how to design a successful loyalty program

Six Critical Factors in Designing a Successful Loyalty Program

November 30, 2010 2010 Customer Insight

Group, Inc. All rights reserved.

2010 Customer Insight Group, Inc. All rights reserved.

Many Loyalty Programs Fail to Deliver Positive ROI

−Fail to develop loyalty opportunity.

−Quality of data is not properly addressed.

−Lack clearly defined and measurable objectives.

−Little or no attention is paid to employee skill sets and abilities; not ongoing training about the program and the benefits to the organization.

−Customers don’t understand how to earn rewards.

−Data is not leveraged to communicate to customers.

−Program was launched and went into “auto” drive.

−Change behavior rather than just reinforce it.

−Each year program results are analyzed to optimize

customer enrollment, retention, redemption and ROI.

−Build in time for testing and learning.

−Over-invest in coordination with users and across

functions.

−Link technology implementation priorities to business

objectives.

−Advocacy by senior management.

−Segment and tailor the program and offers.

−Demonstrate innovation and regular re-invention.

−Develop robust multi-channel communications to engage,

keep and grow profitable customer relationships.

−Understand customers and how segments differ from one

another.

What do the winners do right?Where do they go wrong?



Successful loyalty programs are strategic

Trade-offs are required to realize financial goals

Objectives must drive program strategy

Leverage best practices of industry leaders

Identity how program design delivers value

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6 Align Loyalty Program with CRM


What is the primary business objective goal for customer impact?

FrequencyAverage saleLime time value

Are potential benefits compelling enough to achieve required customer impact?

Do customers know what it takes to earn rewards?

Benefit mix (combination of hard and soft benefits).

Strategies to move customers up in tiers/spend?

Is the value message simple to understand?

How can you deliver and reinforce engagement over time?

POS technologyFrontline trainingSocial media,FulfillmentMarketing support

What distinctive assets can be leveraged?

AssortmentReceiptsCommunityAffinity programs

How will these assets reshape economics and expected returns?

Successful Loyalty Programs are Strategic

SET REALISTICAND TARGETED

PROGRAM OBJECTIVES

MAKE RIGOROUS DESIGN TRADE-

OFFS TO ACHIEVE OBJECTIVES

LEVERAGE DISTINCTIVE

ASSETS

EXECUTE SKILLFULLY AND PERSISTENTLY TO

SUSTAIN IMPACT

Successful Loyalty Program








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Which Customers are Targeted

How and When Customers Are Enrolled

Qualification & Re-qualification Criteria

Value and Structure of Rewards

How Program is Communicated

•Breadth of appeal and participation

•Level of participation over time

•Types of customers participating

•Degree of offer-tailoring

•Types and degrees of impact

•Depth and consistency of data capture

•Level of frontline involvement

•Culture to drive sales or margin

•System capabilities

•Cost of program

•Long- and short-term measurement

•Exit flexibility/cost


Program Elements

Design Trade-offs








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Objectives Must Drive Program Strategy

Expand marketing channel with

direct capabilities

Provide direct, targeted messages and offers across customer base

Target all segments, with limited ability to target and tailor between segments

Collect data to beus used as a corebusiness asset

Collect customer data to make better decisions across the business

Target all segments, significant ability to target & tailor between and within segments

No explicit

strategy

Build strong relationships with growth segments

Develop strong relationships with most valuable segment(s)

Target growth segments only, significant ability to target and tailor between and within segments

Continue to pursue defined initiatives

Depth of Customer InformationLow High

Bre

adth

of

Cu

sto

mer

In

form

atio

nL

ow

Hig

h

BUSINESS OBJECTIVES



Successful loyalty program are strategic





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Expand marketing channel with direct capabilities

KEY AREASOF BENEFIT

POTENTIAL TYPES

OF IMPACT

CUSTOMER SEGMENTS

FUNCTIONS

Growthsegments

Maintain segments

Marketing Only

• Improved efficiency of markdown spend through direct targeting and understanding of promo response

“BROAD AND SHALLOW”

• Limited customer insights to drive core function business decisions.

• Increased customer loyalty.• Enhanced customer perceptions.• Targeted levers (e.g., conversion,

frequency, UPT, and markdown)

“NARROW AND DEEP”

• Robust customer insights drive business decisions

• Strategic decision support.• Strategic choice evaluation (e.g.,

impact of merch. changes on core customer segments behavior)

• Increased customer loyalty

• Targeted levers

“BROAD AND DEEP”

Growthsegments

Maintain segments

Growthsegments

Maintain segments

Marketing

Distrib.Merch.

Planning

BuyingStore Ops.

Marketing

Distrib.

BuyingStore Ops.

Limiteddata for allcustomers

Robustdata for all customers

Deeperdata for select

segments

Identify How Program Design Delivers Value

Collect data to use as core business asset

Build strong relationships with growth segments

Merch. Planning








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Leverage Best Practices of Industry Leaders

Industry Leaders

Strategy

Hallmarks

Leverage Best Practices of Industry Leaders

Deliver Superior Experience

Multiple touch points, channels

Build Platform for Relationship Extension

Customer embedded in business decision-making

Mass market acceptance/confidence as a ŅgatewayÓ to broader array of relevant products & services

Able to identify high value/high priority individuals and deliver superior experience across touch points

Engage Mass Market Provide every day extra value

Strong core brand alignment

Build ongoing connection point to encourage purchases, differentiate offers

Target Priority Segments Several important segments with differentiated needs

Tailored value proposition (e.g., pricing, service levels) based on behavioral insights to better meet needs

Embrace Top Spenders Small dominant spending group

Exclusive aspirational offers

Examples Hallmarks Strategies


http://www.target.com/index.jhtml

http://www.amazon.com/exec/obidos/subst/home/redirect.html/ref=nh_gateway/103-1945975-4262250








Align Loyalty Program with CRM

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Program Type

Execution Elements

Economic Considerations

http://www.kroger.com/index.htm









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Customer relationships – Engage. Keep. Grow.Customer Insight Group, Inc. leads the way in the evolution of how companies engage their customers, positively motivate them and earn their long-term loyalty. Our extensive client is testimony to our depth of knowledge and ability to apply strategic insight and solutions to a wide variety of business objectives. Our client experience includes: Ashro, A&P, The Bon Ton, Crate & Barrel, Dick’s Sporting Goods, Edwin Watts Golf, GE Consumer Finance, The Great Indoors, G.H. Bass, Golf Galaxy, Helzberg Diamonds, HSBC, Kohl’s, La-z-boy, MCI, Payless ShoeSource, Pier 1 Imports, Petco, Proflowers.com, Regis University, Ruby Tuesday, S&K Menswear, Sierra Trading Post, Spencer Gifts Tommy Hilfiger, Ulta, as well as various other leading companies.

Sallie Burnett, President

Customer Insight Group, Inc.

Email: [email protected]

Phone: 303.422.9758


mailto:[email protected]

how to design a successful loyalty program

Business

program design

customer insight group

customer data

loyalty opportunity

year program results

customer enrollment

required customer impact

customer base target