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Evolving Loyalty: How to Stay Current

By Oct 02, 2006

Best Buy’s recent announcement to drop its $9.99 loyalty program membership fee, one of the worst-kept secrets in the industry for the past six months, is a timely example of a key element of loyalty program management: the evolution of program benefits and designs.

Companies with existing programs should take this change as a wake-up call to reevaluate their designs as part of their ongoing effort improve. New entrants into loyalty marketing should learn from the example and plan their evolution as a core element of program design.

Evolving existing programs
Great programs have always been open to change. Some of the most productive programs started very differently than how they look today. Chico’s Passport program was completely revamped in 1999. Now the program is core to the women’s apparel merchant’s multiyear growth spurt. Neiman Marcus’s InCircle has kept a relatively stable structure for many years, but reinvents its benefits and creative every year to keep the program fresh.

Every element of a loyalty program should be questioned regularly as the program evolves over time. Enrollment slower than you expected? Sweeten the sign-up benefit. Redemption low? Increase the expiration window. Incremental-revenue impact low? Increase the fund rate. Expenses too high? Decrease physical marketing and shorten the accrual expiration window.
The key is not to think of any component as fixed. Everything should be considered mutable. If your systems and staff permit, pilot new concepts with test markets or segments. Don’t be afraid to go ahead and make the changes that adapt your program to your customers’ needs.

Designing new programs to embrace change
New programs don’t have to be right the first time. This concept is crucial, especially in today’s market. Many companies think they need to spend large amounts of time and effort trying to get their program designs exactly right the first time. While the program should be well thought out and relevant to its target audience, designing in flexibility will be far more valuable over the long term than getting the last 5% right.

A key rule to remember is to avoid overloading the program with documented benefits. Great programs incorporate large numbers of behavior-influencing surprises and delights, which work far better when they are unexpected. So save a substantial percentage of your overall budget to layer in these promotions and recognition opportunities, and your overall performance will be far better.

Costs and risks
The largest expense resulting from a program change is usually reprinting the physical materials or mailing a change-of-terms notice to customers. So the next time you have to perform either of these tasks, lessen the pain by switching to e-mail notification and by reducing your print runs.

Another cost is retraining your staff, one that it often overlooked in change management. But because you’ve been communicating frequently with your frontline staff (right?), getting a benefit change out to the customer should be straightforward.

A change to the core benefit structure may require a change to how your accrued liability is managed, and it may require a “buyoff” to your customers to keep them happy. Work with your accountants on the liability question, far in advance of the change. Surprising them won’t make them very happy. Your customers, on the other hand, will forgive almost anything as long as they receive a short-term benefit that balances the change. If you are about to start expiring points, give them plenty of notice and $10 off their next purchase for their trouble. Up-front communication and a little cash go a long way toward maintaining good relations.

Loyalty programs are no different from any other relationship marketing program. Concepts can be tested, settings adjusted, and creative changed. Maintaining a program of continuous testing and improvement will pay substantial rewards over the long run.

Michael Greenberg is vice president of marketing for Loyalty Lab, a San Francisco-based developer of customer loyalty programs for the retail industry, and writes a monthly column for CHIEF MARKETER.