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Expert Advice: Should You Launch or Revise Your Loyalty Program?

Loyalty Program Advice

Are you thinking about launching or revising your loyalty program?

In today’s competitive environment, everyone is analyzing their transaction and lifetime value targets, as well as return on capital to determine the best program for achieving their business goals.  At Retail Category Consultants, we interviewed experts at some of the top Canadian and American loyalty programs to answer 5 critical loyalty program questions.  Our experts have experience both in Canada, the US and Europe, and their answers are applicable globally. 

1) What are the most critical questions to answer when deciding whether to launch a loyalty program?

When deciding to launch a loyalty program, the number one question to be answered is: “What are your business objectives?”  On a high level, understanding the balance between short term and long term objectives is critical to developing a program that will meet your business objectives.

Adam Holyk, Group VP of Customer Loyalty, Insights, and Analytics at Walgreen Co., launched Walgreens’ successful Balance Rewards loyalty program, which enrolled more than 100 million customers in 17 months. He advises merchants and retailers to consider differentiated brand positioning, how to handle larger transaction volumes and frequencies, and ways of getting a mix of customer trip missions.

But, as we learned from Terry Matthews, Director Financial Services at Hudson’s Bay Company, you must probe to fully understand what the definition of “a loyalty program” is perceived to be and what the expectation is from implementing one. Answering this question will help you determine if your business has the commitment and resources needed to attain the return on investment you need from the program.

Remember, your investment will include factors such as data collection and storage, analysis and the cost of incentives. While most loyalty programs focus on managing the cost of the incentives, we frequently see a rush to collect and store huge amounts of data without enough regard for storage costs and the cost to turn the data into useful, actionable information.

Our experts also agreed that understanding your competition and how they are utilizing loyalty is important in helping you to shape your program to ensure that you have a point of differentiation.  That point of differentiation comes through an understanding of your target consumer.  In this day and age where there is a mobile component to many loyalty programs, it is important to understand where and how they engage with technology.

2) What is the real cost of running a loyalty program?

The first cost decision comes in determining whether to develop and manage in-house or to outsource the program.  Many merchants have used a hybrid of these options to gain expertise or technology benefits in specific areas while maintaining control of others.

Mary Jo Glassco, Senior Manager, Customer Engagement & Customer Experience at PC Financial, didn’t hesitate when asked this question.

“Your biggest expense is IT. If you get this wrong, you will create brand detractors rather than brand advocates. It will be your biggest upfront cost and ongoing cost in order to maintain first-class data integrity (which is such a hot media topic these days!) and remove any customer frustrations.”

Other costs to consider when designing your program include:

  •        Program structure consultation and research costs
  •        Plastic card and/or mobile app development and costs
  •        POS Systems integration
  •        Operational integration
  •        Data collection, storage, and analysis
  •        Cost of incentives (base and targeted)
  •        Compliance, legal, marketing support, and creative costs
  •        Distribution costs

Adam Holyk stressed the importance of structure and iteration.

“Beyond technology and start-up costs, the final offer should be refined through a test and learn approach.” Without doing this, there will be no knowing, so merchants and retailers should gather evidence from testing to determine the best possible result.

However, one often overlooked cost is the cost of loyalty program management.  This is not a part time, add on to a job.  Successful programs plan for and staff this area appropriately.

3) How do you measure your program’s ROI?

While measuring the ROI of your program depends on your industry and the objective of your program, for most programs long term retention/repeat buy should be at the heart of the program. Looking at details such as frequency of shop, incremental shops, growth in basket size and customer profitability are key metrics that will highlight your program’s success and help quantify the ROI.

However, detail is important here.  When you identify a customer through your loyalty program you must verify if they are in fact new. Look back to see if that newly identified customer shopped previously with the payment card attached to the recent loyalty identified purchase – are they really “new”?

Programs returning high ROI’s are able to pinpoint how they are reducing churn and driving behavioral change; for example, they are driving early seasonal spend to take customers’ spend out of the market early.

According to Adam Holyk, the best measurement of a loyalty program changes from launch through maturity; from enrollment and awareness, to participation and redemption, to long term retention.

4) What is the number one mistake you see loyalty program managers/owners making?

You are never “done” constant management, test and learn, embracing change, identifying new opportunities, staying in touch and delivering what is important and relevant to the consumer you wish to engage with. Loyalty is a constantly changing landscape, being knowledgeable of all programs will enable you to ensure that your program is always delivering the value that your business requires.

“Consumers will only engage and remain engaged if you give them a reason to engage and remain engaged – be relevant!” said Terry Matthews.

We agree with this.  Many loyalty programs become stagnant because no one is watching to ensure the program is staying relevant.  In fact, in a recent study by COLLOQUY, 84% of consumers would spend more with retailers who offer incentives beyond purely purchase behaviour.  In fact, they are more willing to accept feel good benefits rather than product discounts. This is a huge change from the 1990’s when loyalty programs came into widespread use.

With less than 20% of consumers making it out of the base tier of your loyalty program and with the average consumer participating in over 10 programs, making your program simple to understand is also critical to success.

“Making the value for earn and burn too complex in order to make the value proposition appear more attractive to the customer base (is a common mistake). I will admit that I have seen some customers who love a complex program and enjoy figuring out the value and playing the game; however, they are the vast minority,” said Mary Jo.

Tesco, for example, allows their customers to choose the level of complexity – the base Clubcard program lets you redeem your coupons in-store or you can exchange your Clubcard coupons for greater value within the Exchange or Rewards programs.

And always see your loyalty program in its entirety, instead of just another promotional program, warned Adam Holyk. The loyalty program is a joined approach, and puts the customer first across all areas of the business.

5) What have we missed that is critical to success?

No matter how rich a loyalty offering is, the customer experience must be solid! Eliminate any pain points effectively by prioritizing them (how many customers does the pain point impact? How big of a deal is the pain point? What’s the industry standard?) and then working to eliminate them.

No loyalty program, no matter how rich, will overcome poor customer service.  If you’re deciding where to invest for the best ROI, training your front store employees to provide fantastic customer service before layering on a loyalty program is always the right answer!

Merchants that successfully use loyalty programs to reward customers will succeed in today’s retail landscape. However, there are lots of opportunities to build loyalty beyond the scope of a loyalty program, because your loyalty program is one part of a great whole. Use our experts as a guide, not a bible, and you will be well on your way to creating a loyalty program that makes sense for your customers and your brand.

To learn more about how we can help your retail business achieve success, visit our retail services page or contact us for further information.