Chapter 6 – Loyalty Marketing in Practice

There are many ways to achieve customer loyalty.  As we look at options I’m going to refer to “forks in the road.”  A fork in the road is a decision we must make.  It’s a choice about the best path.  It’s an informed decision based on your assessment of readiness (the extent to which your house is in order) and the results of your CLA.

Defined Programs versus Contact Strategies

The first fork in the road.

A defined program has structure.  Take a look back at MCI’s program called Free Flix.  It has structure.  Spend $25 and get a free video rental.  Spend $50 and get two video rentals.  And so on.

Many of the programs I’ve described earlier in this book are defined programs.  Typically defined programs are the easiest for marketers and consumers to identify.  The alternative – a contact strategy – is not quite as easy to identify.  Not because it’s difficult to see, but because we just don’t think about it as an approach to developing customer loyalty.

A contact strategy consists of a planned series of customer communication programs that often vary by customer segment.  On the receiving end, customers react to each communication component as an isolated marketing communication tactic.  They might think, “Oh, yeah, I get things in the mail or e-mail from them.”  They don’t think about it as a program.

Behind the scenes, through the eyes of the marketer, it is a program.  It’s a carefully considered, methodically planned program.  It may be as successful or more successful than a defined program.  I’m not saying that one is better than the other.  You should consider both as you navigate this fork in the road toward evaluating your loyalty options.

Announced versus Clandestine Programs

The next fork in the road.  This consideration – announced or clandestine – applies only to defined programs, not contact strategies.

An announced program is just that - announced.  A customer can find out about it fairly easily.  It’s promoted and explained at your website.  It’s integrated in your advertising.  It’s in everything you do.  You can’t miss it.

An announced program is difficult to measure in a traditional direct marketing sense.  Pure measurement involves holding out a random control group that is consistent in composition to your test group.  It’s not possible to hold out a control group when the program is available for customers to enroll at will.

A clandestine program is privately communicated to a group of customers, usually through the mail or e-mail.  You select the customers and you also establish the control group.  Clandestine programs can be measured more effectively because you are able to hold out a control group.  However, with a clandestine program you cannot evaluate the overall potential of your program.  For instance, if Blockbuster tested its Rewards program clandestinely, they would not have been able to evaluate the impact of having the program integrated with advertising and point of sale posters.  They also could not have been able to evaluate the impact of having a sales associate say, “Are you familiar with Blockbuster Rewards?”

Hard Benefits

A hard benefit is one that is typically a percentage of a customer’s spending.  The more you spend, the more you get.  Hard benefits come in two flavors: promotional currency and discounts.

A promotional currency is a system of value earned and redeemed in a loyalty program.  It goes by many different names (points and miles are fairly common names).  It’s typically a percentage of a customer’s spending.

Promotional currency is not the only way to structure a loyalty program.  Unfortunately, whenever the term “loyalty program” is used, it causes marketing people to instantly think of points for free stuff.

The promotional currency model has its share of complexities and idiosyncrasies.  I’ll spend the entire next chapter going into more detail about the important planning considerations that revolve around it.

Some hard benefits programs use discounts instead of promotional currency.  For instance, the Barnes & Noble Readers’ Advantage program gives members a 10% discount.  The Waldenbooks Preferred Reader program has both forms of hard benefits.  Members get 10% off on their spending and they also earn one point for every dollar spent.  Once a member accumulates 100 points, it converts to a $5 reward certificate.

Soft Benefits

Soft benefits are extra benefits available to customers who are not a percentage of spending.  It doesn’t mean they’re free.  It just means they’re not a direct function of spending.

However, certain soft benefits may be made available to customers once they have spent a certain amount.  The most common soft benefits to talk about are some of those in the airline industry.  Upgrades, shorter lines.

Barnes & Noble offers soft benefits to its Readers’ Advantage members.  They hold special literary events only for members.  Blockbuster offers several soft benefits in its Rewards program.  Members get a free favorite rental each month and a free favorite on certain days of the week with a paid rental.

Soft benefits can also be unexpected benefits.  Unanticipated things you do for a customer based on what you know about the customer’s relationship with you.

Here’s a nice example of an unexpected soft benefit.  It’s not in conjunction with a defined or announced program.  In fact it’s probably part of a clandestine contact strategy that also includes unexpected soft benefits.

Here’s the story.  It’s about the Adolphus Hotel in Dallas, Texas.  I checked in a few months ago.  Before this, I had probably stayed at the Adolphus six or eight times in the previous three years.  They did not have a loyalty program that I participated in.

It was late.  I pulled up, valet-parked my rental car, and checked in.  Nothing special.

I carried my own bag to the elevator and proceeded to the fifth floor.  I got off the elevator and headed for my room.  When I arrived at my room, a room service staff member greeted my at the door and said “Mr. Duffy, I have something for you.”

He followed me in my room and presented me with a tray.  The tray had a bottle of sparkling water, a slice of pound cake with flavored butter and a strawberry.

Along with the tray was a card.  The server introduced it as a message for me.  It was a small, handwritten envelope, with my name on it.  The pre-printed part of the card said:

“Welcome back to the Adolphus!  We take great pride in your loyalty and look forward to being your host on this occasion.

Your comments and suggestions would be most appreciated.

With kindest regards,”

Greg Champion

Managing Director

The note was hand signed by Greg Champion.

It was a nice touch.  It impressed me.  They never promised me a benefit like this so it caught me off guard.  It made a lasting impression.

