How to Design a Loyalty Program

Six Critical Factors in
Designing a Successful
Loyalty Program
Updated January 2017

 2017 Customer Insight Group, Inc. All rights reserved.
Many Loyalty Programs Fail to
Deliver Positive ROI
• Failure to develop a shared management
perspective of loyalty opportunity.
• Quality of data not properly addressed (e.g.,
invalid customer info, too small of sales base)
• Lack of clearly defined and measurable business
objectives.
• Little or no attention paid to employee skill sets
and abilities; too great a focus on tools and
hardware, not ongoing training about the program
and the benefits to the organization.
• Customers don’t understand what it takes to earn
rewards or to achieve new status levels.
• Data is not leveraged to communicate to
customers.
• Program was launched and went into “auto” drive.
• Change behavior rather than just reinforce it.
• Each year program results are analyzed to optimize
customer enrollment, retention, redemption and ROI.
• Build in time for testing and learning.
• Over-invest in coordination with users and across functions.
• Link technology implementation priorities to business
objectives.
• Advocacy by senior management.
• Segment and tailor the program and offers.
• Demonstrate innovation and regular re-invention.
• Develop robust multi-channel communications to engage,
keep and grow profitable customer relationships.
• Understand customers and how segments differ from one
another.
What do winners do right?Where do they go wrong?

Six Critical Factors in Designing a
Successful Loyalty Program
Successful loyalty programs are strategic
Trade-offs are required to realize financial goals
Objectives must drive program strategy
Leverage best practices of industry leaders
Identity how program design delivers value
Successful loyalty program are strategic
1
2
3
4
5
6

– What is the primary
business objective goal for
customer impact? (e.g.,
frequency, avg. sale, LTV)
– Are potential benefits
compelling enough to
achieve required customer
impact?
– Do customers know what it
takes to earn rewards?
– Benefit mix (combination of
soft and hard benefits)
– Strategies to move
customers up in
tiers/spend?
– Is value message simple
to understand?
– How deliver and reinforce
engagement over time
(e.g., POS technology,
frontline training, mobile,
social media, fulfillment,
and marketing support)?
– What distinctive assets can
be leveraged? (e.g.,
assortment, receipts,
community, mobile app,
affinity programs)
– How will these assets
reshape economics and
expected returns?
Successful Loyalty Programs
are Strategic
Set realistic
and targeted
program
objectives
Make rigorous
design trade-offs to
achieve objectives
Leverage
distinctive
assets
to make
economics
work
Execute skillfully
and persistently to
sustain impact
Successful
Loyalty
Program

Which Customers are
Targeted
How and When Customers
Are Enrolled
Qualification &
Re-qualification Criteria
Value and Structure of
Rewards
How Program is
Communicated
• Breadth of appeal and participation
• Level of participation over time
• Types of customers participating
• Degree of offer-tailoring
• Types and degrees of impact
• Depth and consistency of data
capture
• Level of frontline involvement
• Culture to drive sales or margin
• System capabilities
• Cost of program
• Long- and short-term measurement
• Exit flexibility/cost
Program Elements Design Trade-offs

Objectives Must Drive
Program Strategy
Expand marketing
channel with direct
capabilities
 Provide direct, targeted
messages and offers across
customer base
 Target all segments, with
limited ability to target and tailor
between segments
Collect data to be
us used as a core b
business asset
 Collect customer data to make better
decisions across the business
 Target all segments, significant
ability to target & tailor between and
within segments
No explicit
strategy
Build strong relationships
with growth segments
Business
Objectives
 Develop strong relationships with
most valuable segment(s)
 Target growth segments only,
significant ability to target and
tailor between and within
segments
 Continue to pursue defined
initiatives
Depth of Customer Information
Low High
BreadthofCustomerInformationLowHigh

