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

Hopelessly Devoted to you --
Loyalty is a Powerful Two-Way Street!

A s in any activity -- marketing and sales included -- there are a base of questions that always get asked. Here are 9 that seem to be important to audiences as they consider if, and how to start a Loyalty program.

Question #1. Should we install a ceiling on our Club membership? If so, how do we gracefully cut it off?

Why limit those who want to be faithful to you?

If management truly believes in the concept of Customer Relationship Marketing and loyalty as a program to build relationships, then the ideal situation is to have EVERYONE in your Club!

The more you have means fewer go elsewhere.

Sales will be increased by encouraging casual customers/guests to visit you more often. Reaching these people requires you to have as many people "register" for your program as you can reach. The more, the better.

Sales will NOT increase sufficiently from your "best" customers to cost justify a program only for them. Why? Because they are already your very best customers. Really, just how much more can you expect from those already identified as "best"?

The goal with your better customers is to build continued loyalty and retention. The goal with those that you classify less than best is increased frequency -- which, over time, will build loyalty and retention.

The travel industry generally and the airlines specifically have proven these programs work -- and work well. They increase sales and retention by encouraging more loyalty. This comes about from enhanced name and program awareness -- and planned, targeted incentives for their traveling customers.

This can only be accomplished by maximizing the number of total members. And then by a regular / frequent communication with those member customers. Sales cannot and will not increase by appealing only to a small niche segment of the total prospect and customer marketbase.

Question #2. Should we have long term expiration dates on our awards, much like the frequent flyer systems?

Membership in the frequent flyer programs does not expire ... and yes, the award systems do have a long expire date ... most often three years out.

The distinction being made here is really between active and inactive member/customers. Those who do not participate in the program after signing up are a different audience from those that do. And obviously, a different audience from those that do not sign up with you at all.

Those who do not participate, i.e., they don't come back and do business with you after their sign-up, may be deleted from the active file. After you have chased them with various offers and program incentives, and nothing works, you may consider removing them.

On the other side, however, they did register with you. And it is difficult to throw away a customer. Maybe one last communication which lets them know you are dropping them because they appear to be dis-interested, will jump-start them again in your direction.

Many times a limited time offer at this point works wonders.

Question #3. How much investment is needed to carry out a successful loyalty program?

Costs for loyalty programs fall into three areas:

1. setting up and keeping the database accurate as it grows and changes. Hardware / software / telecommunications come to play here.
2. direct mail communication to all your membership -- probably the area where the most money is invested on a continuing basis.
3. redemption of points earned and awarded, the "prize" and the system to provide the redemption. Telephone marketing is a cost here, too.

The costs, and the rewards/redemptions, are highly predictable ... after you have some history. Anyone can guess in the beginning -- but why guess? Within a year, usually less, you will have built sufficient data to know "exactly" what to expect, what your return on investment will be.

As with anything worth while doing, loyalty marketing is not free. What it does for you is yield big returns -- often 3 to 1; frequently 7 to 1; and there are programs doing 12 to 1!

Question #4. What is the difference between offering a 10% discount card or coupon to everyone who walks in, and a frequency "Club"?

Good question ... and the difference is important. And easy to understand.

The discount card gives an automatic discount to everyone - for no reason. It does not create any database, simple or sophisticated, which will yield you any worthwhile knowledge. And yet it gives to "everyone" an award just for being.

It's the database knowledge that enables you to market smarter ... to reduce the number of discounts, to target less frequent customers in an attempt to get them to return. And to develop a direct marketing strategy -- a real plan -- which can and will increase loyalty, retention, and thus sales and profits.

Question #5. Why mail and promote to our best customers, when they are more inclined to return anyway? You tell me a simple present, such as a birthday offer works. Why not just hand out program cards to everyone?

First, see the answer to #4.

Next, yes, I agree, your "regulars" are more inclined to visit you frequently ... especially with encouragement from timely and appropriate communications. Such as a birthday offer during their birthday month. Or an equally appealing business reward.

The real issue here goes to what your objectives are. Do you want to create a long term marketing strategy -- a plan - which will generate "customers for life"? With a substantial life time value?

Or, do you want a marketing strategy that leads you from campaign to campaign without continuity? Without encouraging loyalty, yet making offers, discounts and specials indiscriminately? To everyone and anyone -- equally to all your customers?

Remember ... not all your customers are created equal. Some are more equal than others! Some are worth more to you than others ever will be. Continuing to do what you have always done will not get it done in the '90's.

Question #6. How do my customer/members get information on their account -- how do they access their account?

Your written communication to your Club members is the way most will get the information they need. A monthly or quarterly statement will do it for most.

Many programs -- again the airlines are the best example - have a toll-free 800# that members can call to get whatever data they need.

Question #7. Earlier you talked about all the communication -- all the messages -- we can and probably should send to our member customers. What should the timing of these communications be? How often should we communicate ... what is ideal?

The ability of a loyalty program to succeed in increasing sales and profits, and to up retention, depends on a flow of communication. There is no "formula". This is still an art ... not a science.

Yet, again we can report we have learned from the airlines. They communicate regularly ... and also frequently. What do I mean?

I mean there are "regular" communications. A newsletter. A statement. Earned award certificates. They all "just come", as far as the active member is concerned.

And then, in-between time, they communicate "frequently". Meaning there are "surprise" and special communications. Those that have been planned to achieve a goal, reach an objective for the airline. Thus, pleasing the passenger / guest / customer.

How much is too much? One never knows ... and there really is no answer. Can you over kill? Probably. Yet, in my experience, no one ... and I do mean no one! ... talks to the their customers as often as they could -- let alone as often as they should.

My advice: Do as much as it makes sense to do. And then increase the number of contacts by at least one. It will pay. I promise.

Question #8. How do my customers/members use, or redeem, their awards, their points earned?

There are two basic ways:

Action on the part of your customer is necessary to USE the awards. If you set a dollar amount, X dollars spent earn X award points (frequently it is 1 for 1), it is still the customer who will elect to do something with those points, those earned award prizes or certificates.

And of course, when they do so, you know it! Some action is taking place ... most often in a favorable light.

As your program grows and matures -- usually beginning 9 to 12 months out, it can be enhanced with additional opportunities to accumulate additional rewards.

From partnership arrangements with complimentary and non- competing clients of yours. There is no limit to what your imagination can do with a loyalty program.

Question #9. Okay, I'm sold. What is the timing to get a working database marketing loyalty program in place and running?

After you say "yes", and are ready to begin, it usually takes somewhere between 45-90 days (although I know programs that have been in place in less than 3 weeks!) to get your program into the marketplace.

During that timeframe all elements of the program will be defined. Specifically defined. The previous Q&A in this series addresses most of the issues you need to consider. BEFORE you actually go to market.

They include design of and then printing all program materials. Development of procedures -- the operations of the program. Staff indoctrination and training is an absolute must. No cheating here!

Of course defining and designing the initial awards and the system to handle their fulfillment needs to be in place. The introduction package and other first time communication with your member / guests must happen. And at least some early thought on what will follow.

This is not something that can happen overnight. Of course, that is not a surprise ... as this is a long term commitment to a marketing program that can build for you a continuing flow of profits for years to come.

This article is the last of four in a series.

About Ray Jutkins, October 3rd, 1936 — January 6th, 2005. Ray was one of the NMOA’s 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 Ray’s marketing tips and how-to articles in the pages of Direct Marketing Digest and the article archive on the NMOA website.