progressive rewards deliver maximum returns

Progressive Rewards Deliver Maximum Returns

Turning Loyalty Programs Into Profit Centers

Amit Shankardass & Channing Rollo

[email protected] [email protected]

www.clientlogic.com

DMD Conference 2004

• Loyalty Concepts

• Program Types

• Operationalizing Loyalty CRM

• Case Study Examples

Agenda

DMD Conference 2004

The Problem

U.S. enterprises spend more than $1.2 billion on customer loyalty programs that do not significantly increase profits. Companies must embrace a new

generation of programs that broaden customer appeal and integrate with CRM.

- Gartner

DMD Conference 2004

Importance of Customer Loyalty

• Increased longitudinal economic returns

• Reflects the level of value a company delivers to customers

• Enhanced reputation Beware the Satisfaction Trap

Source: Gartner

Optimize Yield (CRM)

Revenue

Cost

DMD Conference 2004

Customer Loyalty Hierarchy

Source: Gartner

Types of Loyalty Programs

DMD Conference 2004

Loyalty Tool: Clubs

Pros:

• Target large interest group

• Encourage purchasing behavior

through bonuses and rewards

• Provide steady, reliable revenue

for company

• Easily personalize customer

interaction

• Make loyalty convenient

Cons:

• Limited product/service

applicability

• Non-exclusive merchandise

• Require responsive customer

care, fulfillment and CRM

• Plans may mandate negative

purchase option

DMD Conference 2004

Loyalty Tool: Continuity

Pros:

• Positive and flexible purchase

option• Provide steady and reliable

revenue for the company• Exclusive product offerings• Easily personalized for

customer interaction• Allow customer to enjoy periodic

opportunity to shop

Cons:• Target niche interest groups

• Limited product/service

applicability• Require highly responsive

customer care, fulfillment and CRM

DMD Conference 2004

Loyalty Tool: Private Label Exclusive Rewards Program

Pros:

• Allow RFM targeting,

segmenting and monitoring

• Create brand loyalty

• Ongoing communications allow

familiarity, affinity and trust

• Create an incentive to return

• Ongoing return of value lessens

the chance of defection

Cons:

• Require extensive marketing

and record keeping

• Long-term costs to the company

• Must be supported by effective

CRM, or risk being seen as a

bribe

DMD Conference 2004

Acquisition Tools: Coalition Programs, Coupons, Prizes

Pros:

• Drive customer traffic

• Low-effort promotion

• Broaden buyer spectrum

• May assist in creating customer

loyalty only if experience or

product “delights”

• Possible use for data

collection and/or surveying

Cons:

• One-time offers produce one-time shoppers

• May attract primarily swing buyers

• Spread thin customer attention and

business across coalition merchants

• Lack incentive for customers to remain

vendor loyal

• Increase market share only during

promotion; may reduce gross revenues

• Almost zero customer loyalty effect

Operationalizing Loyalty CRM

DMD Conference 2004

Objectives

High-Value

Customers

Samplers/Non-Loyal

Moderate-ValueCustomers

Segmentation is the Key

ConversionTo

High-Value

RetentionReward

ConversionTo

Moderate

DMD Conference 2004

Loyalty Functionality

Source: Gartner

DMD Conference 2004

Required Components for CRM

Customer Segmentation and Preferences

Customer Data Collection

Data Analysis

SegmentationValue/Rank

Objective Per Segment

Technology(Channel & Infrastructure)

Channel Personalization

Multi/Cross Channel

Management

OptimizationReporting

Offer/Action Management

Offer AnalysisCustomer

Offer Design Channel

Offer Design Offer

Management

Ma

rke

tin

g D

ata

ba

se

Case Study Examples

DMD Conference 2004

Case Study: Success With Retailer

Client:• Marketer of premium consumer perishables and related gourmet products

• Direct mail marketing, outbound telemarketing, member-get-member, etc.

Client Came to ClientLogic for:• The ability to target specific communications and offers to specific customers

• Convert multiple systems into one customer view

• Buyer’s Choice Continuity– Represents 95% of client sales volume

– Several different clubs

– High member churn each year

– Negative option for annual program

• Catalog– One-time orders, 4th quarter peak

DMD Conference 2004

Case Study: Customer Value Pyramid

$170MM(30%)

$214MM (38%)

$181MM (32%)

Total Revenue Customer Strategies

CoreCustomers

$1,000+ / 5%

SamplersUp to $499 / 83%

ModerateShoppers

$500-999 / 12%

Retention / RewardCall Center RoutingPriority Call HandlingMilestone RewardsPremium Loyalty Programs

Conversion To CoreChurn ReductionPay Loyalty ProgramUp-SellsCross-Sells

Conversion To ModerateRecovery ProgramsPartnership MarketingList Rental

DMD Conference 2004

Case Study: Churn Reduction

Challenge• Critical business risk: out of business by 2007• Customer churn at 39.2% per year and increasing by 5.7 points/year • Acquisition stable at 21.8% per year Solution• Risk model to classify every customer into a group based on his/her

risk for canceling account• Specialized training programs for CSR - Risk Handling Certifications• Route “high risk” customers to certified CSRsResults• Churn decreased 1.1 points/year vs. increasing by 5.7 points/year

(approximately $8MM annualized in saved revenue) • Identified behaviors of high-risk customers -- enabled client to develop

alternative product offerings for migration and further stabilization

DMD Conference 2004

Conclusion

• Loyalty programs must be data-

driven, sustainable, progressive in

reward giving and brand-centered

• Regardless of the loyalty program

tool, segmentation is essential

• All initiatives must be personal and

communicative

Optimize Yield (CRM)

Revenue

Cost

Progressive Rewards Deliver Maximum Returns

Turning Loyalty Programs Into Profit Centers

Amit Shankardass & Channing Rollo

[email protected] [email protected]

www.clientlogic.com

progressive rewards deliver maximum returns

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