Today’s customer loyalty game

In our new series of articles on customer loyalty, CMO talks to experts and leading Australian brands about the importance of loyalty programs and the role they play in the overarching quest to achieve relevant and timely one-to-one conversations with the customer

If the new <i>For love or Money? 2013 Consumer Study into Australian Loyalty Programs report is to be believed, customer loyalty schemes are a sure fire way of securing a higher proportion of wallet, delivering a competitive edge, and help instil stronger brand loyalty.

Just take a couple of the report’s findings. For a start, 80 per cent of those surveyed said they buy more from companies whose programs they are members of, and 55 per cent will choose a product or service from a company with a loyalty program over one that doesn’t.

Additionally, in a world obsessed with understanding customer behaviour, experience and predicting preferences, loyalty programs are a vital way of obtaining and sustaining that critical data stream. “In the end, if there’s only one reason to have a loyalty program, then the data is it,” Global Loyalty founder and customer loyalty expert, Sarah Richardson, claims. “These programs come down to giving you a customer’s data in exchange for rewards.”

Richardson was formerly the general manager of loyalty at Myer Holdings, and now consults to businesses on strategic customer loyalty projects and development. She also worked with the Australian Centre for Retail Studies at Monash University last year on the whitepaper Towards customer loyalty: Strategic differentiators for success.

According to that paper, 60 per cent of marketing budgets are invested in maintaining programs that aim to drive customer loyalty, largely through rewards-based or membership programs. “Customer loyalty is arguably the greatest asset in the business; loyal customers provide repeat business, and equally importantly, new customer referrals,” the report stated.

Despite this, Richardson claimed customer loyalty is often still misunderstood, and the program strategies out there are a blend of good, bad and ugly. One reason why some programs don’t work is because they only reward repeat purchases and fail to recognise brand loyalty and commitment. Other stumbling blocks include inadequate innovation in incentives and communication, and a failure to implement a whole-of-company approach.

Richardson’s views are echoed in the Consumer Study into Australian Loyalty Programs report, which found 40 per cent of Australian consumers don’t derive any real value from customer loyalty programs. In addition, only 41 per cent believed these schemes had improved in recent years and offered good benefits to members, while 27 per cent said most loyalty programs don’t know how to communicate appropriately with members. The report took into account the views of more than 1000 Australians and was commissioned by digital agency Citrus and marketing company Directivity.

So how do you ensure your customer loyalty program is comprehensive, relevant and of sustainable value?

Build and they will come

Richardson has crafted a seven-step organisational framework in a bid to help organisations build a successful customer loyalty strategy. The first pillar is to define a program structure including points, rewards and tiers. The second is detailing and managing program affiliates, a critical element in schemes such as Coles FlyBuys and Qantas Frequent Flyer.

“One benefit of having partners is that it provides an extra revenue stream for the organisation because you ‘clip’ the ticket along the way,” Richardson commented. “Customers will also engage more with the program because there are more places to earn and burn their points. But there are disadvantages too. For example, it can impinge on your brand if partners don’t behave the way you want them to.”

The third step is to have customer-centric communication programs and one-to-one initiatives through multiple channels such as SMS, email and direct mail. “This is about talking to the customer about the program and letting them know what the benefits are, which is often done badly in Australia,” Richardson said. “A lot of the communications you get from loyalty programs still don’t include any of that info.”

Utilising data and analytics is another pillar and requires both systems support and strategic focus. “With all of these programs, you’re getting a lot of customer data and behavioural data and it’s the most valuable thing you get back,” Richardson said. “Again, many organisations aren’t using that data very well. It should inform every decision made within the business.”

Pillar five in Richardson’s model is ensuring the multi-channel customer experience is seamless. “The old way of tapping a card in a store environment, getting the points, going back into the store and spending more is not where customers want to interact anymore,” she claimed. “Customers want you to be online, they want apps, electronic cards, to be able to interact on social media. That multi-channel environment is a very important aspect of loyalty.”

Step six is a focus on data integrity and ensuring customer data is clean and up to date. The seventh and final step is ensuring the technology back-end is sufficient to support the program.

Sitting under those seven pillars are four key organisational focuses:

  1. Stakeholder management – extremely important within the organisation.
  2. Staff management – if the staff aren’t engaged at all levels, then the program will fail.
  3. Designing creative – showing a consistent face of loyalty to customers.
  4. Testing and measuring – constantly testing everything, conducting research, and innovating the program.

When it comes to rewards, Citrus and Directivity’s research found immediate price discounts and points-based schemes that can be redeemed for vouchers as most popular with customers. Sixty-seven per cent of respondents also rated surprise gifts or rewards as important, while 64 per cent enjoyed exclusive offers available to members only.

