Tuesday, 28 June 2011 04:16

Creating Effective Loyalty Programs

According to the WSJ, in May 2011 US consumer confidence fell to the lowest level since Nov. 2010. Although high-end retailers, gas stations, and uniquely branded retailers have seen that sales went up, most retailers still struggle with the increasing costs, price pressure, and the economic consequences of the down-turn. Today FiG is going to share with you some thoughts on how to overcome this difficult selling season, and our discussion will focus on the topic of creating (or re-creating) an effective loyalty program.

When talking about a loyalty program, marketers should at least understand what they mean by "loyalty", and whether or not this is something that their targeted customers really care about, so that their loyalty will eventually transform into increased sales. Though the primary reason of having a loyalty program is to increase the bottom line, the motivations to join a loyalty program varies depending on the consumers' buying preferences. When we say loyal customers, we expect them to be passionate about our products, to come back more often than others, and to bring us new customers! However, most loyalty programs are not able to ignite consumers' passion. What's worse is that the majority of them have no difference from a discount card!

In order to create/re-create a loyalty program:

  1. Marketers should ask themselves whether they really need it: A perfect example is Apple Inc. Many companies are jealous of Apple, or at least wonder about the magical charm that the company casts among its consumers, who are constantly enthusiastic about their products, who are willing to wait overnight in a long line for latest offerings, and who are willing to Facebook, Tweet, and blog about the products! And guess what? Apple doesn't even offer a loyalty program: BECAUSE THEY DON'T NEED EXTRA OFFERS TO CREATE LOYALTY.

  2. If you do think a loyalty program will encourage consumers to come back and spend more, then think how to differentiate it: Not every customer looks for discounts, ESPECIALLY if they are loyal to a brand. Take a moment and think about what is important to your consumer, and why they choose you over your competitors.

    • If your customer is price-sensitive, then discount card may be a  perfect loyalty program. However, the biggest disadvantage of constant discount is brand dilution and eroded profit margin.

    • If your customer is willing to pay for better service/quality, then design a loyalty program with different service/quality levels. United Airlines' mileage program is a good example.

    • If your customer is experience-oriented, then offering different experience options may be a good differentiator of your loyalty program. The Marriott's membership is a good example.

In conclusion, by understanding the values that your targeted consumers care about, marketers will be able to create loyalty programs without sacrificing profit margins.  Remember, the loyalty should be towards your brand and not your price point.