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Welcome to the February 2007 edition of Loyalty Alerts. In honor of the new Visible Results corporate website made live in August, we’re minting a new look, new format communication... Loyalty Alerts. Once a quarter, Loyalty Alerts will review recently published influential loyalty marketing articles and collate them into a series of short executive summaries. Loyalty Alerts endeavours not to impose corporate censorship on the content reviewed, and all articles featured in the quarterly newsletter will be reproduced in full on the Visible Results website (including full citation of source and author.) In addition, each issue will lead-off with a section that summarizes recent Visible Results related news and press releases. If you have any comments on the newsletter (it's too long, too short, topic suggestions, etc.) please send them to: loyaltyalerts_editor@visibleresults.com
In This Issue: Visible Results Making Headlines US: US: VIRGIN LAUNCHES VIP CUSTOMER LOYALTY PROGRAM
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The Face of Loyalty Programs: Who Has What Cards in Their Wallet
Tuesday August 1
Maritz Loyalty Marketing has announced that a recent study found that rewards program members are more likely to have spent a greater amount of money in the past six months across the 11 retail categories examined in the study, including home improvement, electronics, grocery and book stores.
"It is interesting to see that rewards program members are spending more. However, we need to keep in mind that the programs might not directly cause shoppers to increase their purchases," said Tim Crank, director of product management, Maritz Loyalty Marketing. "It could be that those who spend more join programs to obtain rewards for purchases they would have made even if they weren't members. But whatever the reason, enrolling shoppers who are spending more is a great tool for retailers because it allows them to mine the data collected from loyalty programs to identify and create a dialogue with profitable customers."
What's in Your Wallet?
Maritz Loyalty Marketing also examined various demographic characteristics, including rural vs. city living, marital status, income levels and gender, for significant differences to determine what types of people are carrying consumer loyalty program cards in their wallets.
The study revealed that loyalty program members are more likely to be one or more of the following: female, young, living with children under the age of 18 in the household or from the Northeast.
The Man Myth: Do They Like to Shop More Than We Think?
Not surprisingly, women (62 percent) are significantly more likely to belong to a store or membership loyalty program than men. However, more than half of the men surveyed (54 percent) say they are part of a program.
"The significant difference between the number of men and women who belong to a store or membership program isn't shocking because most people expect moms to be the primary purchaser in the household," said Crank. "What should be of interest for retailers is that more than half of the male population carries around plastic loyalty program cards in their wallets. Based on this finding, retailers should tell their employees not to hesitate to ask men about joining a program."
Fountain of Youth
Customer loyalty program members tend to be younger than those who aren't members with 71 percent of 25- to 34-year-olds belonging to store or membership programs. And survey respondents older than 55 comprised the highest percentage of non-program members.
PROGRAM |
TOTAL |
AGE |
|||||
|---|---|---|---|---|---|---|---|
18-24 |
25-34 |
35-44 |
45-54 |
55-64 |
65+ |
||
Store or Membership |
59% |
59% |
71% |
66% |
58% |
50% |
44% |
Private Label/Co-branded Credit Card |
27% |
35% |
39% |
27% |
23% |
21% |
19% |
None |
34% |
32% |
21% |
28% |
37% |
44% |
46% |
"A logical assumption is that those in or approaching retirement anticipate they won't be spending as much money as younger shoppers and might not feel that they'll reap the benefits of loyalty programs," said Crank. "The challenge for retailers is to recognize that customers can be valuable to them in all life stages, and that they can keep all shoppers enrolled and active in loyalty programs by offering rewards that are meaningful to them throughout their lives."
Simply having kids is another influencing factor. Those who have children under the age of 18 in their household are significantly more likely to have a store or membership program card or a co-branded credit card.
Across the U.S.A.
Regardless of the fact that many stores are national chains, according to the study, members of customer rewards programs tend to be clustered by region. The Northeast (70 percent) and West (63 percent) have the highest concentration of store or membership loyalty program participants. People in the South (37 percent) and the Midwest (42 percent) are significantly more likely to not belong to any type of consumer loyalty program.
