Loyal to a Fault? Tips to Make Your Loyalty Program Shine

A successful loyalty program can be a boon to a business. It helps to stem customer attrition, maintain or increase market penetration and, most importantly, improve bottom-line profits. Yet for many consumers, they’re a source of frustration and anger. In a recent webinar, “Best of the Worst: Avoiding Loyalty Blunders, Missteps and Disasters,” copresenters Bill Brohaugh, managing editor for customer loyalty firm COLLOQUY and Kelly Hlavinka, director at COLLOQUY, provided tips and examples to make loyalty programs a source of pride, not headaches. Here are some of their best tips:

1. Set tiered bonus levels. Referencing COLLOQUY’s recent study of 2,000 loyalty programs, which encompassed all verticals, all regions of the world, and included consumer and B-to-B companies, Hlavinka shared results in which many businesses struggle with loyalty programs.

Fourteen percent of loyalty programs disappeared without any prior notice, and 45 percent had to retool or be disbanded. Of the companies whose programs failed, more than 85 percent of them had set a flat funding rate for their loyalty programs (a consistent earn rate for all customers). “Just because they’re all loyalty program members,” Hlavinka said, “they’re not all of the same value.” She suggested the following:

* Vary total funding with targeted bonusing;

* Use a lead tier; for example, make customers only eligible to qualify for the loyalty program benefits on their second purchase;

* Reward and recognize for all transactions, just not at the same level;

* Give higher reward funding rates to customers who spend more money; and

* Avoid “overfunding” high-value customers who have more wallet space to spend.

2. Include soft benefits. Referring to the same study, Hlavinka noted that 77 percent of the failed loyalty programs offered no soft benefits to their customers. Soft benefits are special privileges with no monetary value, such as special access to information, events, scheduling and service upgrades, among others.

In explaining soft benefits, Brohaugh noted that marketers should make customers feel they’re getting something for their membership, a special privilege.

Hlavinka cited Best Buy’s loyalty program, which offered members the chance to buy tickets to a concert by Sting before they were put on sale to the general public. Even though the program’s members still had to buy the tickets, they were given special access to their availability without having to wait in line or spend the day on the Internet or phone trying to buy them.

Hlavinka also cited Visa’s Signature members, who are given special access to concierge services and dining reservation privileges.

In a B-to-B example, Hewlett-Packard created the Customer Connection program for its loyalty members. The program is designed to give these members special access to information, such as tips from other users, webinars and tips on how to deploy HP software most effectively from one company to another. Brohaugh noted that, in many cases, soft benefits are more valuable to customers than hard (monetary) benefits ­— especially wealthier customers, who are looking for ease and convenience and aren’t as interested in price. He specifically identified credit card companies and hotels as industries that effectively incorporate soft benefits.

3. Set up a multi-tender program. Referring to COLLOQUY’s study, Brohaugh reported that 64 percent of the failed loyalty programs had a single tender system — where customers only received loyalty program benefits if they paid a specific way, most likely with the participating company’s credit card.

People aren’t motivated to sign up for a new cobrand or store card, Brohaugh said. Their wallets are cluttered enough, and the last thing they want is another credit card statement in the mail, he said.

Brohaugh recommended setting up a multi-tender program, with better bonuses offered to those using the preferred tender — the company’s credit card. He provided an example of a successful multi-tender program. In this program, regular tenders, regardless of how they paid, received 10 points for every dollar spent. Customers who used the preferred tender received 15 points for every dollar spent. At the conclusion of the program, the retailer had received a 326 percent increase in enrollment for the card, a 498 percent increase in activation and a 533 percent increase in usage. Brohaugh cautioned that with a program such as this, marketers need to provide rewards right away so customers feel they’ve gotten something of value in signing up for the new card.

4. Engage your customers in dialog. From the study, 75 percent of the failed programs didn’t engage customers in relevant dialog. Hlavinka advised that marketers continually listen and collect data at all times. Use surveys, call centers, Web response, IVR, transactional messages, special offers, etc., as means to communicate with customers.

She provided several examples of positive communication between a company and its customers. First was Nestle’s Baby program, designed for pregnant women. The company collected expectant mothers’ due dates; with this information, it provides women with relevant information and interactive tools to help them through their pregnancies, such as weight gain in comparison to other women during different stages of pregnancy.

A second example cited was the call center for 1-800-PetMeds. This company questioned callers on what type of pet they had. With this information, the company sent customers targeted mailings and brochures for maintaining the health of their particular type of pet.

Lastly, Marriott’s Rewards program asks three questions of potential members: 1.) How many nights are you traveling on business in the next 12 months? 2.) How many nights are you traveling on leisure in the next 12 months? 3.) How many nights are you traveling for special events or meetings in the next 12 months? With the answers, Marriott can target potential members for its rewards program.

5. Programs to avoid. Hlavinka also gave the audience examples of loyalty programs to avoid. Adding these programs to her “Hall of Shame,” she began with what she referred to as “dumpster divers.” A fast-food chain started a loyalty program based on redeemable proof-of-purchase barcodes. These barcodes were stamped on french fry boxes, and when customers had collected enough proofs of purchase, they were given free food. However, because so many customers automatically toss french fry boxes into the garbage without removing proof of purchase stamps, there was a proliferation of “dumpster divers” who fished through the garbage of these restaurants to collect the proof of purchase barcodes. They then redeemed the proofs of purchase for free rewards without having made any prior purchases. Hlavinka said the lesson to be learned from this program is to reward and recognize individual purchase behavior, not moxie.

The second program she dubbed the “Canadian coffee shop fiasco.” This coffee shop had set up the common program where if customers bought 10 cups of coffee, they got the next one free. The problem came about when the store abruptly ended the program without enough notice, angering customers who had invested money and time in expectation of the payoff at the end. Hlavinka advised the audience to always plan an exit strategy before launching loyalty programs.