Marketers are hopefully beyond the "buy-10-get-one-free" school of loyalty schemes, which rely on giveaways and don't generate customer intelligence. For true engagement, however, they need to use what Bryan Pearson, president and CEO of analytics and relationship marketing firm LoyaltyOne, calls the three Vs of loyalty – value, visibility and voice.
According to Pearson's upcoming book, "The Loyalty Leap," value is the sparkling object that attracts customers.
When customers sign up for a loyalty program, they are agreeing to be tracked and communicated to – and the promise is that in return, the brand will engage with them at a different level than with other customers. As Pearson writes, customers are inherently skeptical when marketers ask for their data. The act of asking breeds suspicion—and doubly so if there is no expectation of getting anything in return.
"It doesn't have to be hard benefits [such as discounts or tangible merchandise]," Pearson says. A valuable award can include certain kinds of consideration, such as a hotel chain that reserves rooms away from the elevators for high-value customers that desire them, and knows to stock rooms with their favorite type of pillow.
These types of ongoing recognitions of who the customer is may be more effective than simply giving a 10% discount with a purchase. While post-of-sale discounts may drive up acquisition, they don't necessarily speak to the long-term value the program offers, Pearson says.
The smartest marketers acknowledge the value of the information they are asking customers to share. This runs counter to the default position some marketers hold of collecting as much data as possible, with an eye toward sorting out what is truly useful later.
"While this could lead to an enhanced experience in time, right now customers are not seeing how that data is going to be used to benefit them," Pearson says. "Since they don't see how it will be used, there is a problem because the value exchange isn't there.
"You are doing the [marketing] industry a disservice when you grab more data than you need without the customers understanding what you are going to do with that data," he concludes.
The Core of a Loyalty Program
Beyond value, marketers need to consider a program's visibility to the total customer base. The core purpose of a loyalty program, writes Pearson, is to develop a deep understanding of customer dynamics. Doing so requires the program to have a deep enough penetration within the base so that it tracks customers who account for a significant portion of its business.
The quest for this critical mass can affect the program's design. For instance, a program that requires a sign-up fee may not give a marketer sufficient participation, and therefore may limit visibility into customer behavior.
Conversely, a free program may engage too many customers, potentially creating the risk that marketers can't deliver enough value and personalization, thereby reducing the quality of an individual's experience because the marketer needs to amortize costs across a larger participant base.
One major stumbling block to visibility is whether the loyalty program is siloed, such as being jealously guarded by a marketing department. If its insights are hidden from others in the organization, these other departments can't use it in their own outreach efforts, thereby reducing its value to the firm.
"There is a real opportunity for individuals who may not be at the C suite level, and who have their hands on customer information, to begin fostering conversations within an organization," Pearson says. "Imagine going to another part of the organization and saying 'How can the customer information I have change the way you think about marketing decisions?'"
By example, Pearson cites clothing retailers' automatic discounting of merchandise on a time basis—15% off after the first two months on the racks, 30% off after the first three months, 50% off after four months. "If you went in and looked at it and found once you got above 30% you didn't bribe any incremental customers, you are giving away 20% of margin to secure no real incrementality," he says.
"These types of insights can happen between parts of the organization that may not think they have connectivity, but do when you get down to understanding the customers," Pearson adds.
Fostering Two-Way Communication
Just as important as visibility is voice, the ability to communicate openly and effectively with program participants. Voice, writes Pearson, should go beyond offering deals and promoting features. It should foster two-way communication, such as providing the opportunity to join research groups, or provide feedback on website navigation, or exchange tweets with key individuals within the company.
Innovations in data analysis have created greater internal value for these two-way communications, Pearson notes. "[Analysts can say] here is a hypothesis about what we think the data is telling us," he says. "Today we have the technologies that let [marketers] experiment, determining whether they can create attention and behavior changes to test their assumptions."
In addition to providing relevant messaging, managing voice also means suppressing contradictory outreach. One classic example is a customer who takes advantage of a bundled telecom services package, or a credit card offered at what is promised to be the best available rate—which is followed, after the customer has signed up, by several offers for even lower rates.