicated that most businesses believed that the loyalty program was a ‘silver bullet’ that would immediately solve all their challenges with little or no input from them beyond launching & running the loyalty program.
The truth however is, that with a loyalty program, we are trying to change customer behavior, patterns & our own business processes that have been formed over the years and this isn’t a quick fix, it’s more like a carrot and stick approach and if done right, the loyalty program will aid the business in increasing cost savings, better business processes, improved targeted marketing, engender preferred customer transactional & visit behavior, etc. without taking too much of your time, We are happy to report that with our guidance, our clients are now seeing much improved results from their enhanced customer relationships.
In that light, kindly find our first 5 factors critical to a successful loyalty program below:
1. Focus on acquiring data, not just repeat visits
A so-called “loyalty program” can’t buy true loyalty – or even repeat visits – in any lasting way. This is a popular misconception. Early operators thought that the reward would be enough to bring customers back time after time. But it didn’t take long to become apparent that they were mistaken. Customers simply carried many loyalty cards and collected points wherever they shopped. They were just as promiscuous as before. The smarter operators used loyalty programs not to buy repeat visits but to garner information from their customers in order to learn more about them: who their most profitable and least profitable customers were, what they wanted, and what changes or offerings would be most likely to make them truly loyal . A focus on data analysis & its usage to improve business processes is key
2. Target customer acquisition more accurately
A loyalty program should attract new customers to the business. How effectively it does so will depend on how exciting and how valuable the rewards seem to be to the target audience. Acquiring customers is no doubt essential to any business, but it can be expensive if compared to nurturing existing good customers. But it should not be the central focus of the loyalty program. However, the quality of new customers acquired can be raised by careful use of the existing data from a loyalty program, which can be used to establish the demographic profiles of existing ‘best customers’, and then to target prospective customers with similar demographic profiles in acquisition campaigns.
3. Move customers up the spend bands
This is as simple as the more your do with me, the more you get in terms of treatment, benefits, packages, etc. also, by grading rewards (for example, offering extra points for exceeding a specified spend threshold in a time period), customers can be moved up from one spend level to the next. A good example of this is how Bheerhugz Café, Lagos (The premier café and bar Customer Loyalty Program) runs a tiered program where customers are moved to various card levels to encourage lower-spending customers to move up through the spend segments.
4. Intelligent deselection of the least profitable customers
It can be more profitable to lose bad customers than to gain new ones. ‘Cherry pickers’ (customers who buy only your discounted lines and nothing else) cost you money, as does any low-spending customer. They cost more money to service than they generate. Designing a loyalty program that rewards better customers without rewarding this segment at all gives these less-desirable customers less reason to stay. In fact, another client of ours has observed that only around 30% of customers actually generate enough profit to cover the cost of servicing them. In Philip Kotler’s version of a Pareto Principle chart, the top 20% of customers generate 80% of the profits, while the bottom 30% of customers eat up 50% of the profits that the others produce.
5. Win back profitable customers that have defected
Customer win-back expert Michael Lowenstein (of Harris Interactive) says that the success rate in approaching ‘lost’ customers can be three to four times as high as it is when prospecting for new customers. For example, the rate for converting prospects might typically be 5%, while that for reactivating inactive customers might be as high as 15% – 20%. In the book Customer Winback by Jill Griffin and Michael Lowenstein, it is reported that there are several reasons why customer win-back has a greater chance of success than acquisition. You have advantages with lost customers that you don’t have with prospects, including: information about their past purchase history; where and how to reach them; and their preferred communication channels.
I trust that these top 5 factors will help with your Loyalty activities from this week onward. I will share our next 5 factors with you next week.
Should you however have any questions, comments or suggestions please feel free to put them down below in the comment section