Loyalty Lab Blog

By Michael Greenberg | Director, Marketing

Tiers in a relationship marketing program run the gamut from a simple base/elite construct to a series of overlapping hidden and published tiers. Today I’ll spend a little time walking through some of the considerations and issues around tiers and their relevance to loyalty marketing.

What Is A Tier?

A tier is more than you think. A tier represents a predefined, stable group of customers with specific benefits and recognition. It has rules for qualification and rules for downward migration. In most cases, tiers are public but they do not have to be. Tiers are often marketed and published so customers know the rules, promoting behavior that reaches the next tier.

Typically if you have tiers, the core tier structure needs to be MECE – mutually exclusive and collectively exhaustive. That is, everyone is in one tier and one tier only. So the most basic tier structure should be hierarchical – there is a base tier and one or more tiers that are “better” than the base tier. Other options include parallel or multiple tier structures versus a single hierarchy.

Its worth noting that dollars spent or points earned don’t have to be the sole way to advance to a higher tier. Tier design is almost an art to itself, balancing the portion of the audience who will qualify and the method used to qualify them. For example, behavior analysis and research may show a natural inflection point in the top 25% of customers, but since this group accounts for (say) 60% of revenue, the cost of a 25% acceleration might be prohibitive. A more realistic design might offer recognition or first access on clearance product, with acceleration reserved for the top 5% of customers.

Why Tiers?

Tiers can be a great tool for lock-in and to drive incremental behavior. They establish a clear picture to end customers of the thresholds for advanced services and benefits. This becomes a powerful motivator when customers are close to qualification for the next tier, especially if there is a time deadline. Assuming your tiers offer a desired benefit, maintaining membership in a tier can be a tremendous motivator of loyalty.

The Problems With Tiers

The downside of tiers is primarily around funding. That is, customers expect an upgrade in benefits with higher tiers, which cost money. When designing a program, this incremental cost becomes a crucial input to the funding model, since most tiers target the highest spenders. So smart tier design (and overall program design) must account for this funding, determining the right balance of incremental expense to drive incremental customer spend and reduced attrition.

Tiers can also be difficult to eliminate. Once in place, you risk customer anger if your tiers are reduced or eliminated. While a better approach is often to swap out benefits, complete elimination must include some sort of financial offer to compensate for the loss of tier benefits.

Types Of Tiers

Elite

Most people understand elite tiers – spend more or do more, get elite status. Elite tiers often increase benefits, increase accrual, have special services and recognize customers as elites. Elite tiers are often used to deal with the desire to avoid rewarding behavior that would have happened anyway. Instead, elite tiers provide recognition and soft benefits that provide differentiated service without substantial incremental expense.

Hidden

Hidden tiers are those not published to the general public. They may be elite or parallel. United Global Services is a (mostly) hidden tier that appears to be both elite (above 1K) and parallel (qualification seems to be based on revenue generation, not miles flown).

A more standard approach is a hidden “super-elite” tier which is invitation only, once someone reaches an extreme behavior threshold.

Parallel

Parallel tiers exist alongside the main tier hierarchy or entail two or more main hierarchies. As a result, customers may belong to multiple tiers simultaneously. Until recently, this would have been handled with segments, but the advent of social and activity-driven tiers (as opposed to spending based tiers) now has sophisticated marketers structuring separate hierarchies to reward active but low-spending customers.

Conclusion

This just scratches the surface, but should give you a basic idea of how tiers work and how to approach design. In practice, the mechanics of tiers can be exceedingly complex, and good forecasting of customer behavior is crucial to determine qualification, benefit, recognition and downgrade elements.

By Jason Hornik | Senior Director, Product Marketing

Many marketers are asking themselves and other marketers the question, “If I want to increase customer loyalty, how should I be budgeting my dollars for social media?”

A recent answer and benchmark is that U.S. companies that use social media to primarily deepen customer loyalty spend almost twice as much as competitors who use it for brand awareness, customer acquisition and other core marketing purposes, according to national survey results jointly released by COLLOQUY and the Direct Marketing Association (DMA).

Additionally, the survey shows that the amount of social media budget marketers allocated to loyalty objectives increased by 293% over the past 12 months, easily surpassing allocation increases for all other social media-related marketing objectives.

Other key findings of the survey indicate that marketers are continuing to test social media strategies and need to determine the necessary metrics to evaluate success among a consumer audience whose adoption rates are rapidly growing.

You can read more about the survey results here.

By Jason Hornik | Senior Director, Product Marketing

In the recent report, Building Customer Loyalty: Ten Principles for Designing an Effective Customer Reward Program published by Cornell University, the authors dust off the Green Stamps books to examine key drivers for building and managing effective loyalty programs in 2010. Their ten crisply defined principles provide guidance directed to program managers in the hospitality industry, but serve as an evaluation framework for other industries as well.  Scan through the list below to conduct a quick gap analysis for your loyalty or customer experience program or read the full report for details and practical ideas.