Who's Missing From Retail Loyalty Programs?
"It's important to know who is likely to join a program so that stores can adjust their merchandise offerings, layout and product adjacencies, and customer service to cater to their most loyal customers," said Crank. "However, knowing which demographic groups are likely not to be members offers retailers an opportunity to identify and interact with other potentially valuable customers who may not be interested in being a part of a loyalty program."
Non-members tend to have one or more of the following significantly relevant characteristics (by retail category):
- Specialty Apparel/Large Premium Specialty Stores (e.g., Nordstrom, Gap) -- From the South.
- Home improvement (e.g., Home Depot, Lowes) -- Single/widowed/divorced; no children under the age of 18 in the household; women.
- Electronics (e.g., Best Buy, Circuit City) -- 65 years old and older; no children under the age of 18 in the household; women.
- Department store or mass merchandise (e.g., Macy's, Sears) – Older (age 35 and over); from the West, South and Midwest.
- Drug stores (e.g., Walgreens, Medicine Shoppe) -- Men; from the West; living in a suburb, town or rural area.
- Discount mass merchandisers (e.g., Target, Wal-Mart) -- Single/widowed/divorced; no children under the age of 18 in the household.
- Grocery stores (e.g., Kroger, Safeway) -- From the Midwest.
- Toy stores (e.g., Toys R Us; FAO Schwarz) -- Women.
- Office supply stores (e.g., Office Depot, Staples) -- From the Midwest.
- Book stores (e.g., Barnes & Noble, Borders) -- Women; with incomes less than $30,000 per year.
- Home furnishing stores (e.g., Pottery Barn, Linens 'n Things) -- Women; with children under the age of 18.
One additional item of note: an overwhelming majority of respondents (77 percent) are members of grocery store (e.g., Kroger, Safeway) loyalty programs.
About the study
The online study of 2,178 adult shoppers who have made a purchase in the six months prior to the study from at least one of 11 retail categories included in this study revealed the demographic make-up of consumer reward program members. The margin of error for this study is +/- 2 percent. For the purpose of this study, rewards programs are defined as either a store or membership program or a private or co-labeled credit card, which award customers points for purchases or other behaviors that they can later redeem for various rewards including discounts, gift certificates, merchandise, cash back or travel. The study was conducted by Maritz Research for Maritz Loyalty Marketing.
Article reproduced in full from the Payment News website
http://www.paymentsnews.com/2006/08/the_face_of_loy.html
Copyright © 2002 - 2006 Glenbrook Partners LLC
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Maria Ligerakis
1 October 2002
A current loyal customer is worth five times more than a new customer, but too many companies are preoccupied with customer acquisition strategies, according to marketing commentators Kevin Clancy and Peter Krieg.
In their book Counter Intuitive Marketing, Clancy and Krieg argue that most companies don’t know what a loyal customer is worth to them in dollars and cents.
“Generally a current loyal customer is worth five times more than a new customer,” the book says.
“Nevertheless, most companies seem fixated on customer acquisition strategies, a phenomenon we have labelled as the Death Wish Paradox.”
Carlson Marketing Group Australia and New Zealand managing director Karl Schuster extrapolates, saying some companies are resorting to “hit and run” tactics to snare market share.
“The customer is supposed to be king, yet many companies have lost focus of the customer and are resorting instead to rash tactics to snare market share,” he says.
“Many of the initiatives being developed are little more than sweeteners or bribes.
“This is not the way to build long-term, profitable relationships with consumers.
“All it does is create loyalty program ‘prisoners’ who seek to escape the brand once they have redeemed their points.
Loyalty — a pipedream?
Recent research commissioned by the Carlson Marketing Group found only 8 per cent of respondents felt “extremely close” to brands, while 60 per cent felt “distant” or had “no preference” for brands.
“The research indicates many companies are failing to meet—let alone exceed—consumer expectations of what they want from a relationship,” Schuster said.
“This research has a number of key messages for Australian business.
“Consumers are looking for companies who walk loyalty, not just talk it.”
Professor Bill Yost, from the acclaimed Anderson School of Management UCLA, says engendering customer loyalty pays great dividends.
