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New School vs. Old School Loyalty Marketing

digiday:DAILY, May 28, 2010 by Keith Rose

Loyalty marketing is a $4 billion industry – with airlines, banks, retail chains, and hotel groups all inviting customers to join their card-based loyalty programs. However, the entire premise of the “collect now, redeem later” model is under fire. For years, consumers have collected hundreds of thousands of points, only to find out that they're worth less than they thought. Marketers, meanwhile, have grown frustrated that their bloated, legacy loyalty programs are failing to boost consumer allegiance or grow revenues in a cost-effective way.

This is why loyalty marketing is at a turning point today. New technologies are allowing marketiers to encourage consumers to make more regular purchases – not just reward them for what they bought in the past. These platforms also help get consumers more deeply engaged with a product or brand, and can even drive them to influence purchases across their larger social network.

Reward Many, and Motivate Actively

The most important difference in today’s loyalty programs is that they are aimed at motivating the entire customer base up the “Loyalty Curve”: changing each customer’s behavior through more targeted offers, a better understanding of what motivates each shopper, and digital awards delivered continually throughout the shopping lifecycle.

Today’s loyalty programs leverage email, mobile, and social media to extend special offers to all repeat customers, whether they return once or a hundred times. They also encourage shoppers to spread the word about their favorite products through sharing, reviewing, and becoming a fan. The old way was to reward only your top 5-10 percent of customers with special promotions and discounts. While these true fans are worth their weight in gold and should be rewarded as such -- today's loyalty programs don't only cement the loyalty of an elite few. The goal is to make every customer more loyal.

This new Loyalty Curve marketing is a multi-step process involving:

• Attracting new fans and followers to your brand through traditional marketing methods and social media
• Leveraging powerful CRM and analytics tools to identify and classify your customers: the 50% of your customers who aren’t yet fans; your large ‘fan’ base of recurring customers; the 5-10% of your customers who are ‘loyalists’; and the even smaller percentage who promote your brand to their social networks as ‘advocates’)
• Extending immediate and recurring incentives to your entire fan base via social media, email, and the web – and presenting highly-exclusive offers to your loyalists and advocates
• Motivating and rewarding your customers to move from fan, to loyalist, to advocate through both financial and emotional incentives;
• Monitoring and measuring the ROI of your loyalty program down to every purchase and optimizing it based on your findings.

Today, loyalty is not just about giving customers points for making purchases, but actually using active motivation to encourage your customers to follow a natural progression from fan, to loyalist, to advocate. If you build a one-to-one relationship with your fans, learn what they like and dislike, and continually provide them with incremental incentives over time, you motivate them to quickly migrate up the chain from fan to advocate.

Incentives that Work

So just what kind of motivational incentives can you offer your fan base to help migrate them from fan, to loyalist, to advocate?

The answer is, the old way still works and you shouldn’t throw it out entirely, especially if you’ve invested heavily in a legacy customer loyalty system. Continue to give your customers points for their purchases, but also think about more immediate ways to motivate them that aren’t purely financial. There are many ‘emotional incentives’ you can provide to your fans, loyalists, and advocates that make them feel part of a core inner group.

Think about the content and potential incentives you have at your disposal that will motivate the desired behaviors in your customers. The key is to figure out, through advanced behavioral and customer analytics, exactly what motivates your customer base – then proffer these incentives over time in an incremental way. You can offer special incentives to your most loyal customers (loyalists and advocates), but you should offer incentives to your entire customer base, because the goal is to move each customer farther along the Loyalty Curve.

For example, a video game manufacturer might let loyalists get preview copies of a game, and allow advocates to be part of the testing team. The brand’s large fan base might get access to free downloadable game cash. In the retail world, a CPG company might do a wide promotion to its fan base by providing free samples of a new coffee and a coupon code to purchase it in store, but only give loyalists and advocates the chance to buy limited-edition, Italian design coffee cup set. The key is to provide relevant, immediate, and recurring incentives all throughout the customer lifecycle, instead of requiring customers to save up points for redemption at a later date.

By creating an ongoing relationship that spans online, social media, mobile, and in-store with your fan base – and providing incremental incentives they can redeem often – you will not only build a larger loyal customer base, but gain valuable insight into your customers’ preferences, tastes, and opinions. The newest forms of loyalty marketing mean encouraging every one of your customers to take the next step on their journey up the Loyalty Curve.

This article originally appeared on digiday:DAILY.