1. Foster Consumer Engagement
2. Establish a Two-Way Value Proposition
3. Capitalize on Consumer Data
4. Properly Segment Across and Within Tiers
5. Develop Strategic Partnerships
6. Develop Dynamic Tiers
7. Cater to Consumers’ Desires for Choice and Fairness
8. Avoid Commoditization through Differentiation
9. Avoid the Price Sensitivity Trap
10. Embrace New Technologies

By Jason Hornik | Senior Director, Product Marketing

Increasing customer loyalty is seen by marketing leaders as the top force driving marketing innovation for their companies. According to a recent report by Forrester Research, innovation is one of the key strategic priorities to fuel growth among leaders of today’s organizations. And these worldwide executives view marketing innovation as the most important type of innovation for future success – specifically their company’s ability to rapidly create new offerings for existing customers and to extend into new customer groups.

2,700 CMOs and executive leaders were surveyed about their company’s marketing innovation practices and gaps with results presented by Forrester Research in their report titled, “Define Your Marketing Innovation Strategy.”

A highlighted chart from the report below:

by David Rosen | SVP Strategy and Channel Development

I’ve been following two trends that make me very excited to be a Loyalty marketer. Developing high-value, enduring relationships with loyal customers/guests/shoppers/members isn’t new. But what were starting to see on forefront of smart marketing is simply awesome.

Trend One – Farm Cash for Fans.

I used to work at a company called MyPoints. It’s an amazing marketing engine that could change the behavior of hundreds of thousands of members by offering points in exchange for purchases, registrations, surveys, etc. Problem was, points are expensive. Basically it costs about ten dollars to reward a member with a ten dollar Starbucks card. And we mailed a lot of Starbucks (and Target, and Red Lobster and Macy’s and Amazon, etc. ) cards.

Last week players of Zynga’s amazingly popular game Farmville were offered Farm Cash for fanning Bing. Twenty Four hours later, 400,000 virtual farmers had taken the bait and signed on. In a flash, Bing surpassed Google in the hyper-followed ranking of “how many fans do you have on Facebook” stat.

And guess how much Farm Cash costs Zynga? A lot less than a $10 Starbucks card I’d guess.

Trend Two – Check In and Earn Points.

I’ve been watching for this one for some time. The very cool fro-yo shop Tasti D-Lite is now offering loyalty points when its members check in on Foursquare. Cool on so many levels: drives engagement, posts to Facebook – and more interestingly begins the process of geo-based permissioning for offers.

I strongly believe that location is the next frontier for right offer at the right time to the right person. However, geo-based targeting really does bump up against the marketing creepy factor. Loyalty programs bridge that gap by establishing a fundamental permission level for members and rewarding that additional permission with some type of gift or reward.

More to come on this one and we’ll make sure that we’re driving what happens next.

By Jason Hornik | Senior Director, Product Marketing

Tropicana is the latest CPG brand to launch a loyalty program with the objective of adding value and building direct relationships with their consumers. The program offers incentives through a points-based system for purchases and touts 20,000 reward options from partner brands such as adidas, Harrah’s, Coleman, and TaylorMade.

The loyalty program represents one of the largest marketing investments ever by PepsiCo in the Tropicana brand. Points are awarded by entering under-the-cap codes at the Juicy Rewards Web site:
http://juicyrewards.tropicana.com

Marketing for the launch involves TV spots, product packaging, print and digital executions, as well as social marketing through blogs. Andy Horrow, Tropicana Chief Marketing Officer had this to say about the program:

“I don’t like to think of it as a marketing campaign, but as a platform that supports everything we’re doing. It’s a great way for us to get our customers engaged and our retailers excited.”

This is a bold initiative for the Tropicana brand and they had 10,000 consumers registered in the 3 days prior to the actual launch of their marketing push. We will definitely keep an eye on this program and report back on any roll-out results.

by Joshua Tretakoff | EVP, Services

Been to the local GameCrazy lately? If you answered no, you probably are not a member of their PowerPlay program, but if you are, you received some surprisingly good news. Movie Gallery, the parent company of GameCrazy, Blockbuster Video, and more, has filed for Chapter 11. However, unlike other prominent retailers who have endured this, one of the first things Movie Gallery did was petition the Court to allow them to keep operating their loyalty programs, and even expand them (PDF link).

This should become standard practice for companies who’s fortunes need adjusting: the first order of business needs to be taking care of your best customers. In the past, retailers like Bombay Company, Circuit City, and more have done precisely the opposite by refusing to honor gift cards or stored value cards; they made an already uncertain customer immediately furious, ensuring that Chapter 11 would quickly become Chapter 7. Now, I don’t have a crystal ball on Movie Gallery’s future, but the very fact that they recognized that they have no hope of recovery without holding on to their best customers is a great sign.