“Retaining customers has huge pay-offs in at least four different ways,” he says.
“If you want people to be loyal and to stay around then you have to continue to provide them with real value.
“Loyalty isn’t built by acquisition; it’s all about keeping customers content and happy.”
Rapp Collins Worldwide senior vice-president Don Neal says consumer trust in companies is diminishing and the balance of power has shifted firmly in the customer’s favour.
Neal, in Australia recently as part of a fleeting visit, says consumers are now “largely in control”, yet some companies are playing a game of catch-up when it comes to customer relationship management.
“Customers are less tolerant, more demanding and often feel an attitude of indifference,” he says.
“The customer is in charge, brand loyalty matters more than ever and CRM (customer relationship management) is a strategic imperative.”
This shift in the balance of power means it’s no longer a case of product versus product, but rather, business model versus business model, according to Neal, and CRM has an important role to play.
CRM tug-of-war
Ron Swift, author of the book Accelerating Customer Relationships: Using CRM and Relationship Technologies, says an intimate knowledge of one’s customer base is crucial to creating profitable and loyal relationships.
“Organisations that have placed customer information at the centre of their value chain and business architecture, have excelled,” he says.
But he points out that an element of guesswork still exists within companies that have not embraced CRM.
“Too many companies have not really embraced customer relationship management,” he says.
“They try to guess what will entice the customer instead of finding out in advance.
“Today, as ever, it may be their survival that is at stake if they do not institute it appropriately or correctly for their markets and customers.”
Swift says CRM should be integrated into a company’s everyday practices and organisational structure to avoid a tug-of-war scenario.
“CRM should be integrated into everything a company does, everyone it employs (even suppliers), and everywhere it transacts,” he says.
“Ultimately each company must decide what CRM means to the organisation and to the future of its success in the marketplace.”
Yost agrees, saying the business of creating and keeping loyal customers is an “organisational deal”.
“Marketing doesn’t make loyal customers; the organisation has to create loyal customers.”
Yost conceded that a CRM tug-of-war is present in some companies, with IT departments grappling with marketing chiefs and senior management for “control” over CRM.
“IT (CRM) is not something that is assigned to a particular group and no one should have a lock on it,” he says.
“Anybody that comes into contact with customers and customer problems needs to be aware of how to deal with it.”
The brand vs. the bribe
Neal, senior relationship manager for clients including Reuters, Mercedes-Benz and Exxon Mobil, says building a brand relationships based on an exchange of mutual value is critical in the loyalty arena.
He asserts it’s the “brand, not the bribe” that is central to building such relationships and says there are three levels of bonding in customer relationships:
1) Financial bond—rewards, points, incentives, promotions etc.
2) Social bond—based on experience and individual relationships.
3) Structural—database, service delivery systems and technology.
Neal says loyalty programs based on incentives and rewards can be copied and become adversarial and describes financial bonds as “only one leg of the stool”.
Structural bonds, on the other hand, can aid in building trust consistently over time.
No matter what level of bonding exists between buyer and seller, Neal concludes a company can’t bribe customers to be loyal.
“The winners in this game will build and cultivate consumer trust,” he says.
“If they (companies) don’t see the light, they will certainly feel the heat.”
Loyalty marketing: what’s next?
Patrick La Pointe, senior vice president of US company Frequency Marketing, says it’s a case of “plastic proliferation” in today’s world and share of voice in the cluttered loyalty card category is becoming increasingly expensive.
He warns that loyalty programs must offer real value and recognise and reward customers for their patronage, or risk falling over.
“Reward and recognition are equally important,” he says.
“Hard benefits are not a sustainable strategy.”
Experts agree that the loyalty marketing landscape is in a state of constant flux and a “wham bam, thank you m’am” approach to relationship marketing simply won’t work.
“Too many companies are building loyalty programs around simple ‘hit and run’ tactics where they flood the marketplace with short-term special offers or deals in a desperate bid to win customers, generate a fast buck and grab a few points of additional market share,” Carlson Marketing Group’s Schuster says.
