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Make Loyalty Rewarding

1to1 Magazine, August 05, 2008 by John Gaffney

Make Loyalty Rewarding

Hot Topic Marketing

It's the holiday season: Consumers are out in force to shop for gifts for family, friends, and colleagues. But with offers of discounts for joining the loyalty/credit card program at nearly every retailer they visit, it seems the retailers are doing the shopping -- for consumers to join these programs.

The proliferation of proprietary points-based loyalty programs can overwhelm consumers with "loyalty clutter." An August study conducted by Jupiter Research found that 24 percent of U.S. online retailers currently feature loyalty programs. By the time the books close on 2005, an additional 43 percent will implement them. Numbers are tougher to find for offline retailers, but any trip to a mall will make it apparent that they are the rule and not the exception.

With so many programs from so many merchants it's more important than ever that loyalty programs stay focused on their role as a long-term customer retention strategy. Fixation on short-term discounts, say many experts in this field, will get companies customers also focused on just that and could become counterproductive.

According to Dennis Armbruster, vice president of integrated marketing for Carlson Marketing, offering the right rewards builds long-term loyalty. "You must differentiate your loyalty program on a long-term basis," he says. "It is a way to get customers to raise their hands and indicate that they want differentiated and deeper relationships with your company. It's not just a series of hoops to jump through to get 10 percent off."

Red Envelope is a good example of a company that implements loyalty as a long-term strategy. "We know a lot about the people who use our service, but we want to know more about the totality of the gift wallet," says Gary Korotzer, Red Envelope's vice president of e-commerce. "There are some obvious reasons we want to have a loyalty program of our own. It's important to the brand and it throws off a lot of data about our customers. With two million active customers, we want to drive more repeat purchases." One way Red Envelope does this is to encourage shopping during second quarter holidays, such as Easter and Mother's Day, by reaching out to loyalty members who make gift purchases during winter holidays.

The loyalty program data that allows Korotzer and others to send relevant offers and communications alone is worth the entry price for many retailers. However, some companies miss the opportunities the value of that data presents. Bryan Pearson, president of Canada's Air Miles loyalty program, recently told the Vancouver city Board of Trade: "Most companies are missing the hidden jewel. And that is in the information that the [loyalty] cards provide back to the companies about who their customers are."

Whether companies take advantage of the data they've collected or let it gather dust, loyalty programs are proliferating. To stand out companies need to "brand" the advantages their programs offer. Loyalty Lab CEO Mark Goldstein says loyalty programs don't need to look or operate the same. "So long as each merchant or service organization can position and differentiate their value proposition and build on their perceived strengths…loyalty programs should thrive," he says. Goldstein's strategy is the textbook model for a loyalty program that takes a long-term view.

However, most loyalty programs are still focused on the short term. As Air Miles' Pearson told Canada's National Post newspaper, "Points are really viewed as discounts or an alternative way to get something extra, and that's not a bad thing, but I'm not sure it's sustainable in the long run. The de facto result of having a loyalty program really viewed as a way to attract the consumer through short-term tactical initiatives is you end up using what should be a targeted marketing tool as a mass marketing tool."

Thus, loyalty rewards must match the target audience. Focusing on relevancy, American Express recently introduced a top-tier loyalty program that omits ties, luggage, and other clichéd loyalty rewards. Instead, it plays to its most valuable customers and rewards high-level card usage with adventure travel packages. In short: The loyalty program that reflects brand attributes can be effective regardless of loyalty clutter issues.

Finally, it's important to remember that loyalty plans involve the customer experience and customer service. There will never be too many loyalty plans as long as there is enough well-executed customer strategy behind them.