Deep within the document is truly the most remarkable nugget:

We are also introducing new enhancements to our customer programs, including our “True $” discount program, which enables PowerPlay members to rent movies in our Core Collection for $1.

That’s right: they not only are continuing their loyalty program, but expanding it with new options that are designed to generate additional revenue at attractive savings for their best customers. When is the last time you heard about a bank in need of a bailout offering you, a longtime customer, an incentive to keep banking with them instead of raising your fees? Or a car manufacturer, desperate for a sales spurt, contacting customers who purchased in the last 4 years and offering them discounted service on their purchase for the next 4 years if they buy a new car? Kudos, Movie Gallery: your best customers thank you.

David Rosen | SVP Strategy and Partner Development

Today, MediaPost’s Research Brief highlighted the latest survey on loyalty from the CMO Council.

It’s a solid overview of general member satisfaction and general marketer satisfaction with their programs.  In fact, generally very good news for the loyalty industry:  Members really do appreciate the additional value that loyalty programs deliver and marketers’ returns justify increased investment in 2010 and beyond.

I was, however, struck the by title:  “Loyalty Programs Need to Engage.”

Based on the research, there still is a significant gap in marketers’ ability to build a dialog with their members that is based on points of interaction that extend beyond the transaction.  While a clear majority of the respondents are increasing their digital spend, few seem to be ready to take the highly personal inputs of the engagement to drive big lifts if frequency, retention and measurable advocacy.

As reported in the Council’s research:

When it comes to in-depth profiling of customers, the vast majority of marketers still only aggregate and analyze limited customer data sets.

• 73% collect basic demographics and
• 68% track the location of members

But critical insights are not being leveraged:

• Advocacy rates (14%)
• Brand loyalty and attachment (27%)
• Personal preferences (31%)
• Satisfaction levels (33%)
• Product preferences (38%)

Clearly the gap needs to close.  This year, we’re doing our own research in collaboration with Razorfish on member engagement and loyalty.  Stay tuned – and if you would like an advanced peek, email me at david@loyaltylab.com

by Mickey Neuberger | VP Loyalty Strategy

CMO Council published latest report http://cms.sys-con.com/node/1258487

Study establishes that consumers see value in programs and marketers are achieving high ROIs. I thought the following excerpt on consumer complaints was particularly interesting:

“Too much spam and junk email topped the list of negatives associated with loyalty and rewards program membership (44 percent), followed by too many conditions and restrictions (38 percent), and rewards that lacked real value (37 percent). Other prevalent beefs included members having a hard time redeeming points or rewards, program membership lacking value, as well as communications and service not being personalized or targeted specifically for members.”

By Michael Greenberg | COO

We all know what’s coming. A blizzard of emails. Tweets of new specials every day, if not multiple times a day. A sale every weekend. Web only specials. Private savings events. Early access. The noise will be absolutely deafening.

Cutting through this will take some old-fashioned sales and marketing. I’m still convinced that sales today are won during the 10 minute search and research phase, whether the purchase happens instore or online.

Here’s a few ideas for winning that 10 minute battle with your best customers. These don’t make sense for all customers, but make great sense for proven high-value customers.

1. Individually connect with your best 10,000 customers. How much revenue do they generate? Doesn’t it make sense to assign someone to build a bridge with them? Get two or three of your better salespeople, put them in a room, and have them spend the next month emailing, tweeting, and connecting with your elite customers. You know what they buy, their preferences, where they live, and with a little research, who they know. Use that to suggest specific items and services that will be relevant and follow up. Give your company a voice and really connect.

2. “No questions” guarantee with your best 10,000 customers. There are generally three ways that people buy – impulse, researched, and prompted. Researched purchases have swamped the other two methods, primarily because even impulse and prompted purchases go through a quick research cycle nowadays. For customers that you know will not take advantage of you, consider a “no risk to them” approach. That is, worry-free returns, price match and best price guarantees, improved warranty or service levels, that is, anything that will remove the element of risk in their mind. That way if a competitor prompts or impulses a sale, you stand a good chance of these customers taking the sale to you instead. And reduce the risk of the customer taking a sale you generate (through marketing or merchandising) elsewhere. Its a great way to reward customer loyalty.

3. Orient yourself around gift recipient personas. If someone walks into a store you owned and says they need a gift, what’s the first question you’d ask? “What are they like”, most likely. And then progress through a couple of questions to pin down what kind of person they are before making recommendations. So take that same approach in your preparation for the holidays, and arm your associates, your marketers, your call center, and anyone else touching the customer with a highly targeted guide to gift giving. Think of it as transferring the brain of your best salesperson to as many people as possible.

These are just a couple of ideas to improve customer retention this holiday, but the underlying assumption should be clear. Your top 1% customers account for (probably) 10-15% of sales. So use some of your budget to cater to their needs and ensure you keep them throughout the holiday.