“It really is a ‘wham bam, thank you m’am’ approach to relationship marketing and it isn’t working.”
“The consumer is now beginning to wake up to what the loyalty abusers are trying to do.”
Article reproduced in full from the B&T website
http://www.bandt.com.au/news/df/0c0113df.asp
Copyright © 2006 Reed Business Information
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Retailers Lack 'Loyalty' Programs for the Wealthy
By Jeff Miller
Rapaport...June 26, 2006
Nearly 600 super wealthy consumers named and rated brand names for the latest survey from the Luxury Institute of New York. Participants who earned at least $150,000 per year and held a minimum net worth of $750,000 qualified for the survey.
Wealthy consumers were asked to exact best practices from their own list of three luxury goods providers in the areas of customer information, customer relationship management, and customer loyalty programs. The top five "best" practitioners for customer information (data privacy) were: American Express, Nordstrom, Tiffany & Co., Neiman Marcus, and Lexus.
For customer relationship management best practices (customer service) consumers named: Nordstrom, American Express, Lexus, Ritz-Carlton, and Tiffany.
Under the category of customer loyalty (awards programs) retailers were not named in the top five: American Express, American Airlines, Hilton, Marriott, and Starwood. "Most of the loyalty programs that wealthy consumers think are best practitioners are, except for AMEX, from non-luxury goods and services categories, which indicates that the luxury industry has some significant work to do." Loyalty is critical to the luxury industry as in the mainstream, the Luxury Institute concluded for "Enhancing the Customer Experience of the Wealthy 2006" best practices survey.
Milton Pedraza, CEO of the Luxury Institute, said that while experts give awards for best practices to luxury brands, it was more important to solicit response from consumers who use those brands and services. "Luxury marketers need to realize that today's luxury branding world is a great deal more like The People's Choice Awards than the Academy Awards."
Additionally, Pedraza said that the super wealthy consumer relies heavily upon trust in peer brand reviews "far above other expert sources. Luxury executives should follow the customers' lead."
Article reproduced in full from the Rappaport News @ Diamonds.net website
http://www.diamonds.net/news/NewsItem.aspx?ArticleID=15138
© Copyright 1982-2006 by Martin Rapaport.
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The Lowdown on Customer Loyalty Programs: Which Are the Most Effective and Why
Published: September 06, 2006 in Knowledge@Wharton
When making a purchase, a consumer has a choice between using frequent-flier miles, cash, or some combination thereof. Which will he or she choose? Another consumer has an opportunity to participate in a special program to get a free car wash after paying for a certain number of washes.
What's the best way for the car-wash owner to motivate the customer to participate?
Such questions are serious business for airlines, hotel chains, credit-card companies and other corporations that offer loyalty programs to customers. Wharton marketing professor Xavier Drèze and Joseph C. Nunes of the University of Southern California's Marshall School of Business have spent several years studying these programs and have reached a number of conclusions as to how they can be structured to generate the most revenue for companies that offer them.
Loyalty programs have been around for more than 100 years and are experiencing an enormous resurgence, according to Nunes. Frequent-flier programs are among the best-known -- American Airlines is credited with launching the first in 1981 – but companies began trying to win the hearts and minds of customers long before that.
One of the early efforts to encourage customer loyalty was the S&H Green Stamps program, which began in the 1930s. Consumers received tiny stamps when they made purchases from participating merchants, glued them onto pages of booklets, and redeemed them for products when the accumulated stamps -- a form of "alternative currency" -- had attained a certain value.
“Trading stamps of all kinds are often seen as the first alternative currency to be awarded to encourage repeat purchases," Nunes notes. "They were initially awarded to customers who paid with cash instead of credit in the 1800s, but evolved into something given out with purchases. After World War II, dozens of companies began trying to outdo each other, offering double, triple and ultimately quadruple stamps. The escalation ultimately led to the stamps' demise. By the mid-'60s, supermarkets started offering straight discounts instead to cut out the middleman."
