Loyalty. It’s a term that has a lot of buzz, but plenty of fizz. Every company wants loyalty from customers, and many believe loyalty programs are the way to go. And customers scream back that they have enough programs they are a part of. But do they have enough good programs? Before we talk about how, let’s talk about why or if you should have a loyalty program, with a specific focus on the B2C segment.
When and Why You Need a Loyalty Program
There are a number of reasons why you may want to invest in a loyalty program. Here are the top 5:
- Frequent shoppers: If you have frequent customers but very little differentiation in your product (coffee, grocery, etc), it may be a necessity to have a loyalty program. Think of the success Starbucks has had with its loyalty program. Many people are loyal to them just to get additional stars, levels, or because they can pay with their phone (innovation in loyalty for sure). If customers come shop at your store or site once every few years (think of cars or computers), maybe a loyalty program is not the first thing to check off your marketing wishlist. But that’s not to say it would be wrong.
- Keep customers from defecting: Whether because of price, service, or product quality and selection, your customers have thought about leaving you for the competition. So all things being equal, and not wanting to get into a price war (unless that’s your thing and you’re Walmart), you should start thinking hard about creating loyalty amongst these customers on the edge of churning. I think we’ve all been to gas stations and chose them solely for the price they showed, regardless of the quality.
- Increase top line: Some loyalty programs work great at incentivizing customers enough that they either buy more frequently, or they buy more (as in items per transaction). Victoria’s Secret or Sephora’s loyalty programs come to mind, as does Shoppers Drug Mart/Pharmaprix’s Optimum Program. You want to get free gifts or more discounts sooner, and you will add more items to your cart to get them, virtual or otherwise.
- Need for data: Loyalty programs are known by brands as a great way to obtain data. They exchange the chance for incentives for a better view of their customers – what they shop for, when they shop, when they are latent, whether they are bargain hunters or fashion seekers, etc. Loyalty programs can be instrumental in getting good data on customers. So if you’re struggling with obtaining quality data, a loyalty program may be the quickest way to fix that. Think of your favourite grocery chain, where you probably shop once per week, and the little data they have available on you unless they have a loyalty program.
- Attract new customers: Loyalty programs are often used to acquire new customers, often times with a large incentive at sign-up. We all know that attracting new customers can be difficult and costly. But positioning a hefty incentive in front of a customer for purchasing from your brand or switching brands can be a huge windfall of savings in marketing acquisition campaigns. Think of RBC and their Avion program, where you get thousands of points just for signing up to their credit card.
Marketing Teams Love Loyalty
Point no.4 up above. That is the reason marketers love loyalty programs. It gives them data. Loads and loads of data that some would say is too much. Many marketers crave having an issue of too much data, because they don’t have much or any of it for the most part. But it can be a handful. Sometimes having too much data gets you lost – in the fact that you can’t make decisions quick enough because you’re drowning in numbers.
But knowing the history of your customers, or clusters of them, can help you understand what they like, what they don’t like, when they like it, historical buying patterns, their propensity to buy next, what promotions work and which are ineffective, and what regions of the country or which stores and/or channels are more profitable amongst loyalty customers.
Imagine setting up dashboards for:
- Average spend per visit for loyalty members vs non-members
- Total items per transaction for loyalty members vs non-members
- Total member sales vs non-member sales
- Total member gross margins sales vs non-members
- Member point activity
- Churn rate amongst loyalty member vs non-members
Use Date to Help Build Customer Personas
And the data from loyalty programs can help you build better customer personas, as the people you thought were your customers may prove to be completely false, so why waste money marketing to them? Loyalty programs can help you focus on the right customer segment for your business. Take a look at Starbucks. A coffee shop made technology a focus for their future. And take a look at how many MacBooks or iPads you see the next time you’re at Starbucks, the kind of customer who is willing to pay more for what they love (i.e. coffee).
Which Loyalty Program is Right for You?
You have 2 choices when it comes to loyalty.
- Create an internal program (either build it internally or use a partner)
Or
- Latch on to coalition/external loyalty programs
It depends what you want for your business. If you choose 1, there is definitely a lot of up front work that may take some time to pay off. But the good news is, you own that data. It’s all first-party data from your customers. You can dive deep into their habits and demographics. Since you own the data and the program, you can change it as you see fit. Some of these internal loyalty programs you have surely been a part of include: Starbucks, Guess, Fruits and Passions, Sephora, La Senza, and Canadian Tire, to name just a few.
For other companies it makes sense to use programs that are already built and have a huge customer base already. Aeroplan, SPC, and Air Miles are some of those programs. Shop.ca has a very successful loyalty partnership with Aeroplan. Rather than investing their time and money building their own, Shop.ca partnered with Aeroplan to take advantage of their immense database.
Now here’s the one caveat in using an external loyalty platform like Air Miles or SPC. While they are each great in their own right and provide a significant amount of traffic and even sales, they don’t give you customer-centric data. They may give you demographic data that can be useful (like your target market is male, aged 45 and up, and likes coffee over tea), but they won’t tell you that Betty shopped online 14 times using PayPal, shopped in store 5 times, and bought 97 items in the last year, not to mention having her mobile number on file for text offers.
So choose wisely which way you decide to steer your loyalty.
Crack the Customer Lifetime Value Formula
The Holy Grail for any brand is to understand their customer lifetime value. There are plenty of formulas out there to figure this out. (If you’re unsure about how to calculate it or what it is, check out Mark Jeffrey’s book on Data-Driven Marketing.) But if you don’t have the data to do it, then the models you build are based more on assumptions than facts.
Loyalty programs help you collect actionable data that can help you understand your customers’ buying patterns, frequency and latency periods, and churn rate. If you are struggling at calculating or coming up with CLV models or strategies, a loyalty program, while a lot of work, can be a great way to set you up for future success.
There are numerous ways marketing teams can collect data. Launching a loyalty program is one of the most effective ways. But again, you must understand what your goals are in launching such a program, and understand what data you want and need to collect (from the very beginning). Once you start collecting your data sets, it is not a good idea to change them midway through your program. Planning is essential in making sure the data you collect, tells the story you want to tell.
Editor’s Note: An abbreviated version of this post was also published on the Data Candy blog.
What brands are doing the best with their loyalty programs? Which brands would you love to see have a loyalty program? And how many loyalty programs are you currently a part of?
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