February 2008

Best Practices
Follow these rules to build real customer loyalty By Rick Ferguson

As we wrap up our series of articles on customer loyalty programs, we thought it best to conclude with some general best practices that can serve as useful guideposts as you plan your customer strategy.

And why, again, do you need a customer strategy? Competitive pressure in the global marketplace has increased sharply in the last few years. These conditions are forcing business owners across all industries to take action to stem customer attrition and preserve their market share— making loyalty programs an increasingly attractive solution.

Fortunately, the timing is right. New payment and loyalty platform technologies are lowering entry costs, while new marketing innovations are expanding options in the near future. So how can growth minded businesses gain an edge on bigger, better-resourced competitors? By marketing smarter. To get the juices flowing, here is a list of the best practices for customer loyalty.

1. Break the price fixation
Businesses should concentrate on marketing strategies that divert the focus from price. The temptation to default to a cash rebate is hard to resist, but designing a value proposition around your own distinct brand and products gives you sustainable leverage.

By rewarding customers who purchase high-margin items with a promotional currency or other hard benefit that provides best customers with at least a five percent perceived value back in rewards— funded through merchandise sales, services, and contributions from partner brands— you create a unique customer experience with a strong brand association. Your guiding principle: keep the program simple and fun while providing your customers with reward and recognition they can’t get elsewhere.

2. Embrace enabling technologies
Improve your margins by installing technologies that lower operating costs. Take advantage of everything from POS scanners, to wireless technology, to branded Web sites, in addition to loyalty programs. Instead of being a technology laggard, become an early adopter. New technologies are rich with opportunities to enable groundbreaking customer loyalty initiatives. Just remember that any technology you deploy must follow from your customer strategy— not the other way around.

3. Sign complementary partners
Develop true coalition loyalty programs. Razor-thin profit margins and small marketing budgets make joining forces with other merchants an attractive proposition. If joining a loyalty coalition isn’t for you, then signing promotional accrual partners is the best way to offset the cost of a proprietary loyalty program. Operating a multi-tender program with open earn or burn capabilities is the easiest way to invite partners to join in.

For example, many fuel-convenience marketers have discovered the marketing muscle that comes with being the dominant player in a local loyalty program. They flexed their muscles by knocking on the doors of major food and beverage marketers for tie-ins and cross-promotions. It was new territory— but no one ever became an industry leader by following the same well-worn paths.

4. Integrate payment vehicles
Today, the challenge is to tie consumer value to your favoured payment vehicle. Around the globe, re-loadable gift cards, RFID, smart cards and even cellular phones are collectively kicking the butts of co-branded credit cards. The opportunities to tie truly differentiated value propositions to preferred payment vehicles are there for the taking. Those marketers who implement a multi-tender loyalty program and then leverage it to drive tender choice to a preferred vehicle, will emerge as the winners through this decade.

5. Strive for the ultimate blend of rewards
With few aspirational elements integrated into most program strategies, customer choice is usually driven by price or by the “here and now,” rather than by loyalty built through a value proposition that increases consumers’ emotional stake in the brand. A carefully crafted blend of hard economic benefit and soft recognition elements will encourage consumers to consolidate their spending with you.

To protect your margins while building expensive soft benefits into your program, see Rule 3. A broader program partner network will give you increased flexibility and value potential to create a balanced program of hard and soft benefits. Reality may temper your expectations. But as in all things, the first step toward building sustainable customer loyalty is to visualize success. Whatever else you do, always dare to dream big.

Rick Ferguson is the Editorial Director for COLLOQUY.