Loyalty programs are more prevalent than ever before. The average shopper belongs to almost 15 loyalty programs but is only active in less than 7. We all know customers sign up for loyalty programs to get that first discount when making that first buy, but how do you keep them engaged? And why should you?
Why A Loyalty Program?
A loyalty program’s primary focus is nurturing and maintaining current customers. Why not customer acquisition? Customer acquisition is a more difficult goal of a loyalty program because new customers cost more to attract and attain, thus there is an inherent reward conflict between customer acquisition and customer retention. Who do you reward more, your most loyal customers or brand-new customers? This does not mean that a robust loyalty program cannot be a benefit to a new customer, because it can – when that new customer becomes a repeat customer. With that said, high-level goals can include:
- Keep your best customers buying (repeat purchases)
- Keep best customers profitable
- Move lower segment customers up your segmentation ladder
- Identify key traits of your highest segment customers to target, market to, and capture similar prospects
Customer Penetration and Engagement
The wholesale success of any program depends on the level of participation and engagement. With the averages below, why aren’t more programs “working”?
- While most shoppers are aware of their merchant’s current loyalty offering, only about 25% of customers participate in that retailer’s program. And only about half of those are actively engaged in that specific program.
- That’s right – when looking at your total customer base (not just enrolled participants) only about 12% of your customers are active and engaged in your loyalty program.
Customer Segmentation
While often ignored, segmentation is a critical component for loyalty program success. Whether part of the core loyalty functionality or not, segmentation will help you identify who your best customers are based on key metrics that can include:
- Revenue
- Recency
- Frequency
- Profitability
- Portfolio spending
- Channel engagement
- Social engagement
- Demographics
- Psychographics
- Other behavioral and emotional preferences
With these in hand, key considerations on segmentation should include:
- Keep segments actionable
- Over-segmenting without being able to take meaningful action against your segments will lead to program confusion and frustration
- How will you engage, communicate and market to your segments?
- How will you determine an engagement and rewards structure for each segment?
- How will you communicate and influence each segment?
- What’s your segment migration strategy?
- How will you measure segmentation success?
Barriers To Loyalty Program Success
While there are many barriers to long-term loyalty program success, some are more important than others. IMS experiences with our own and other loyalty/rewards programs include the following big challenge areas.
Failure to embrace the 80-20 Rule
When thinking about barriers, it’s wise to recognize that the Pareto Principle, or the 80-20 rule, applies when managing a loyalty program. Simply stated, this implies that most value comes from a minority of customers. And on the flip side, most customers contribute a minority of value.
While the 80-20 numbers may not be exact, it will very quickly become clear that a minority of customers will contribute most program value.
Failure to create an engagement plan for all segments
The natural inclination of any program is to cater to those who appear to drive the most value. The challenge is, these high engagement customers will be the minority, not the majority of your overall customer base. You’ll need a formal plan to create relevance and engagement for all your segments, not just your top tier.
If you fail to accommodate, program, plan and engage with your lower value segments where most of your customers will reside, you will lose program traction and eventual participation.
Failure to accommodate the omnichannel experience
With the explosion of e-commerce, m-commerce, social engagement, and social commerce, many loyalty programs are not even identifying their customer as they engage in multiple channels, let alone capturing that high-value engagement and corresponding revenue. Different systems and lack of deep systems integrations present the big challenge here. Ignore these investments at your own risk.
Lack of clear success metrics
What’s the purpose of your Loyalty Program? Is it to appeal to just your “best” customers? How are you defining “best”? Or is it an inclusive program offering value for all your customers? Once success metrics are identified, they’ll need to be adjusted per segment. And just as importantly, segment movement should be tracked regularly.
Failure to embrace immediate and delayed rewards
Most customers belonging to a loyalty program associate loyalty benefits with points that are earned for activity, and then these points can be converted to consumable value after certain thresholds are met. This is a basic delayed rewards structure. Thus, program structure tends to be driven by two financial metrics – repeat visitation and high purchase levels. One of the top reasons for program abandonment is, “it’s too hard and takes too long to accumulate enough points to redeem anything of value”. This basic program flaw tends to reinforce two barriers stated above:
- The Pareto Principle: Are you rewarding your best customers for action they would take without your program? Are most of your customers not joining your program because rewards value is perceived as too hard to achieve – the perception that the program is built for your best customers, not your average customer.
- Lack of Full Segmentation Programming: Most customers who are in your program (not top tier customers) are not engaging for the same reason – too long and too hard to achieve rewards.
So How Do We Simply State the Challenge to Loyalty Program Success?
How do you keep customers engaged and participating while longer-term program benefits are being accumulated?
The Solution
Numerous academic and IMS real-world implementations bear out that immediate rewards drive immediate incremental revenue, margin, and valuable data visibility. Surprise and Delight – the unexpected reward or benefit – drives action, positive memories, and reciprocity.
Of course, one of the first questions posed when considering offering immediate rewards is “but this will cost too much”. Cost is always relative. Relative to discounting. Relative to doing nothing. Relative to other rewards programs.
Creating immediate rewards to drive engagement doesn’t always have to be financial, though don’t forget monetary rewards are the top reason people join a loyalty program in the first place. This is why many programs use gamification and rewards for positive social activity, keeping customers rewarded and engaged short term while they build longer-term benefits.
Improve Your Probabilities of Success
So how do you move the probabilities of short-term success in your favor? Bundling, especially event-based bundling – See our blog post on event-based ticket bundling here – has been proven over many years, thousands of events, and millions of tickets to create the kind of profitable action that can serve as a keystone for a robust loyalty program.
By creating a program that drives immediate action – combined with flexible delayed loyalty currency, clear thresholds, and ease of use and redemption – engagement, profitability, and repeat purchases can be created.
