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How to design a customer loyalty programme

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8th May 2014
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The sheer number of loyalty programmes that one comes into contact with belies the fact that these reward schemes are fiendishly complex to design and build. With so many programmes offered, across so many sectors, it is easy to assume that the schemes can almost spring into existence overnight. Yet for such an initiative to be successful, brands must ensure that they do their due diligence when it comes to designing their programme. And that means plenty of legwork.

To help your brand with this process, we’ve pulled together advice from across the web and from a panel of loyalty experts, to produce an exhaustive guide to designing your customer loyalty reward programme. And unsurprisingly, the first step begins with research.

Testing and research

You may think you know the demands and motivations of your customers, but unless you actively engage with them, there is still a degree of guess work taking place – and that isn’t a solid platform on which to build a loyalty programme.

“You really have to make sure you’ve done your homework,” warns Susan Binda, head of loyalty marketing at The Logic Group.

“You must have robustness in your data, so make sure you are capturing broad data. You need to ensure you are giving people enough reasons to opt-in and that you have the permissions to market to them, so you need the right insight on your customer, to know how they feel about your brand, how they are behaving now, and how you would like them to behave in the future.

“Once you’ve got the right pillars in place, then you can start doing small tests with a sample group of people, perhaps in one region or one or two stores. You can run focus groups and get their feedback on what will motivate them to do what you hope they will and find out what their emotional motivations are. You then need to tailor your offering logically based on this intel.”

While this kind of research can take traditional forms such as focus groups, there are also more sophisticated approaches that are emerging. 

“One of the biggest things I’ve learned in the last 10 years is that you can and should engage your customers in this,” says Richard Madden, chief strategy officer of Kitcatt Nohr. “When we worked on the MyWaitrose loyalty programme, it started with the Waitrose managing director Mark Price wanting to get closer to his customers. He started a personal blog which over time became an online customer community. To begin with it was merely a place where people could swap recipes and make suggestions to Waitrose. Then, based on the precept that you start a loyalty programme with your best customers as that’s where you’re going to get the biggest return, we started using that community as a test pad for offers and reward structures. And this not only measured usage, but also collected qualitative feedback as well.”

Madden believes that the research stage has changed dramatically in recent years, as businesses have increasingly sought to make customers a much more active participant in the design process. “In the past, we would probably have done lots of research and conjoint analysis. We would have built large business models, and then we’d have just pushed a fully formed loyalty programme out to customers,” he notes. “I think the way to do it now is to have an adult conversation with some of your best customers good and early, and really co-create the programme with them.”

Getting your data in order

Data infrastructure can potentially present problems for loyalty programmes. “Organisations have so many patchy legacy systems held together with twisted copper and chewing gum,” notes Madden. “You only have to see how the banks’ transaction processing systems fall over so frequently these days to realise that it’s a real obstacle in getting adoption for loyalty programmes these days.”

The types of data that can be used to inform and improve loyalty programmes can come from far and wide. This ranges from the customer’s personal details to their demographic breakdown, household composition and any linked accounts, addresses, products or services they may have within the partner network. Beyond that they will dig into the transactional data: sales, calls, visits, offers, surveys, orders and complaints.

However, it’s not all bad news and there are a lot of technical solutions out there now that can sit on top of legacy systems and don’t require heavy rewiring. Don’t let the apparent complexity discourage you. “The expectation is that people are going to have to do a full rewiring job that’s like requiring the house, whereas actually all that needs doing is to change a few plugs,” says Madden.

Gareth Mitchell-Jones, Big Data and analytics leader at IBM, adds: “The good news is that databases do exist that incorporate all of this data in a single, tuned solution with a series of assets that harness the data and turn it into useful output. The most effective ventures will enable this with a dedicated team that manages, operates, develops and maintains the entire solution from both a business and technical perspective.”

While the data is crucial, you also have to ensure that you able to understand what it is telling you. This means having a set of data analysis tools that, depending on your particular needs, could cater for geo-spatial statistics, reporting, marketing automation, optimisation, real-time decisioning and web analysis.

Mitchell-Jones adds: “It is also necessary to invest in specific analysis outputs that will drive key mechanics. If you don’t know how the data output will appear, you will not be able to use it effectively.”

The four requirements for analysis outputs for consideration he suggest are:

  • Cubes or marts. Customer, Service, Product, Partner, Channel, Stores, Promotion, Campaign are all useful and different variations.
  • Models. Price elasticity, product and offer propensities, contact timing, response, conversion, default payment, churn, retention, renewal, activation and winback, to name but a few.
  • Segmentations – of which there could be hundreds of useful lenses to choose from but value, contribution, headroom, lifestage, lifecycle, preferences, habits, channel usage, promotional suitability, share of wallet and advocacy are likely to be key requirements.
  • Reports. KPI trackers, business performance data, flexible profiling and detailed, dynamic, guided train of thought tools.