“A winning program is one with multiple emotional and transactional benefits,” the Citrus/Directivity report stated. “Consumers who ‘tend to feel more loyal to the company/brand when I am a member of their loyalty program’ consistently place higher importance on all listed loyalty program features – from transactional to emotional.”

Examples of successful loyalty programs

Learning from others is of course another way of understanding what customer loyalty programs can achieve. In the Citrus/Directivity report, Coles’ FlyBuys loyalty program topped the list as the leading customer loyalty programs in Australia today. Richardson also pointed out 70 per cent of Myer’s total sales today go through its Myer One customer loyalty program, and 93 per cent of members who receive rewards go into stores to redeem them.

Woolworths general manager of customer engagement and board member at the Association for Data-driven marketing and Advertising (ADMA), Emily Amos, is responsible for the retailer’s Everyday Rewards program. As a relatively late starter in this space, the business opted to piggyback off the retailer’s fuel discount scheme initially six years ago.

“From there, we could ask customers to sign up, then started to add additional benefits such as member-only specials, and direct and targeted communications,” Amos said. “We then broadened the program across not only the supermarkets but also Big W and BWS, and we formed an alliance with Qantas, which we thought had the strongest points-based currency and great recognition.”

Membership today stands at seven million and the focus is about making sure customers are front and centre of every decision, Amos said. “Loyalty in general has changed quite a lot in the last 10 years. It has come from a place that was very organisation-centric and all about getting customers to spend more with you,” she claimed.

“Today it’s about understanding and listening to your customers, and letting what they want drive your decision and a much better experience. That leads to all the other things you hope are associated to loyalty such as increased share of wallet.”

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Customer loyalty isn’t just about a points-scheme either. Richardson pointed out brands like the Four Seasons Hotel and Ritz-Carlton focus on personalising customer services rather than offering discounts or points-based schemes. The world’s most valuable brand, Apple, manages to instil loyalty within the products it produces and related services around those. But in all successful cases, it’s the combination of transactional information with emotional and behavioural drivers that drives the engagement.

Measurement and metrics

There are ways of measuring aspects of a loyalty program, such as click-through and sales rates from specific communications, how many people use their cards and if members are spending more in your store, but Richardson admitted it’s difficult to get a holistic picture.

One area she emphasised as a growing opportunity, however, is the power of mining the data to find new insights that both drive the bottom line and better customer experience. A recent example she used was in Myer’s womenswear department, which groups products into three segments: Classic, modern and contemporary.

“From the transactional data, sales staff know how much is sold, in what size and so on but what they don’t get is who is buying it,” Richardson explained. “As a result, they were just sending out information to customers classified in those same three types.

“Through data analysis, Myer found out the biggest group of people [by a factor of ten] actually shop across all three types. Instead of sending out three different direct mail catalogues, Myer now sends one direct mailer to all people who shop across all three categories, and depending on what category they buy from the most, put that information at the front. Not only has Myer saved money, sales have gone through the roof.”

At Woolworths, the success of Everyday Rewards is measured through data analytics and constantly tracking and understanding what customers are saying and telling the retailer, Amos said. The company also uses net promoter scores, physical share of wallet, and activity across different customer segments.

“As an organisation, we have rapidly evolved our use of both data-driven marketing and customer information,” she added.

Emerging applications

As with most of the marketing sphere, technology is playing an increasingly crucial role today not just in the management of programs, but also in enabling organisations to better understand and relate to consumers.

The rapid rise in mobile usage and digital communication methods are now proving game changers for in the customer loyalty space.

“Mobile is brilliant for customer loyalty,” Richardson claimed. “With the Myer App, you can now access your loyalty program on your mobile while in-store, your rewards are sent to it, and the company can extend push notifications to mobiles about special offers. Geolocation is the next component of that.

“We’ll reach a tipping point where [loyalty] cards just disappear. Retailers need to get real and understand people are not going to carry their cards any more. They either need to partner with a much larger organisation, form a partnership with a bunch of other business, or go electronic.”

Amos agreed brands need to make sure their communications are relevant and available any way people choose to access them, whether that’s through digital marketing or smartphones.

“Mobile as the primary device is something we’re really starting to focus on as we see that as a huge opportunity,” she said. “With the Woolworths mobile app, the offers you receive that are personalised and targeted to you as an individual from EveryDay Rewards are now accessible when you tap into the app and login.

"The way people even read their emails is also changing on mobiles, so you can’t stand still. For us, it’s about constantly refining and changing that user experience. That flows through to our website and signup process.”

Because the digital and social experience is personal, customer loyalty managers also have more ability to bring targeted content to life, Amos continued. “Digital allows you to take that dialogue into a new channel and really personalise it,” she said.

“Ultimately, we are focusing on making sure our communications and customer experience from start to finish is as seamless as possible.”

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