According to Jupiter Research, more than 75% of consumers today have at least one loyalty card, and the number of people with two or more is estimated to be one-third of the shopping population. Surveys by information-technology analysts Gartner, Forrester Research and META Group suggest the data-for-dollars explosion is showing no signs of letting up anytime soon. According to Gartner analyst Adam Sarner, U.S. companies spent more than $1.2 billion on customer loyalty programs in 2003. Drèze and Nunes became interested in loyalty programs after suspecting that many of them were not performing as well as they could for the corporations promoting them. "There are a lot of ineffective programs out there," Drèze says. "To distinguish a good one from a bad one you have to understand how they motivate people. There hasn't been that much research on the underlying principles that make a loyalty program work or not work for a firm. We felt that was a significant gap that needed to be filled."
Dollars and Miles
In a paper titled, "Using Combined-Currency Prices to Lower Consumers' Perceived Cost," Drèze and Nunes examine the different kinds of currencies that consumers can accumulate and spend, such as frequent-flyer miles and hotel and credit-card rewards points. As consumers are increasingly able to pay for a variety of goods and services using a combination of reward currencies and real money, how they respond to what Drèze and Nunes call "combined-currency" transactions has become important to marketers.
In their paper, Drèze and Nunes present a mathematical proof that outlines the conditions under which a price delineated in multiple currencies (for instance, $39 plus 16,000 miles) can be superior to a standard, single-currency price (where a person pays either $189 or 25,000 miles but not a combination of the two).
In the paper, published in 2004 in the Journal of Marketing Research, Drèze and Nunes say there are two ways that combined-currency pricing can bring in more revenue for a company: such pricing can either lower the psychological or perceived cost associated with the pricing scheme or raise the amount of revenue collected given a perceived cost.
For example, a consumer may be indifferent as to whether he spends $500 or 25,000 miles on an airline ticket, but prefers paying $400 plus 5,000 miles rather than paying either of the single-currency alternatives. "At $0.02 per mile, the combined-currency price brings in the equivalent revenue to the airline, yet inflicts a smaller psychological cost to the consumer," the researchers write.
It is important to note, they add, that this consumer's preference for the combined-currency price indicates that each mile or dollar spent is not valued equally. The perceived cost of paying more dollars and/or miles increases as the payment in that currency increases. As a result, it will be best for a company to charge a combined-currency price for, say, an airline ticket when two conditions exist: The consumer does not value each unit within a currency equally and the perceived cost function for one of the currencies is said to be "convex." Convexity means, for example, that 25,000 miles appears to be worth more to the consumer than twice as much as 12,500. Why? "Twenty-five thousand miles will get you a free round-trip ticket within the United States, while 12,500 miles might only get you an upgrade," says Drèze.
The authors reached their conclusions after surveying three groups of travelers and having them evaluate and make choices among prices issued in single and combined currencies. The authors say their research is the first to explore how consumers evaluate transactions involving combined-currency prices.
"You would think that if people were offered money and miles, they would always take the money, but a lot of people want the miles instead," Dreze says. "Their feeling is, 'Money is only money and if I take money instead of miles, I'll just use the money to pay a bill.' There's nothing special about paying a bill.
But when they take frequent-filer miles as a reward instead of cash, they will use them to take trips and that gives them memories. That makes the miles special. The airlines consider their programs 'aspirational' as fliers earmark their miles for special trips. There's a lot going on psychologically when it comes to taking miles or some other kind of rewards points. People don't consider miles or points to be the same thing as money."
"Artificial Advancement"
In another paper, "The Endowed Progress Effect: How Artificial Advancement Increases Effort," Nunes and Drèze outline how companies can structure certain rewards programs to make them more attractive to customers and hence more profitable. Endowed progress means that people who are provided with artificial advancement toward a goal show greater persistence towards reaching the goal than they otherwise would. By artificial advancement, a company advances a customer toward a goal while simultaneously moving the goal further away, so that the task requirements and the reward remain unchanged.
For example, a company could improve a rewards program that requires eight purchases in order to earn a specific reward by revamping it so that the program requires 10 purchases, but with two awarded upon enrollment. Both programs require eight purchases and provide the same reward, but customers are more apt to complete the program -- and complete it sooner -- if they are given a head start, according to the paper, which was published this year in the Journal of Consumer Research. The authors demonstrated this through an experiment involving 300 customers of a car wash who received loyalty cards and whose subsequent visits to the car wash were tracked.