Developing Soft Benefits

If you’re going to have announced soft benefits in a program, it’s best not to have too many.  A couple of soft benefits is fine.  Five to seven is probably the maximum.  After seven it begins to look like you’re trying too hard.  People begin to think you weren’t impressed with the quality of your benefits so you focused on quantity.

Here’s how to develop your own list of potential soft benefits.  First, look at customer suggestions and complaints.  They’re often a good source of ideas.  Second, look at the hidden benefits that you identified during the CLA.  Finally, get a group of people together and brainstorm ideas.  Use the customer suggestions and complaints as well as the hidden benefits to stimulate the discussion.  Get as many ideas as possible.  Don’t shoot any down.  That comes later.

Regroup at least one day after you’ve brainstormed the initial ideas.  Review the ideas and filter out those that seem financially or operationally impossible.  Take the remaining ideas and do some basic research.  Get customers to rank order the potential benefits.  Once that’s complete, do a thorough operational and financial review to ascertain the complexity and cost of each one.  At this point you’ll have a fairly good handle on the winners and losers.  You’ll be able to make your soft benefit choices and move on.

Communication

Communication is an essential component of a loyalty program.  In fact, depending upon what you choose to do, communication might be the loyalty program.

Before exploring communication tactics, let’s touch on strategy for a minute.  Your loyalty program is a brand under the umbrella of your master brand.  It must support and enhance your master brand.  It should never conflict with your master brand.  It should express something special.  Consider how you want your customers to feel after they receive and experience your communication.  Develop a brand strategy and a communication strategy for your program before jumping into tactics.

Getting the Word Out and Enrolling Customers

This section applies only to defined programs.  Your approach will vary based on whether it’s announced or clandestine.  Once you’ve got your program defined, how will you tell customers?  And whom will you tell?

While some programs solicit membership via a direct mail or e-mail invitation, other programs simply assume customers in and welcome them.  Some announced programs are featured in advertising campaigns for the master brand.  The program becomes another reason to visit the master brand.  This is becoming increasingly common with grocery store chains.

Some programs are completely voluntary – advertising, collateral and web-site tell the story about the program, and customers must volunteer or self-select to become members.

If you’re inviting customers to become members, consider multiple campaigns.  Test e-mail versus traditional direct mail.  Some customers just won’t understand what you’re trying to tell them the first time around, or they won’t pay attention.  Follow-up communication efforts are almost always worth the effort and expense.

If you automatically enroll customers and welcome them through the mail or e-mail, many of them (typically about two-thirds) will ignore your welcome and will have no idea that they’re even members.  If you conduct research to understand program awareness or recall after a single announcement, you might be disappointed.  With ongoing communication, the awareness and recall will consistently rise.  Be realistic and remember that your program is a new brand. It takes time and frequent impressions to build a memorable brand.

If your front-line employees have interaction with customers and will play a role in communicating your program, don’t short-cut training and employee communication.  Your customers are sure to become skeptical quickly if they find that your employees are untrained, confused, or apathetic about your loyalty program.

Enrollment Fees

Some programs charge membership fees.  If you’re considering doing so, think long and hard about it.

Your program must have value that is instantly apparent.  Your brand must be a high utility brand – one that customers use often.  Look at the companies that get fees for their programs.  Blockbuster, Barnes & Noble, Musicland, Waldenbooks and MCI (Frequent Flyer Rewards).  Each program has high utility and delivers a value proposition that makes it realistic to assume customers will pay.  Make sure you’re in the same situation before deciding to attach a fee to membership.

Welcome

When you’ve enrolled a customer, it’s important to follow up and confirm or acknowledge the enrollment.  Whether it’s an e-mail, a letter, a welcome card or a welcome kit, it’s essential to acknowledge the new relationship.

Information Gathering

Don’t get carried away trying to gather excessive information when a customer enrolls in your program.  Too often companies are tempted to include a bunch of questions without even knowing what they’ll do with the answers.  The more difficult you make it to enroll, the lower your enrollment rates.  Don’t over complicate things.  You can always go back later and try to get customers to respond to surveys and information requests.  Keep the enrollment process clean.

Ongoing Communication

Once you have the word out and you’re beginning to build momentum, you’ll need some ongoing communication tactics to keep customers informed and engaged.

Some companies decide to use newsletters.  Whether they’re traditional printed newsletters or e-mail newsletters, make sure you know what you’re getting into.  Think ahead more than one issue.  Think into next year.  Many newsletter efforts die after the first issue for two reasons: 1) the company runs out of content or; 2) the company runs out of money. 

Develop your communication strategy in advance.  Deliver a blend of information about your brand and your program.  Try to get customers to opt-in to e-mail communication.  The e-mail channel allows you to communicate more frequently and cost-effectively.

Communication and Education as a Soft Benefit

There are situations in which communication can become a soft benefit.  When communication provides relevant education that helps the customer, it becomes a soft benefit.

I’ve seen communication in the form of “how to” information used as a soft benefit in the home improvement retail category.  By providing useful information to customers, home improvement retailers boost sales.  They teach people to take on projects.  Customers take on more complex projects than they previously thought possible.  The result - they buy more tools, equipment and supplies.

I’ve also seen it work in the telecommunications industry.  Customers (this applies to both consumers and businesses) often cancel specific telecommunications products because they feel like they’re not getting enough value.  This value deficiency is often linked to customers not knowing how to use a product.  By providing educational communication, some telecommunications companies have reduced product defection rates.  They teach customers how to use their product.  Customers use the product more and feel like they’re getting better value.

Now that we’ve reviewed loyalty marketing in practice, it’s time to take a closer look at the promotional currency model.  It’s complex but powerful.