Three components that make a difference in loyalty programs.
The concept of loyalty programs is known in virtually every industry. However, most of these initiatives fall short compared to their more successful counterparts, becoming costly and challenging to attribute results to, as opposed to programs that deliver loyalty and additional revenue in a clear and measurable manner.
This is undoubtedly a significant opportunity. The available technology and market maturity enable everyone to participate in this trend. However, the danger lies in trying to draw inspiration from mechanics and references that are closer and more traditional, leading to more of the same and hindering evolution.
The Profitable Loyalty Program
Yes, loyalty programs should generate loyalty, be profitable, and can even become a profit center. Just ask Amazon, airlines, or take a look at the major coalition programs worldwide. Loyalty programs in industries with narrower margins or different business models should not be the exception.
But it's not automatic; it must be built. The majority of programs only focus on a part of the equation: rewards and fulfillment.
An Iceberg Is Not Just Its Visible Part
When it becomes just a rewards mechanism, it may attract customers and consolidate some short-term purchases. Still, a loyalty program cannot be considered a sophisticated promotion, nor will it likely differentiate your brand, as you probably won't be the first in your industry to launch such an initiative. In my experience, one of the main reasons companies are tempted to create their programs is that they can't afford to fall behind a competitor who launched one first. Therefore, it's not advisable to entrust the full potential of a loyalty strategy solely to rewards. Before focusing on the often-overlooked components, let's first agree on the goal we want to achieve: what do we mean by loyalty?
This Isn't a Romantic Proposition
How do we define loyalty in measurable terms (KPIs)? What do we want to achieve? Which behaviors do we want to improve? For the purposes of this article, let's propose that a customer will be more loyal to the brand when:
They prefer it and, therefore, keep buying it for an extended period. This variable refers to the customer's longevity.
They remain an active customer, returning to the brand or store as frequently as is reasonable given the nature of the business.
They maintain above-average spending and purchase not only one product line but as many as possible.
They recommend the brand and speak positively about their experience with it.
To achieve these 'loyal' behaviors, we need to utilize the components that will make the difference.
The Missing Ingredients
There are three.
First, one pending task in many Mexican programs is harnessing the vast amount of data collected and processed by these mechanics. Loyalty programs allow many companies to link purchases to the identities of those who made them for the first time. This alone changes the game completely because these data can easily map habits, identify the most-purchased products, preferred time slots, visit frequency, and the value of each customer, to name the basics. Subsequently, it will be possible to group customers according to their value contribution to the business, understanding who can be brought back, who is at the greatest risk of defection, and who has more opportunity to increase their purchase and is more likely to take advantage of cross-sell and upsell strategies. The use of data can be automated to monitor desired patterns without the need for manual reporting and analysis, systematically obtaining insights and business intelligence. Data and identities can also be used to assess how the program affects each customer group, providing measurable results.
Understanding customer values, preferences, and habits is fundamental for any successful and effective program. Nevertheless, I have observed companies with robust CRMs and entire data analysis departments that do not consider participant information and identities in their loyalty programs, neither for measurement nor to better understand how to increase sales. They neglect this because they view the program as an effort from another department, or the team responsible for the program does not request it, as their time is already consumed with organizing reward catalogs, delivering rewards, and monitoring operations, complaints, and other customer requests. These tasks are undoubtedly important, but they do not fully develop the program's potential to achieve its objectives.
The second missing ingredient is the utilization of the program as a direct communication channel. How can we not implement personalized, relevant, and timely contacts with the identified customer base? Especially when considering the previously mentioned analysis and data, direct communication to promote specific behaviors (such as loyalty-related ones: longevity, activity, recommendation, frequency, etc.) is not only the logical next step but a necessary one. Developing communication campaigns specifically for this channel is how we can aspire to change behaviors, attitudes, retain, and persuade customers. In other words, loyalty mechanics and rewards attract customers, but it's only through data and communications that we can develop an increasingly profitable relationship with them. At this point, it is also common to see marketing departments not being fully involved in the program or not having direct responsibility. There's a significant difference between handling a campaign or two and being responsible for the ongoing interaction with participants. Thus, many programs fall short in terms of communication.
The third missing ingredient I would like to mention is related to how these programs are managed, the administrative structure supporting them within the organization. As we've mentioned, successful programs must deal with various components to have the desired effect, including financial planning, strategy, data analysis, communication campaigns, rewards/fulfillment, operations, and technology. Despite it being obvious that so many and varied responsibilities require a dedicated and diverse management team, it is also common to observe that many small and large companies intend for the program to be managed by just one or two people, coordinating resources from many other departments, who in turn do not have exclusive dedication to the program and report to individuals unrelated to it. It is also common to find that the ultimate responsible person comes from various areas such as operations, finance, marketing, strategic planning, or CRM, among others. To achieve the desired effect, the team managing the program must be robust, dedicated to it, and include specialist representatives from all areas that require attention. Having fragmented, non-dedicated resources with multiple responsibilities outside of the program is a recipe for only achieving the minimum. In this case, if there are insufficient internal resources, an alternative is to hire external companies that can handle some of these tasks, ensuring that no ingredient is missing. In conclusion, don't lose sight of the fact that in any strategy we undertake, including those related to loyalty marketing, the customer and their experience should be the first to be impacted. If the customer doesn't receive different treatment as a result of the program and it doesn't affect the kind of value propositions the customer receives, or if it doesn't impact the tone, frequency, and relevance of our communications to the customer, it will do little to change their attitude and behavior toward the brand, and the company will be left with the cost of implementation without reaping the full benefit.