"By converting a task requiring eight steps into a task requiring 10 steps, but with two already complete, the task is reframed as one that has been undertaken and incomplete rather than not yet begun," according to the study. "This increases the likelihood of task completion and decreases completion time."
In addition to the study of the behavior of the car-wash customers, Drèze and Nunes conducted four other studies of consumers for their paper on the endowed progress effect. They found, first, that as people progress toward a goal, their effort will increase and thus completion time will decrease.
Endowed progress, which provides artificial advancement towards the goal, exacerbates this effect.
Second, the researchers learned that persistence depends on relative progress made by a person, not on the amount of reward points or miles that would be lost by failing to continue.
Third, when the endowed progress is issued in points rather than purchases, both the endowment and the return that customers obtain for their efforts appear more significant and thus customers will exert more effort. Finally, Nunes and Drèze learned that the endowed progress effect is more likely to operate when consumers are provided with a reason for the endowment, even if that reason is specious -- such as, "Our company is considering a rewards program; would you like to participate?"
Programs on the Increase
Loyalty programs continue to grow. "Even Neutrogena is planning to roll one out, and the NBA [National Basketball Association] is looking at starting one too," says Nunes. "Loyalty programs used to be used chiefly in service businesses like credit cards, hotels and airlines. Those businesses with inventories of perishable products or services, like hotel rooms and seats on planes, had little costs and lots to gain from getting into this. Credit cards just used miles as a payback: you collect 3% from vendors and give 1% back. But now, to remain competitive, all kinds of companies are doing it. Heck, Maxwell House coffee has its own program where consumers earn 'House Points' with each can they buy."
Nunes says some consumers get excited about amassing points even if the points have no currency value. "Yahoo Answers, a question-and-answer site run by Yahoo, gives points to users who answer questions and rate the questions and answers of others," he says. "You can't exchange these points for real-world goods and services, yet people still spend enormous amounts of time accumulating them just to beat others in a list of top point-getters, or simply to compete with themselves."
Loyalty programs can be quite effective. In a study, "Exploiting the Installed Base Using Cross-Merchandising and Category Destination Programs," that Drèze conducted with Wharton marketing professor Stephen Hoch, a "baby club" loyalty program increased sales of baby products by 25% on average over a six-month period. It did that by increasing the number of transactions with baby 25% on average over a six-month period. It did that by increasing the number of transactions with baby products. It also increased the amounts purchased in each transaction and boosted store traffic by 5%.
But Nunes points out that the long-term impact of loyalty programs is not yet completely understood. For instance, an online study by Maritz, a market research and consumer loyalty program consulting and implementation company, found that members of programs spend more. But it was unknown whether the program drives spending or whether big spenders are just more prone to join programs and get rewards for their spending. Nunes suspects the latter, and worries that "some firms are simply bidding for the best customers by offering them bigger and better rewards."
Loyalty programs, he adds, "need to be designed to offer differentiated products and services to customers based on their purchasing patterns and profitability. If these programs are simply based on quantity discounts or paying for patronage, they will not endure."
Drèze and Nunes are continuing their research into loyalty programs. Among other issues, they are currently exploring the use and effectiveness of "status" -- gold cards, platinum cards and the like – in loyalty programs. "A lot of loyalty programs endow customers with status, which they earn through purchases or other actions," Nunes explains. "Our research is looking into how stratifying customers and endowing some with status makes them feel different and thus behave differently."
The researchers have just begun investigating the topic. But from what they have discovered so far, it appears that assigning a customer to a category -- such as gold status -- may put them in the top 5% of all customers but it does not necessarily make the customer feel special. It turns out that gold customers feel much more distinctive and apt to spend more if they know that there is another class of people – those endowed with 'silver' status, for instance -- below them. This paper is tentatively titled, "A Cut Above: Exclusivity and Status in Consumer Loyalty Programs."
