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 Chuck Schaeffer How to Create Customer Loyalty Programs That Work

 

10 Step Customer Loyalty Program Framework

  1. Segment Customers. Customer segmentation provides three big advantages with loyalty programs. First, it allows you to send more personalized and relevant content to targeted groups which then generates higher engagement, conversions and yields. When creating customer segments for improved marketing effectiveness, think beyond demographics and purchase histories and include attributes such as interests, life styles and life stages. Best Buy does a great job here by classifying consumers along the four personas of Buzz (the techy), Barry (high wealth individual), Ray (family man) and Jill (soccer mom).

    Second, we can identify those customer segments that contribute the most profits to the company as well as those that eat into profits. For example, most retailers understand the Pareto Principle which shows that somewhere around the top 20% of customers contribute a majority (often as much as 80%) of the company's profits. However, fewer take the time to identify and act on the bottom ~25% which claw back about 50% of the profits earned from the top tier.

    Third, we can apply uplift modeling by combining consumer intelligence acquired from loyalty program tracking (and other sources such as product purchase history and online behaviors using marketing automation software) with predictive analytics to determine which consumer segments will respond to offers in a way that maximizes the retailer’s margin. For example, consider the four uplift modeling segments.

  • Offer-induced customers. Sometimes called persuadables, these customers make incremental purchases if the offers are relevant and personally motivating. Identifying this customer segment offers the greatest margin and revenue upside to the retailer.
  • Offer-unnecessary customers. These customers respond positively to offers, however, would have purchased anyway without the offers. Although marketers often include these sales in their campaign payback results, these purchases actually represent a margin decrease to the company. Examining customer class patterns can identify expected product lifecycle sales which can then be removed from promotions. The best strategy here is to only offer new products or products from complimentary classes from which the consumer has never made a purchase.
  • Offer-denied customers. These customers decline all offers and instead only purchase when they have an explicit need. Offering incentives for purchases where there is a predictable need or the absence of alternatives lowers the retailers' margin.
  • Offer-adverse customers. Sometimes called sleeping dogs, these customers not only discard offers, but also react negatively and may unsubscribe, complain or even cancel their loyalty membership. These customers are often loyal, but simply want to be left alone.

    There are several segmentation techniques to uncover these types of consumer behaviors. However, from my experience the most effective methods for marketing and margin purposes have been Lifetime Value (LTV or CLV), RFM (Recency Frequency Monetary), Decile and Cluster Analysis. Applying these metrics will assist you in getting to the optimal hyper-personalization and micro-targeting which achieves best-in-class retail performance.
  1. Support Omni-Channel Communications. Omni-channel communications now represents the biggest challenge and the biggest upside to retailers. Permitting loyalty members to update their accounts or enabling brands to deliver consistent information such as Earned Points, Offers/Incentives or redemption processing across channels which include the website, chat, e-commerce, contact center, mobile, social networks, email, direct mail, newsletters, member statements, events, in-store kiosks and POS can be a daunting technical challenge. According to Aberdeen, "a majority of Best-in-Class loyalty campaigns are operating in siloes and not realizing the combined cross-selling efficiency of coordinated loyalty campaigns in the store, web, call-center, and direct to consumer."

    Consumers want to connect with their new and favorite retailers, however, retailers need to meet those consumers in their preferred channels and support their favorite devices for tasks such as loyalty program member management. In addition to different consumers favoring different channels, different business processes are generally best supported on specific channels. For example, flash sales or daily deals will be best served on mobile. And in this example, flash sales are proven to work particularly well with loyalty members and benefit the retailer by aiding the supply chain, reducing excess inventory and improving cash flow objectives. The retailer or service organization can also gain even more customer intelligence by acquiring data that is unique to each channel.

Next - Customer Loyalty Risks & Mitigation Techniques >>

Customer Loyalty ProgramsCustomer Loyalty FrameworkLoyalty ProgramLoyalty SoftwareLoyalty CustomerCustomer Loyalty Risks

 

 

 

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A majority of Best-in-Class loyalty campaigns are operating in siloes and not realizing the combined cross-selling efficiency of coordinated loyalty campaigns in the store, web, call-center, and direct to consumer."

—Aberdeen

 

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