By Barry Smith, Senior Consultant at Ikano Insight
The customer landscape is changing; and as a result it is becoming increasingly difficult to keep your customers loyal. Whilst some business leaders may view loyalty programmes as an unnecessary method of rewarding customers who would probably spend anyway; this is not the case.
Data-driven marketing is the future; and loyalty programmes present the opportunities to collect this vital data about your customers that will feed into all business departments: from how your marketing budget is spent; to the products/services you offer; right through to merchandising or how your front-line staff communicate with customers.
Aligning your business around the customer has never been more imperative, and a loyalty programme provides the potential for just this. Here are the questions to be asking of your Marketing Directors; ultimately how will investment in a loyalty programme benefit your business?
- How much will a loyalty programme cost us?
Of course another key variable in the success of a loyalty programme is its structure and mechanics. Whilst the technicalities can be left to the experts, the proposition and reward mechanism should be communicated. The key costs associated with a loyalty programme are:
- Technical: which platform will you use to design, manage and report on your loyalty programme?
- Marketing: How will you promote your loyalty programme to drive behaviours? What are your ‘Welcome’ and retention tactics?
- Benefits: Will you offer limited-time rewards for customers who hit a certain spend threshold; free gifts; or different rewards for different tiers of customers?
- What’s the value/ROI of investing in a loyalty programme?
Customer loyalty should be viewed as an investment, not a cost. 46% of surveyed customers admit to spending more due to a loyalty programme [1] and we have found for some partners that for every £1 invested they get £6 return. Your Marketing Director should be able to demonstrate the effect the programme is expected to have on your profitability and customer base, including potential expenses and expected sources of revenue, including increased physical and online visits, increased spend, referrals and other behaviour changes likely to increase profit.
- Do/will our loyal customers spend more?
Research states that loyal customers spend 13% more during each transaction [2]. Also, loyal customers (those who visited stores at least 10 times) account for about 20% of a company’s customers. That 20% drives 80% of your business's total revenue, and 72% of total visits to your business [3]. These types of statistics should act as a benchmark upon which your marketing team can measure the success of the programme.
- Do our customers want a loyalty programme?
The programme must be fully researched to evidence that it is a response to your customer’s feedback, and therefore needs. This should show what customers want out of a loyalty programme and how they are likely to respond to it.
- What are the objective and KPI’s?
The programme’s aims and timescales should show how a loyalty programme can grow your business. For example; highly valuable, high-spending customers who have low levels of engagement with your brand could be incentivised to spend more often; whereas highly engaged customers who make regular low value purchases could be incentivised to spend more.
- What data/insight can be gathered from the loyalty programme and how can this be utilised across the business?
Ultimately, your loyalty programme should enable valuable customer data to be collected which can be turned into actionable insight. There should be the ability to track engagement across multiple touch-points to track customer patterns and behaviours; for example identifying when a customer is about to leave your brand, and taking action to retain them. Your Marketing Director should show how insight should inform all areas of the business.
- What are the risks?
As a CEO, you know that with any business decision comes risks, and what’s important is how they will be managed. Does your programme manager or Marketing Director have a contingency plan and how will they overcome any negative results with a minimum impact on the business?
- How will we know if the programme is successful?
Linking back to the objectives and KPIs, benchmarks should be agreed from the very beginning. There should be a solid commitment from all key stakeholders to report back on the programme at all stages. Ask your Marketing Director how this will be done, at what stages, how often and in what format. And of course, you should notice the difference on your bottom-line.
In summary, your loyalty programme should not just fit into your business, but shape it. Data doesn’t lie, and the beauty of this data-driven marketing approach allows you to put numbers against engagement.
