Innovation in Loyalty: 5 Questions You're Asking

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Innovation in Loyalty: 5 Questions You're Asking

By Dan Cornwell - 03/03/2015
There's been a lot of talk about the evolution of loyalty – from traditional programs with dull, me-too customer experiences to the kind that use Big Data and analytics to deliver engaging customer experiences and drive profitability. Here are 5 key questions and answers to help you navigate the hype:
 
  1. Can I really make money on a loyalty program?
    Yes, in fact, lots of money! The traditional way to think about a loyalty program is as delivering "rewards" to a customer for their purchases – usually something that they were likely to do anyway and therefore, a cost to the business. A different way to think about your loyalty program is as providing an "incentive" for a customer to do something new. Innovative loyalty programs focus on understanding and attaching incentives to these "behavior gaps" at an individual level. In doing so, companies can make their investments in loyalty profitable, rather than a cost to the business.
  1. Can I really ever know if my loyalty program is working?
    Yes. Like any marketing program, a loyalty program's performance can be measured. Traditionally, marketers have applied a time series approach - they look at the performance of customers before and after a particular marketing treatment to see if their activities created lift. Innovative loyalty programs measure performance via a robust test versus control group approach. Only in this way can you normalize for seasonality and other time-series biases and measure the true incremental lift.
  1. How much should I reward my customers?
    Know your economics! Companies need to know, down to the individual customer level, what each behavior is worth. Understanding these details allows companies to target each customer with incentives that are commensurate with the value of the desired behavior. For example, a retailer that collects product reviews may value reviews for products where they have no reviews to date vs. reviews for products where they already have plenty of customer feedback. Targeting higher incentives to customers who can write the more valuable reviews and lower (or no) incentives at customers who write low value reviews is an example of this strategy.
  1. Should I sell my currency (to make money off of it)?
    Maybe. There are two opportunities here. One opportunity involves letting other companies use your currency with their customers. This makes sense if you have a strong brand – eg. frequent flyer mile programs. A second opportunity involves letting your suppliers buy your currency. For example, an e-commerce company might allow its suppliers to "buy" its currency to be used to promote their products on that retailer's site, leveraging the supplier's wholesale economics (vs. the retailer's retail economics).
  1. Should I kill my loyalty program (if I have one that's underperforming)?
    No. Existing loyalty programs can be re-invigorated with a data-driven approach, which focuses on incentivizing incremental (vs. existing) customer behavior. Companies need three things to succeed at this: 1) the ability to access to customer-specific behavioral data, 2) the ability to use that data to model each customer's individual behavior gaps, and 3) the ability to execute in real-time, at any point of customer interaction, with individualized messaging and incentives. These capabilities can be created in-house, or purchased as a service if legacy IT and other institutional hurdles need to be overcome.
 
Dan Cornwell is the EVP of customer solutions at Exchange Solutions, a company that designs, builds and operates intelligent customer engagement programs that help their clients maximize their profitability, one customer at a time.