Loyalty Program Insights and Strategy
Driving traffic in retail is only half the battle today. Today, once you’ve attracted a consumer and hopefully gotten them to buy once, you’ve got to compel them to keep coming back. But how do you do that?
The answer needs to be carefully thought out. Loyalty programs are the most common approach. Today loyalty programs are popular for several reasons:
- Savvy consumers are now expecting to be rewarded for any loyalty demonstrated to a brand or retailer.
- Consumers are more willing to provide personal information to set up a loyalty program.
- Consumers using multiple mobile devices can easily access accounts, balances and offers sent to them digitally.
- All consumers want to feel uniquely appreciated.
Loyalty Program Insights
But with retailers offering loyalty programs for everything from buying gas to drinking coffee and shopping for groceries how can yours stand out? Does it even matter? A recent study of 25,000 consumers done by Accenture uncovered some interesting facts regarding loyalty:
- Approximately 66 percent of consumers spend more money on brands they love, but at the moment 78 percent of those customers are switching their loyalties to other businesses and that same percentage of customers now say they switch loyalty much faster today than they did just three years ago.
- More than half of those polled, in fact, switched brands in the past year which is greater than the percentage that did so the previous year.
- A majority (81 percent) of consumers feel good about brands that get to know them and what they want, while 59 percent of consumers say small “tokens of affection” from brands, like personalized discounts and loyalty rewards increase their loyalty and 44 percent say “thrills,” like getting the chance to co-create products or services, enhances loyalty.
- Brand attempts to engage consumers’ loyalty actually turn off about 8 percent of consumers.
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I believe that, for retailers, loyalty programs need to operate counter-intuitively. What does that mean? It means that you should offer the biggest program benefits to your least loyal customers. What?! Heresy!
I know, it sounds like it, but consider this- your biggest hurdle is to get a newer customer to join your loyalty program. So, that requires a bigger “Carrot”. After a customer is signed up, the next biggest challenge is moving a light use customer to the next level. To the next purchase.
I would argue it is more valuable to move a 1x annual purchaser to a 2x annual purchaser, than it is to move a 5x annual purchaser to a 6x annual purchaser. So, offer a bigger loyalty benefit to the 1x user than to the 5x user.
Refer to the chart below. Consider there are many more 1x annual purchasers out there than there are 5x annual purchasers. The cost of the richer benefit delivered to the 1x user multiplied by the far greater number of 1x annual users you can move to 2x. These customers will increase their buying occasions with you by 100%.
Now, this is not to say you ignore your 5x annual buyers, everyone needs the loyalty program to feel unique and special to them. And it’s here that the perks like co-designing a product or special “tokens of affection” can be useful.
But where should you apply your premium financial incentive rewards? Where you see the greatest return. A properly tailored message and offer can do exactly this.
- Know where you get the biggest bang for your buck and structure program accordingly.
- Never allow any tier customer to feel slighted, but be strategic in your approach.
Hypothetical Loyalty Model Analysis:
About the Author
Steve Thomas – WMG’s Chief Marketing Officer
Steve Thomas is a 30-year consumer marketing veteran, who specializes at building differentiated brand stories that grow business. Thomas was previously Chief Marketing Officer for franchise companies Green Home Solutions and Edible Arrangements International, having helped grow the latter to its current position as a major gift category retailer, with almost 1300 locations worldwide. Thomas brings a unique perspective to WMG, ensuring that we continue to “walk the walk” in terms of client effectiveness and innovation in merchandising. Under Thomas’ marketing leadership, the WMG story of placing clients’ success above all else, is being spread across the nation. Follow Steve on Linkedin here.