Loyalty concepts
Strategic tool. Loyalty programs are strategic tools for developing the value of the company’s customer base and for managing customer experiences. They help identifying and protecting the company’s best customers and enable targeted actions for rewarding desired customer behavior. Furthermore, loyalty programs provide the companies with tools for managing customer base dynamics: new customer acquisition, cross- and up-selling, churn prevention. They also enable companies to collect valuable information on the customers’ buying behavior.
Avoiding the expensive me-too trap. From the customer’s point of view there are only few truly engaging loyalty concepts. Many of the existing loyalty programs indeed are me-too concepts: they have been created only because the competitor has one. The concept and its rewarding logic has been bought off-the-shelf and no thorough effort has been put in making the concept unique in the eyes of the customer. The fundamental question of whether a company even needs a loyalty program has not been thoroughly addressed. In many cases, bigger impact on loyalty is achieved by improving the quality of service. A loyalty program can never compensate for poor service.
Reward and recognition. Although often a must element, monetary rewarding is neither the only nor the best means for building true loyalty. Companies usually define the best customers not based on loyalty but on purchase volume or frequency. This leads to the fact that the best customers, those who spend to most money on the company’s products and services, are rewarded with the best monetary rewards. This logic results in an expensive rewarding system and a limited view on loyalty. In fact, customers usually rate themselves loyal if they have been customers for a long time. This kind of loyalty, however, is seldom rewarded. Another lacking aspect in reward models is future potential or profitability. Consequently, new metrics for measuring and rewarding loyalty are required.
Unique loyalty concept. At Vectia we believe it is possible to create a loyalty concept that is both unique in the eyes of the customer and effective for the company. Based on our experience we have defined the ABC’s of a successful loyalty concept. Some key issues a company should address when designing this kind of a concept are:
- Aligned with strategy. Does the company need a loyalty concept? Is the concept targeted for the whole customer base or for the best customers only? Is communication and rewarding silent or public? Is the loyalty concept owned and operated by the company or by partners or a coalition?
- Brand presence. How should the concept be positioned in the eyes of the customer? What makes the concept unique? How to ensure that the company’s identity and brand promise is reflected in the concept, in terms of communication, reward models and customer experiences? Should the concept have an own brand?
- Customer insight. How to ensure the concept provides the company with actionable insights on customer behavior?
- Dynamic. How to build a reward portfolio that is not static but constantly pulsating and activating the customer?
- Engaging. How to make sure that the concept creates and rewards the desired customer behavior?
Vectia helps companies in loyalty concept development by:
- Conducting a feasibility study. Analysis of what kind of a loyalty concept is feasible to the business and industry, taking desired customer experiences, company’s capabilities, and cross-industry benchmarks into account.
- Designing a unique loyalty concept. Definition of the loyalty concept’s objectives and role in the company’s business, concept strategy and philosophy (customer selection, concept position and profile in the eyes of the customer), value proposition (reward and recognition model, customer experience across channels), capabilities (customer insight, compliancy) and management system (targets, metrics, KPI’s).
- Providing support for implementation & concept renewal. Detailed definition of loyalty related processes, IT support requirements, partner management criteria etc.
Success stories:
- TeliaSonera: Tackling competition, winning loyalty, Explore Autumn 2006
- K-Supermarket: The Better than Average Loyalty Program, Explore Autumn 2008
Studies and presentations