There are more than a few loyalty-esque proverbs that float around marketing departments and boardrooms everywhere: "repeat customers spend more," "it costs five times more to acquire a customer than to retain a customer," "80% of your revenue is driven by 20% of your customer base." If you are reading this blog post, chances are that you have uttered at least one of these phrases at some point in your career. But, if you've ever tried to put your money where your mouth is, you also know that achieving true customer loyalty requires strategic alignment, deliberate planning, and financial and cultural commitments. Loyalty is both behavioral and emotional, and companies that really want to compete for their customers’ loyalty need an evolved approach that extends beyond the program.
To help you understand where your loyalty strategy stacks up, Forrester has developed new self-assessments that examine loyalty from two points of view: the business' and the member's:
Consumers and marketers don't always see eye to eye when it comes to customer loyalty programs. Consumers tell us they enroll in programs for the points, discounts, and savings, while companies tell us boosting customer engagement is a top goal for their loyalty programs. Sixty-seven percent of consumers consider themselves active in programs they join, yet the marketers who run loyalty programs report that only 16% of customers are active program participants. Regardless of which camp you fall into, one thing is clear: a program is only as strong as the members who participate in it. And, the value exchange a program creates is central to attracting members today and getting them to come back tomorrow, next month, and next year.
But, choosing program benefits can create some anxiety. Marketers need a mix of rewards that satisfies consumers' desire for savings while encouraging deeper engagement, and acknowledging/recognizing customer value. Forrester clients often ask me questions like "What can we offer besides points?," and "How do we make customers feel valued?." The short answer is that there are a lot of options that have varying objectives for the customer:
I belong to more loyalty programs than the average consumer. As a result, on any given day, my wallet is overflowing with loyalty cards and loyalty program related paraphernalia. At the register, I’m often rummaging through my purse to locate reward certificates, half-filled punch cards, coupons, and the like.More often than I would like to admit, rewards go unredeemed simply because I didn’t have access to them when I needed or wanted to make a purchase.
I am also — like 42% of US online adults — a perpetually connected consumer. Whether I’m “just looking,” comparing specific products and prices, searching for coupons in my email, or making a purchase, I rely on my smartphone as a trusty sidekick. In that vein, my mobile phone has recently helped me reduce some of the physical bulk that comes with loyalty program membership. I have an app that digitally manages all of my membership cards in one place, a loyalty program folder to corral branded apps that offer loyalty program functionality, and more than one retailer lets me scan rewards barcodes at the POS.
If Loyalty 1.0 was all about discounts, points, and miles, Loyalty 2.0 is all about differentiation and engagement. Competition for customer attention is steeper than ever, and companies are always looking for innovative ways to set their loyalty programs apart. But the loyalty landscape is chock full of shiny pennies (and some not-so-shiny pennies) claiming to offer a solution to this engagement problem. Throw rapidly evolving technologies, channels, and tactics into the mix, and marketers have a lot to consider when deciding where to make their bets.
If you’re nodding your head, you aren’t alone, and you are in the right place. Cutting through the clutter is exactly what our latest report, “TechRadar™ For Customer Intelligence Professionals: Customer Loyalty Programs, Q1 2013” (subscription required) is all about. We spent the past several months investigating the current maturity, business value-add, and future trajectory of 13 loyalty tools, including affiliate networks, card-linked rewards, coupons, location-based services, mobile applications, program websites, and social rewards. At a high level, we came away with two key observations:
I was in the US this week, visiting our headquarters in Cambridge, and the topic of loyalty cards and loyalty programs came up. I live in the Netherlands, and although there are plenty of loyalty programs to subscribe to, the benefits aren’t any way near what you get from loyalty programs in the US. Because of that, I normally base my travel choices more on convenience and price than on the hotel chain or airline. But our North American Technographics® Travel And Auto Online Benchmark Recontact Survey, Q3 2012 (US) shows that this is different for US travelers.
US hotel travelers clearly see the benefit of subscribing to a loyalty program for the hotels they visit regularly. In fact, our data shows that about 40% of US online leisure hotel travelers belong to at least one hotel loyalty program. And those who belong to a hotel loyalty program are 10 percentage points more likely to recommend a hotel than leisure hotel travelers who are not part of a loyalty program.
However, the majority of leisure travelers who belong to a loyalty program are Gen X; younger travelers account for only a quarter of current loyalty program subscribers. Hoteliers who want to benefit from social sharing and recommendations should tap the potential of their loyal younger customers in particular.
Over the past year-and-a-half, I’ve seen a surge of loyalty programs in the marketplace. And it’s not just existing programs expanding into emerging channels or revamping their reward mix. Industries that typically shied away from loyalty programs, like utilities, media and insurance, are jumping on the bandwagon. But although marketers understand that value of identifying, retaining, and improving relationship with their best customers, their execution usually doesn’t lead to lasting loyalty. Loyalty programs largely revolve around financial incentives that drive spikes in short-term behavior but don’t necessarily establish deeper or long-term customer relationships.
To add to that challenge, consumers see declining value in the programs that exist in the marketplace, and if marketers want to develop better relationships with their best consumers, their programs need more differentiation. And that’s where customer intelligence comes in. Loyalty programs generate a lot of customer data that often goes unused. Customer intelligence helps marketers create customer insights that improve their strategy and programs through targeting and segmentation, and customized offers. To assist marketers in applying customer intelligence and evolving their customer loyalty strategies, I’m excited to introduce Forrester’s Customer Loyalty Playbook.
The Customer Loyalty Playbook lays out the path to help you establish the right framework and mature your practices around executing loyalty programs that drive long-term customer engagement and incremental value. It contains twelve reports, focusing on four key phases:
I’ve been on the CI team for a few years in a supporting role and, more recently, working behind the scenes with Suresh Vittal to drive our research around loyalty. I’m excited to announce that, going forward, I will be the analyst leading our coverage of the technologies, services, and analytics that support customer loyalty.
My first report in this new role will provide best practices on building a world-class loyalty program. Then keep an eye out for an analysis of existing and emerging loyalty program features. Future research will dive into topics that include reward design, revenue models for loyalty programs, the future of loyalty, and more Wave evaluations of the loyalty vendor ecosystem.
I am looking forward to getting to know many of you better and following the evolution of this exciting space. Whether you have insights to share, questions to ask, or loyalty technology and services that you want to tell me about, I want to hear from you! Please engage with me via our Inquiry and/or Briefing teams, or track me down at Forrester’s upcoming Customer Intelligence Forum (April 18-19 in Los Angeles).