This data will provide hard facts, but further research will also be required to make sense of what the findings mean in human terms, understanding the why, as well as the who, what, where, how and when. This is important to provide steer for current work but also future plans, from customer satisfaction and product / service usage to new product / concept development and launch or response to performance and recall marketing and creative campaigns.

“Loyalty programmes tell you what customers do, but they don’t’ tell you why they do it and so a big problem is that brand forget that they actually need to do some basic information gathering on the consumer,” says Keiningham. “You might have a hypothesis for why customers aren’t buying a bundle of goods the way you’d expect, but you won’t know until you talk them. You’ll never introduce anything that is truly unique based on what people are doing right now. You have to figure out what it is that they are missing that could catch their attention. And even the really great programmes such as Tesco and Kroger could do this better, because they still rely heavily on behaviour-based data to drive their programmes without an underlying understanding of the motivations that people are having for using more than one brand.”

Types of reward

When it comes to building your loyalty programme, important consideration must of course be given to the type of system and rewards to be used to engage the customer. Some of the choices include:

  • Points and frequent buyer/flyer systems. This common system allows organisations to keep track of customer purchases and reward them with perks to encourage them to return over your competitors.
  • Multi-tier rewards/discounts/points systems. The more purchased by a customer, the more points are allocated to an account, which can then be redeemed for discounts, goods and services at participating businesses. A popular system that can be easily automated.
  • Customer loyalty partnerships/joint ventures. Coalition partnerships can offer benefits to customers that would otherwise be difficult for them to attain. This will commonly involve partnering with non-competing brands that offer complimentary products or services that you don’t offer. For instance, a hotel, car rental and theme park might jointly offer coupons and offers.
  • Non-monetary rewards and indirect benefits. Requiring a detailed understanding of your customer, this rewards customers with relevant and supplemental perks to your main offerings. Some stores, for instance, provide ‘buy back’ programmes for goods that customers no longer require, or help them to resell merchandise through the retailer’s own website, thereby rewarding close ties with the company.
  • Upfront fees for membership. Exclusivity works well in loyalty programmes, rewarding loyalty with membership to premium groups and access to offerings such as platinum cards, with related benefits and discounts.
  • Contests and games. Retailers often offer free prizes and contest entries to customers that purchase a certain amount of goods. Even though these tend to be high-probability, low-value prizes like cups or pens, they still generate a sense of excitement and appreciation to encourage loyalty. The ‘surprise and delight’ element of a scheme can make a very favourable and memorable impact on a customer that will have a lasting impression.

Further considerations

With all of this in place, the framework for the programme is taking form. However, it is imperative that the design of the programme also gives due consideration to a number of other dimensions that will help to build the emotional loyalty that drives the brand values and creates customers who want to frequently engage with the retailer.

Simon Towner, divisional director of retail at Omnico Group, highlights the following:

  • Relevant and timely offers that are recognised as being personalised - whilst relevant and timely is important the last bit is more so. “Customers need to know that the retailer has gone the extra mile for the customer and taken the effort to offer them something unique to their preferences,” notes Towner. “Retailers need to consider how they will communicate this to their loyalty members.”
  • Consistent messaging, rewards and offers as part of a joined up omnichannel experience. It is not only important to make sure the same rewards and offers are available in each channel (web, mobile and in-store) but equally it is important that in the new world of customer journeys where the shopper is moving across various touch-points before making a purchase that the basket and offers follow them as they shop.
  • Give the reward the moment it is achieved. Continuity rewards schemes work, such as shop three times in December spending over £75 each time and get extra bonus reward points. “The important point here to let the customer know there and then the reward has been given rather than wait to tell them next week or the next time they shop,” says Towner. “Anglia Coop first used this technique as part of their membership scheme in 2011 and increased membership spend by a whopping 36% on the run up to Christmas.”
  • Reward advocacy to the brand. Make sure you know who your brand advocates are and find ways to thank them, because it is this special group that are most likely to be spreading the word and drumming up new customers for you.
  • Allow customers to tailor the scheme to their needs. More and more customers want to exercise control over their loyalty programme, tuning their preferences and helping the retailer to give the offers they want. “For example, rather than always giving a deep discount member coupon offer, allow them to choose the three they want this month from a list of say 10,” explains Towner. “Or if the scheme gives a double discount day before Christmas, recognise that not every member can make the Saturday you choose the deal to be available, and allow them to choose the date and time that suits them.”

Final considerations highlighted by Ashley Tate from Bigdoor, include:

  • Make your tasks achievable. If you make tasks too difficult or time consuming for users to complete, you’ll probably see a negative response from your audience.
  • Keep your loyalty programme on-brand. Keep your rewards programme relevant to your brand in order to smooth the transition between customer to loyalty programme member.
  • Communicate with your members regularly. Create a pattern of communication between your brand and program members so they know what to expect and when to expect it.
  • Offer multi-platform options. Your customers are engaging with you everywhere: on their phones, at work, on their home desktop machines, and on their tablets. The wider you can expand your programme’s reach the higher the chance of people engaging with your brand will be.

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