Direct Marketing, Mail Order, and E-commerce News from the National Mail Order Association


What IS a Loyalty program? (Part 1 of 4)

And ... how can you make it work for you?

A database marketing program is the most effective way to build loyalty, increase customer frequency, improve customer retention ... and boost sales!

It gives you a large competitive advantage. And it offers your customers a strong reason to choose you over another.

A loyalty program is an expression of your companies culture. Of being close to your customer in a personal and caring way. It brings the hospitality of your business into the customers home or office. Offering a loyalty program tells your customers or membership they are special ... and that you care.

The best loyalty programs strive to obtain a greater "Share of Customer". By providing a unique incentive you "hook" them so they visit your place -- they buy from you -- more often. They choose to visit your store, to use your products and services, instead of your competitors.

A loyalty program allows you to create a relationship with your customers. By creating an interactive environment. It is not an event. It is a process for changing customer behavoir. Changing it so they buy your products / use your services. And, they do it more often.

"Best customers" are easily identified with these programs. They can be given special attention ... and they should receive special attention!

Your best customers yield a higher unit volume ... the 80/20 rule goes into action, where 80% of your business comes from 20% of your clients. Your best pay the bills!

Members of loyalty clubs value their membership. They believe in the host company, their products, their services ... and the people who serve them. They feel a special sense of "belonging" to something. Communication to these "best" are read, saved, acted upon.

Getting new business, keeping what you have, and building your base

The cost of acquiring new customers is expensive. Usually much higher than getting more new business from existing customers.

Why? Because existing customers require less attention -- They already know you. They use your products. They know your people. They understand your services.

And because of this understanding, they are likely to return to you again and again. And to buy from you over and over. With less incentive and motivation than it takes to get new customers. It costs less to take care of what you already have than to find new markets.

For these reasons loyalty programs work!

There is a difference between loyalty and frequency. Let's define them according to Webster:

Loyalty: 1. faithful to one's country, friends, ideals and more. 2. showing such faithfulness.

Frequency: 1. frequent occurrences. 2. the number of times an event recurs in a given period.

Let's keep it simple. Loyalty is being faithful. Frequency is how often you use a product or service.

The two do overlap. They overlap because frequency of use of a specific brand increases when there is a
high degree of loyalty. When there is a benefit for frequent use of a product or service, such as the airline, hotel and rent-a-car bonus programs, loyalty builds.

There are 5 keys to creating a successful loyalty program:

  1. Integrate the program into your existing marketing plan. And further ... into your company culture. Personalized relationships with customers is not a here today gone tomorrow concept. The idea must become a part of you -- you the organization, your products and services ... and most importantly, your people.
  2. Use the knowledge you collect about your customers to learn from them what they really want from you. Talk to them. And then listen! They will tell you how to gain a greater share of their business.
  3. Target specific and appropriate messages to the right customers. Not all your customers are created equal ... some are worth more than others. Some need more attention than others. This includes making the right offer to the right customers -- and at the right time.
  4. Set realistic achievement goals. Know you can expect some bumps in the road. Your expectations should be as high as you would like to make them ... as long as you provide the resources of people, money and time to make it all happen.
  5. Plan from the beginning to measure all the results. All. Not just some. And not just every so often.

Why is this important? Because, as you develop and grow your program you need to know what is happening. You will make changes. That is part of any business ... frequency/loyalty/retention programs are no different. Measure everything from day one so you make the right changes at the right time for your marketplace.

The overall success of a loyalty program is dependent on several things:

commitment of the organization sponsoring the program,
the design and execution of its components,
your program must be simple to operate by your marketing and operations staff,
it must be easy for your members/customers to understand how they benefit, and
it must offer rewards that will motivate increased response and build retention.

Yes, these are "basic" things. Yet, it is amazing how many organizations do not think through this list as they embark on a customer relationship marketing program.

The primary objectives of any loyalty marketing program are these:

  1. to create measurable increases in sales AND profits! (Profit is NOT a four-letter word ... everyone is suppose to make one.)
  2. to increase frequency of visits or use by your members/customers.
  3. to improve customer retention -- to discourage defection to the competition -- by offering an incentive for loyalty. In addition, many companies use loyalty programs for at least two more reasons:
  4. to decrease reliance on mass marketing media tools, by doing these things:
    targeting specific offers or messages based on real, live usage history, and
    use the acquired database knowledge to target prime prospects. In these two instances, the
    database is being used to both keep what you have ... and to look for new.
  5. using the knowledge in the database for other purposes ... such as new office or store site selection ... media selection, to decide if print / broadcast / direct / other media is the best way to reach the audience, and ... surveys of customers and prospects, to determine the best way to present your product and provide your service.

    Evaluating the results begins with first establishing measurable objectives. Specific numbers to aim for. And then measuring response to your offers. To your promotions.

    These promotions include the mailing of a special "Club" membership/customer identification card. Possibly a birthday and/or anniversary card. On a regular basis a frequency club statement -- and
    other promotions that keep your customers happy and up to date.

    This plan -- this strategy -- works much like compound interest. The results increase with each contact. And so does your success!

This article is part one of four in a series.


About Ray Jutkins, October 3rd, 1936 January 6th, 2005. Ray was one of the NMOAs most generous contributors. Over the years Ray supplied the NMOA with hundreds of tips and articles for members. This is just one of many. Ray worked with B-2-B and Consumer clients throughout the world ... including USA, Canada, Mexico, Asia, the South Pacific, Europe, the Middle-East, Central & South America, Africa. Keep an eye out for more of Rays marketing tips and how-to articles in the pages of Direct Marketing Digest and the article archive on the NMOA website.


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