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The 11 commandments for developing loyalty

By Danny Nixon-Smith | Principal Consultant

A loyalty program exists for many reasons, aside from the obligatory requirement for repeat business.   One of the main objectives includes learning about your customers – more specifically, it’s there to identify your best and worst customers and help you spot the differences. That means a loyalty scheme has a key job – to differentiate between the most desirable and the least desirable customer segments.

The program’s reward, what the customer sees as their “freebie” in return for loyalty, is obviously a vital part of any customer loyalty program. For your loyalty program to be successful, the reward has to be worth enough to be attractive to the customer, yet sustainable for the venue to deliver without causing a deficit. It must also cater for wide range of tastes and desires among those customers.

Loyalty rewards not only drive brand engagement, but they also drive long-term behavioural change. Trials have revealed that, while a bigger reward reinforced the desired behaviour better than a small reward, when the rewards were discontinued, those who had received larger rewards were more likely to return to the unwanted pattern of behaviour than the group who had received the small reward. The key message to take away from this is never let your best customers feel that you are withdrawing privileges from them, and try to ensure that customers become loyal to the product or service, and not simply to the reward.

In most cases, organisations tend to make up most of their profits (up to 70%) from relatively few customers. On the flip side, most venue losses can be attributed to a small group of particularly bad customers. Clearly, the loyalty program should be designed to retain the good customers and to attract new customers of a similar profile, while discouraging those at the other end of the scale.

In order to have any effect at all on customer engagement, the reward you offer must be desirable enough to actually stimulate a change in behaviour. The challenge is to keep your program affordable, making this process a tricky balancing act.

What shape are your rewards?

Rewards vary tremendously in shape, form and size. There are thousands of variations, and they can all serve a purpose. The skill lies in finding the right one for the purpose you have in mind. Clearly, the importance of the desires and needs of the target group of customers cannot be over-emphasised. A decade or two ago, most customers were satisfied with simple rewards. This is no longer the case due to the increased affluency among the general gaming public. Instead of simple gifts or small discounts, most members would rather opt for rewards that save them time and make life more convenient.

The more time a customer interacts mentally or emotionally with a loyalty program, the more effective it will be. The simple handing over of a card at the point of sale does not count as a significant interaction; neither does a letter every three months informing them how many points they have collected. The best loyalty programs involve them genuine consideration every time a member visits.

The important point is that rewards at both ends of the scale reflect the value of the customer to the program, and the rewards meet the customers’ expectations.

Are your rewards effective?

It has been said that any program operator could secure most customers’ loyalty if the reward is big enough. The art is to find the point of balance where the reward meets certain requirements:

  • Enticing enough to keep the customer participating.
  • Is not so big that the customer becomes loyal to the reward and not to the business or brand.
  • Meets the most suitable cost parameters to keep the program sustainable.
  • Is structured so that it can be altered, reduced or even withdrawn without alienating your top customers.
  • Designed to attract new patrons that meet the criteria of a ‘best customer’.
  • Encourages the customer to interact with the program frequently.

The whole POINT of loyalty…

The real reward of any loyalty program is not the gift or the discount, it’s the improved service and stronger relationship that comes from using the information that the loyalty program generates. The gift or discount keeps the customer interested in the program and allows information about the customer to be gathered. It is essentially a trade-off for the information that the customer supplies.

Always remember, the reward is the main component of the loyalty program that the customer sees and touches, and it is therefore a key opportunity to increase customer engagement, not only with the loyalty program itself, but with the brand as a whole! Your loyalty rewards should, at the very least, serve these key purposes:

  1. Provide a compelling reason to participate.
  2. Say ‘thank you’ – it’s not just “something for nothing”.
  3. Encourage the customer to supply useful and complete data – the reward should be attractive enough to encourage them to identify themselves at every contact. Some programs offer extra rewards if registrants provide more complete personal data.
  4. Encourage customers to modify their behaviour. The Continuity Company, by pitching rewards at carefully chosen levels of purchase, modifies both purchase size and frequency during the course of the program.
  5. Attract new customers. Rewards that could be used to do this include sign-up bonuses (e.g. ‘Earn 100 points by signing up for our loyalty program’).
  6. Differentiate a business from its competitors.
  7. Retain existing customers. Soft rewards are very effective builders of retention – once worthwhile privileges have been earned, customers are unlikely to sacrifice them. A high level of service also drives retention. In fact, this is an example of a reward achieving its purpose without even having a formal loyalty program behind it.
  8. Increase purchase size (up-selling).
  9. Increase purchase frequency.
  10. Move customers up through the segments.
  11. Improve relationships. Soft rewards – service above the expected level – increases loyalty and retention by building a stronger relationship. It is often the soft rewards that are remembered, and are key drivers of advocacy.  Customers derive great pleasure from telling their friends about the exceptional service that has been lavished upon them.

If you’d like a detailed analysis on your venue’s loyalty program, contact Danny Nixon-Smith at danny@dws.net.au or call (07)3878 9355

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