1.
What financial benefits should the program entail, and by when?
Most loyalty programmes that fail are those that have not got
their financial objectives right. Unfortunately, loyalty programmes
get defined with marketing and customer relationship perspectives
only, discounting the profitability aspects of the programme.
Before one launches a loyalty programme, the following questions
will need to get answered:
The answers to the above lie in the overall strategy
of the organisation and will significantly impact the design
and structure of the programme. A programme with a fairly long-term
break-even, for instance will have a different design than another
which has a very short-term view. As can be seen from the enclosed
figure, short-term “discount-programmes” can lead
to diminishing returns. Measuring the performance of loyalty
programmes across each of the above, on a periodic basis, will
also provide insight into the strategic direction one should
take with respect to Loyalty.
2.
Who to attract, and why?
Loyalty is not just
about attracting new customers, but more about retaining profitable
customers. The critical element here is in identifying which
segment of your customer base would you like to attract, and
as a logical extension of that, identify what would attract
them. Features of the loyalty programme should also align with
the product and services being rendered. For instance, in-store
redemption may be a great feature for a super market chain,
but not necessarily a shoe-mart where the next visit of the
customer is not immediate. A possible approach in the latter
case could be a tie-up with another partner. The program should
also be aligned with external market factors, and the life cycle
of the programme should also be well defined. Building these
scenarios right are essential to make correct predictions in
the business growth. As one can see in the figure, the initial
attraction that the customer has for the programme has to be
sustained through the life of the programme. Examples here are
bonus and alternative offers. There are 3 main distractions
that any loyalty programme faces: =Competitive offers: A customer
always compares your programme with that of your competitor
- not only before joining, but all the time! =Distance to goal-post:
This is critical. Customers need to reap the benefits of any
loyalty programme with tangible value. If the programme is about
earning points over two years to get a teddy bear at the end
of it, it is most likely to fail. =‘Redeem and out’
mindset: 30 per cent of loyalty customers tend to switch over,
after their first redemption. A programme has to constantly
trigger customer preference. The timeframes in the figure are
illustrative, and change from one programme to another. However,
every programme goes through a life-cycle of activation, spend
and redemption. The “spend” phase is the most valuable
period for reaping value of the programme.
3.
What processes are required to deliver the programme?
Building customer
expectations has to be fully complimented by building back-end
processes. A dissatisfied customer can deter 10 potential new
customers. Preparing for multiple scenarios and building well-defined
operations behind the curtains are indispensable for successful
delivery of the program. Understanding the steps involved in
the accrual and redemption process, defining service level agreements
with partners and importantly, identifying which of these should
be automated will be mandatory for the programme. Documentation
and control aspects of the procedures to be adopted will also
need to be defined.
4.
Is the infrastructure ready?
While Information Systems constitutes a
critical component of the Back-end infrastructure, it is not
the end-all of loyalty. Organisations have realised (some of
them the hard way) that for best results, one has to invest
in a clear internal Loyalty Organisation. In addition to a full-time
product manager, who shall coordinate the end-to-end of the
programme, there are clear roles across each function of the
retailer: be it the marketing function who remains the customer
touch-point, or the cashier with an operational role, or the
finance department who need to measure the performance of the
program, there are incremental responsibilities that need to
get performed across the organisation. There is a significant
role that needs to get performed by the IT function as well.
Loyalty programmes typically entail having personalised cards
(smart cards becoming more popular there) and have to be intricately
twined through the information flow. The best model would of
course, be where the customer card is recognised through the
point of sale, and accrual/redemptions happen over the counter.
This obviously has to relay back to the back-end systems for
Financial and MIS purposes. Where there are external partners
involved, IT function should lend itself further into data transmission,
acceptance and reconciliation. The benefits of having a successful
loyalty programme are fairly straightforward. Higher retention
rates, better referral rates, and increase in spending –
all leading to incremental revenue. Also, over a period of time,
costs of servicing tend to go down and customers also tend to
become less price sensitive – leading to incremental profits.
Growing customer awareness of loyalty programmes also helps:
according to Retailindustry.com survey, 82 per cent of the consumers
believe retailers who operate loyalty programme and seek information
about their preferences are “more in touch” with their
customers. Yet all these benefits can only be the fruits of
a well-defined loyalty programme that reward the ‘right’
customers, rightly! Cedar Consulting is a leading global management
& technology consulting firm.Send feedback to smeditor@indiatimes.com
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