Wednesday, May 25, 2011

Fundamentals of Loyalty Marketing

Fundamentals of Loyalty Marketing
In the old world of loyalty programs, communication predominantly focused on the tangible benefits available to the consumer - what I call the "ER" words, that is to say, "Our program is..." 'bigger,' 'better,' 'faster,' 'easier.' As all organisations adopted these terms they have now ceased to have meaning. Everything works now. As such, the market has changed in that consumers are demanding more.

Rewards have evolved in the marketplace from being a nice little extra for one's loyalty to being perceived as an entitlement (partly the result of the commoditsation of loyalty programs). Concurrently, consumers have shifted, to some extent, away from a desire for possessions to a desire for experiences - partly due to changing demographics. Overall, consumers are looking for the meaningful (which includes value and relevance).


The rising tide of expectations necessitates that loyalty marketers develop truly innovative loyalty programs, utilising loyalty marketing best practices. Keep in the back of your mind the question of how any program can tap into not only changing lifestyles, but changing attitudes. The answer is not just in the rewards catalog, but in understanding the fundamentals of loyalty marketing.

It is estimated by Colloquy (2009) that there are 1.807 billion loyalty program memberships in the US (a 25% increase from their 2006 census) - with the average US household participating in 14.1 programs. Approximately 56% of those memberships were inactive (defined as no engagement within a 12 month period), bringing the average household active participation to 6.2 programs. That is a lot to compete with.


Not surprising, loyalty varies across industries. As reported in the New York Times, Forrester  Research found that across 12 industries, retailers inspire the most loyalty while others, like TV service providers and internet service providers proved more fickle. Most interesting is that "A whopping 98% of USAA's credit card customers would consider the firm for another purchase, which ends up 24 percentage points higher than the average across credit card firms." This research only reinforces the critical importance of understanding the fundamentals of loyalty marketing.

Many confuse "loyalty" with "rewards." This is a fundamental mistake of many marketers. Loyalty denotes advocacy and commitment not points. As such, let's start with a primer on loyalty. Read through the Power Point document I've uploaded to slideshare as it is the best explanation of loyalty marketing that I've seen and, surprisingly enough, the fundamentals of which, are not well understood by the executioners of some of the best known loyalty programs. This abridged Power Point presentation was developed by Wunderman's Loyalty Marketing Practice. I strongly encourage you to take a peek.