"If you go back 10 or 15 years, a gold card was really special," Drèze says. "Today, if you don't have a platinum card, which confers greater status than gold, you're nobody. The interesting thing is that what has evolved over time is that more and more customers need status. Marketers need to find ways to separate one class of customer from another."
Article reproduced in full from the Knowledge@Wharton website
http://omegans.knowledgeatwharton.com/index.cfm?fa=viewArticle&ID=1545
Copyright of the Wharton School of the University of Pennsylvania.
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by David Baker, Monday, Aug 28, 2006
If your boss asked you to explain the difference between a rewards program and a loyalty program, how would you answer? Many people might say, "a rewards program is a part of a loyalty program." Sounds reasonable. Anyone can see how a loyalty program could include rewards elements. Then again, a rewards program could also have loyalty implications. Yet, as you think of great ways to engage your customer base and attract new customers, have you thought about the real costs of offering rewards--and the behavioral downside of conditioning consumers to them or what loyalty really means to your business?
A client once asked me the cost of doing a points program (or a "token economy," as many call it). Rather than give him a finite dollar amount, I asked if he understood the behavioral costs of introducing such a program to his customers.
Jack Aaronson, CEO of the Aaronson Group, wrote a series of articles on rewards for ClickZ in 2005. A couple of his key observations included: "A reward program is a customer retention strategy, not a loyalty strategy. You entice people to transact again with your company based on a reward or an incentive." And "customer loyalty is when customers transact with your company again of their own free will."
Most consumer businesses try to promote sales through rewards and loyalty-push and pull. Our goal as marketers is to do this as cost-effectively as possible while appealing to the highest number of consumers. Combine this with the relative cost efficiency of digital channels and it makes for a perfect storm. The value economy you are trying to develop (that is, the value exchange between your customers and your business), is a sensitive thing, and the sheer nature of rewards and frequency can dramatically increase the overall cost of managing this relationship over time.
I liked Aaronson's article because he laid out B.F. Skinner's methodology and categorization of the behavioral side of rewards. While we all talk about diminishing response and general numbness of e-mail, I think we may be focusing on the wrong elements when every other e-mail has a sale, reward, or incentive element to it ("Free shipping!" "Buy 2 and get 1 free!," etc.).
As I track competitive programs, it is interesting to see how little strategy is put into incentives and rewards. Lack of a consistent schedule or logic fails many. When I talk to clients and industry colleagues, we talk at a very high level about loyalty programs and relationship marketing --yet very rarely do we talk about the numbing effect of providing too many incentives to reward consumer interaction. So, I ask again, are you sure you know what the cost of those rewards is, and do they really condition the type of relationship or behavior you desire?
To help you understand this logic, I'll summarize what Aaronson wrote in his article. There are three ways to categorize rewards:
- Continuous reinforcement: the consumer is rewarded every time s/he performs the desired behavior. Example: an online retailer that offers free shipping with every order.
- Fixed ratio: The consumer is rewarded based on repetition a fixed number of times. Example: buy 10 (tickets, T-shirts, etc.) and get the 11th free.
- Fixed interval: Rewards given based on time intervals. Example: a store that has a special discount on a specific day of each month.
Aaronson sets these out in more detail when discussing the relative considerations that go into each level of rewards.
- Learning curve: how difficult or easy is it for the consumer to interact with the reward program? People often call this adoption, but I refer to it as level of involvement.
- Frequency: how often does the consumer interact with the program/system?
- Decay: at what rate and to what extent do consumers drop off when the rewards stop?
The moral of this story for the e-mail community is as follows: Rewards have costs, and consumers learn how to redeem them for good or bad. Consumers have grown to expect them and if you hope to engage, cultivate and foster relationships over time, you should be creative and programmatic in how you drive these activities.
Keep in mind, some rewards/incentives can turn into business rules over time if overused.
David Baker is vice president of e-mail marketing and analytical solutions at Agency.com.
Article reproduced in full from MediaPost’s Email Insider blog
http://blogs.mediapost.com/email_insider/?p=275
Copyright ©2006 MediaPost Communications.
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