1
2
3
4
5
6

Expand marketing channel
with direct capabilities
Key areas of
benefit
Potential Types
of impact
Customer
Segments
Functions
Growth
segments
Maintain
segments
Marketing Only
• Improved efficiency of markdown
spend through direct targeting and
understanding of promo response
“broad and shallow”
Build strong relationships
with growth segments
• Limited customer insights to drive core
function business decisions
• Increased customer loyalty (e.g.,
greater margin, improved cross sell,
higher frequency of purchase)
• Enhanced customer perceptions (e.g.,
affordable indulgences positioning)
• Targeted levers (e.g., conversion,
frequency, UPT, and markdown)
“narrow and deep”
Collect data to use
as core business asset
• Robust customer insights drive
business decisions
• Strategic decision support (e.g.,
segment assortment preference)
• Strategic choice evaluation (e.g.,
impact of merch. changes on core
customer segments behavior)
• Increased customer loyalty
• Targeted levers
“broad and deep”
Growth
segments
Maintain
segments
Growth
segments
Maintain
segments
Marketing
Distrib.
Merch.
Planning
Buying
Store Ops.Marketing
Distrib.
Merch.
Planning
Buying
Store Ops.
Limited
data for all
customers
Robust
data for all
customers
Deeper
data for select
segments
Identify How Program Design
Delivers Value

Superior Experience Multiple touch points, channels
Build Platform for CRM Customer embedded in business decision-making. Mass market
acceptance/confidence as a “gateway” to broader array of relevant
products & services
Able to identify high value/high priority individuals and deliver superior
experience across touch points
Engage Mass Market High customer data capture rate
Strong core brand alignment
Targeted communications and differentiated offers
Target Priority Segments Targets a subset of important customers
Tailored value proposition (e.g., pricing, service levels) based on
behavioral insights to better meet needs
Aspirational purchases to achieve greater status
Examples HallmarksStrategies
High free rider hurdle (not giving margin away to everyone)
Tiered to focus resoures on high-value customersEmbrace Top Spenders
Leverage Best Practices of Industry
Leaders

1
2
3
4
5
6

Align Loyalty Program with CRM
Instant store discount
“broad and shallow”
Points based rewards
“broad and deep”
Segment specific
“narrow and deep”
• Markdown dollars distributed through card.
• “Swipe Sweepstakes” element to encourage
consistent use of card.
• Mass consumer data insights to build tailored
merchandising, pricing and promotional mix
at store and customer level detail.
• Everyone can join, but to earn rewards you
have to give greater loyalty to the brand
• Often phone number is member number
• Mass consumer data insights to build
tailored merchandising, pricing and
promotional mix at store and customer level
detail.
• Program targeted to select group of
customers
• Brand distinctions leveraged against group
for distinctive positioning and brand
strength.
• Purchase response to tailored messages
drives follow-up communications and
determination of need for additional
customer data detail.
• Highest participation.
• Low customer upside.
• Minimal incremental impact on UPTs,
store trips and conversion.
• High participation.
• High free rider hurdle.
• Aspirational purchases provide
gains in UPTs, store trips and
conversion.
• High exit costs.
• Select participation.
• Greatest customer upside.
• Enhanced loyalty to drive per cap
and margin.
• Strongest gains in conversion and
UPTs.
• Minimal exit costs.
Program Type Execution Elements Economic Considerations

Customer relationships – Engage. Keep. Grow.
Customer Insight Group, Inc. leads the way in the evolution of how companies
engage their customers, positively motivate them and earn their long-term
loyalty. Our extensive client list testimony to our depth of knowledge and ability
to apply strategic insight and solutions to a wide variety of business objectives.
Our client experience includes: Ashro, Affinity Plus Credit Union, A&P, The Bon
Ton, Crate & Barrel, Dick’s Sporting Goods, Edwin Watts Golf, GE Consumer
Finance, The Great Indoors, G.H. Bass, Golf Galaxy, Helzberg Diamonds,
HSBC, Kohl’s, La-z-boy, Payless ShoeSource, Pier 1 Imports, Petco, PGA Tour,
Proflowers.com, Regis University, Ruby Tuesday, Sierra Trading Post, Spencer
Gifts Tommy Hilfiger, Ulta, as well as various other leading companies.
Sallie Burnett, President
Customer Insight Group, Inc.
Email: sallie@customerinsightgroup.com
Phone: 303.422.9758

How to Design a Loyalty Program

Recomendados

Recomendados

Mais conteúdo relacionado

Mais de Sallie Burnett

Mais de Sallie Burnett (20)

Último

Último (20)

How to Design a Loyalty Program