The "HOW" Matters as Much as the "WHY" when Implementing Loyalty Programming

Alisa Stewart, Sr. Director, Acquisition, CRM & Loyalty, Party City

An effective loyalty program can be the key to driving customers to self-identify.  To be “effective”, however, it is critical for loyalty program owners to emphasize the loyalty program design process.

As impending actions by Google and Apple shifts power to consumers to determine how much of their online activity is being tracked and shared, customer knowledge and the need to have a holistic view of customer interactions is being pushed to the forefront for many retailers. This shift to consent-based targeting is forcing retailers to place a premium on harnessing and managing their 1st party data.

A retailers 1st party data is any information that has been willingly provided by their customers as part of an interaction with the brand. This could be anything from an email address, mobile phone number, birthdate, address, website, or app actions or even data from surveys or customer feedback.

The issue that most retailers face is not a lack of data from their customers it’s the lack of a data strategy to manage and organize this data into a usable and actionable format. One of the key barriers is simply that from transaction to transaction some retailers don’t have a process in place to resolve identities. This means that the ability to stitch together a customer’s full transactional history as well as other brand interactions is either spotty or non-existent.

When there is no compelling value exchange between a retailer and its customers to prompt a customer’s willingness to share their data consistently this hampers the enterprise’s ability to have a robust identity resolution process. Often this is when the discussion around implementing loyalty programming surfaces. And while it is true that loyalty programming can create this mutual value benefit, the extent to which this is successful is largely dependent upon not only why a loyalty program is needed but how loyalty programming is derived.

The diagram below speaks to 5 key elements that should be considered when loyalty program development is being considered.  Let’s look at these in detail.

Loyalty Program Design Process

Define

Probably the hardest solution when developing loyalty programming is how to forge a deeper emotional connection to the brand. Simply exchanging a reward currency for dollars spent is not going to achieve against this goal and deeper preference should be one of the primary aspirations for any loyalty program strategy. Because this is emotionally driven, that’s where brands should start as part of the unlock. 

What do you know already about why you are preferred?  What emotional need do you meet? Do you enhance a certain sense of self or personal expression?  You need to understand how your brand identity supports your customer’s personal identity.  Knowing why your customers connect with you emotionally will ensure your program structure and messaging reinforces this attachment.

As the loyalty program owner, there are many ways to uncover your customers’ emotional connection to the brand. Pay attention to your social sentiment.  Approach your Customer Care partners and ask to listen in on calls or ask for access to their call logs.  This experience will not only show the good but also unearth potential negative sentiments that you need to be aware of.  Surveys are also extremely impactful in this regard.  Providing an opportunity to customize the questions to help establish the key emotional drivers.

Discover

The discovery process requires program owners to evaluate both internal and external data elements.  A sample flow would be:

• Meet with internal stakeholders (inclusive of Senior Leaders) to understand their specific goals and objectives and desired outcomes for the program – increase revenue, reduce the cost to acquire, improve retention, reduce migration to lower value segments, improve NPS, etc.  This step is imperative to ensuring program design matches the goals of the organization

• Work with Finance and CRM teams to understand current and past customer performance and KPIs.  Capture metrics such as Average Spend, Average Visits, Spend Across Brands and Products.  Learn behaviors, preferences, and trends such as seasonal peaks by certain segments.  If there is a current program in place and your focus is a re-launch be sure to work with Finance to develop a P & L for the current program. This P & L should provide a total view as well as a per segment view.  The per-segment view will be critical in helping you to determine which segments are both high spending and high margin.  Retention of high-value segments should be a primary consideration for program development

• Consider all program types currently in the market.  Be sure to evaluate not only peer programs but all category types in the marketplace.  Remember, consumers don’t evaluate their loyalty programs in a vacuum.  They grab on to certain features and functionality that resonate and that becomes the expectation for all loyalty programming

Assess

Create the vision for the future state by evaluating the current state.  Do not become tied to a solution at this point.  Instead generate your hypothesis and then validate and quantify.  Because the ultimate deliverable from the assessment phase is a go-forward program option, it is imperative to back up qualitative data with quantitative measurement.  As the program owner, you want to be positioned to defend your recommendation.  Below are some research methods that have been effective in validating program design:

• Surveys and internal discussions will provide a broad list of possible program options.  A TURF or Maxdiff will help you to narrow these options down to those rewards or features that are a high priority for your customers

• After ranking all potential program elements, next you must understand how this mix of values will impact desired customer behaviors.  A Conjoint (Discrete Choice Model) will provide the basis for comparison across these multiple program components.  The key measurements will be impacts on visits/spend and likelihood to shop.  The goal is to take the output from this exercise and feed it into your brands economic and ROI modeling.  Your objective is not to select the program with the highest increase on visits and shopping (this is likely the most expensive option) but to land on the loyalty approach with the strongest balance between ROI and desired impact on customer behavior

Design

Combining the data elements from Define, Discover, and Assess will help to ensure that you create a program that delivers the optimal customer experience while simultaneously delivering the desired bottom-line results. Evaluate the key findings from each of these processes and use these data points as the foundation for your business case.  This analysis will contain the recommended program design as well as the projected customer and financial outcomes to support your proposed approach.

Measure

Although the steps above will provide you with a viable program, at this point it is still theoretical.  You must conduct a pilot to ensure that theory matches reality.  If you have a national footprint you need to pilot your program in each region.  Customers in different areas have different values.  It is also important to think about customer mix within the pilot markets – even down to the store level.  You want to cast as broad a net as operationally possible to ensure there are no false positives.

The program pilot is critical and is your last safeguard prior to a full rollout.  As the program owner you must be clear on what KPI’s you will measure and the time it will take to get an accurate evaluation of each.  Organizations are tempted to hurry through this phase, but loyalty programs represent significant investment with very real risk and customer impacts.  Guard against the pressure for speed to market.

As 1st Party Data becomes more critical to a retailer’s ability to deepen their engagement with valued current customers and their ability to acquire more just like them Loyalty Programming strategy and an effective data management strategy will be the key assets leveraged to guide future business outcomes.  But the road to this desired state is paved with “HOW.”

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