“Loyalty is a Strategy, Not a Program” by Kevin Susman via Total Retail

“Loyalty is a Strategy, Not a Program” by Kevin Susman via Total Retail

Credit: by PeopleImages

In the commercial innovation workshops I lead around the globe, there are many strategies that clients and customers want to cover. However,  without fail, I always get asked what can be done to improve customer loyalty.  No matter the country or the language it’s being delivered in, the answer is always the same — invest in developing loyalty as a strategy, and not just a program.

It’s not that loyalty programs, as a tactic, aren’t valuable. At their best, they can be a hugely valuable asset, such as American Airline’s AAdvantage program, which was recently given a staggering $31 billion dollar valuation. Thanks to opt-ins to email databases, loyalty programs deliver huge value by adding a crucial direct engagement channel. Mostly, however, the value of a loyalty program is reflected in its customers’ lower churn, and frequently higher spending, than their “dis-loyalty” peers.

So the obvious answer is to get more active program participants and consider the objective met, right? What about all those other customers who are not, and have no intention of becoming, active participants in the loyalty program? While it may suit the brand to believe that loyalty is, very often, just a form of inertia by the customer, it doesn’t change the fact that customers can, and often will, leave. Consider this: Are customers more loyal because they’re active members of the loyalty program, or are they active members of the loyalty program because they’re more loyal customers?

Companies don’t need more active program participants. Rather, what they need is to influence and shape the behaviors that active program participants manifest — greater loyalty and higher spending — and find ways to scale that across the entire customer base. Returning full circle, companies should focus their efforts and energies on encouraging more loyal customers, not more active loyalty program members.

Related story: How CRM Needs to Adapt to Changing Market Conditions

Embracing the Possibility of Disloyalty

Too often, brands don’t proactively reward their customers for their loyalty, instead waiting until the customer threatens to leave to take action. We’ve all experienced this scenario — suddenly, that rigid pricing becomes entirely flexible in the name of rewarding loyalty. But are you inadvertently training your customers that the threat of disloyalty is actually more valuable than loyalty?

How could and should it look different when loyalty becomes part of the strategy? First, and most importantly, it requires leaning into the idea that the consumer always has a choice. It may seem counterintuitive, but embracing that the customer COULD leave means that investing in programs to convince them to stay becomes table stakes. Given that the whole point of this exercise is to keep the customer from exercising this option, this seems like a no-brainer.

Across every aspect of the customer’s lifecycle, this means developing products, campaigns and support programs that are specifically designed to not only remind the customer WHY they chose your brand in the first place but, more importantly, to entice them to keep choosing your brand in the future.

Loyalty as a Two-Way Street

There’s a common misconception that the lowest price equates with the highest value. Except where it doesn’t. Sure, everyone wants a deal, but the marketplace is full of examples of customers being willing to pay a premium — sometimes modest, sometimes substantial — for products and services they deem as offering greater value for their spend.

On a practical level, this means accepting that the value calculation the customer made at the moment of sign-up isn’t static. Life changes, the market evolves, and what made sense at the point of sale may no longer make sense now.

Treating loyalty as a two-way street means engaging across the customer base to consistently keep the value delivered in sync with evolving expectations. Maybe that’s a continuous evolution of the products and services offered, without additional cost. Maybe it’s proactively adjusting a customer’s recurring charges, whether to match current market rates or to better align with actual usage, to minimize wasteful spending.

There is No Free Loyalty

Investing in loyalty will potentially mean spending more, earning less, and often both. Especially in highly competitive markets, it can be challenging enough to make the quarterly numbers without the added costs and potential revenue impact of investing in building loyalty over time. Frankly, it’s one of the less popular recommendations I make.

Then again, there is no arguing that the cost of keeping existing customers is substantially lower than the cost of having to constantly go out and find new ones. This is exactly the foundation upon which the business case for investing in loyalty must be made. Not just because it’s the right thing to do, which it is, but because it’s a smart business move. There may be no free loyalty, but it also doesn’t necessarily need to be such a costly program that it materially impacts the balance sheet. Instead, it should be a continuously evolving effort, informed by data and constantly tested for effectiveness towards the desired results of lower churn across the base.

  • Does it cost more in the near term to continually find ways to delight customers, including by delivering them greater value without them having to demand it? Absolutely.
  • Is it more work to develop and implement ways to encourage and reward loyalty across the entire base, not just those who take an active role? Sure.
  • Should marketing all your brand is doing to reward loyalty become part of its overall marketing plan? Most definitely.

So the next time you see me in a workshop, or maybe you’re sitting down for your own planning session, start by asking what you can do better to earn and keep your customers. As I like to tell my clients, rather than trying to find newer and better ways to grow your loyalty programs, put your energy into developing strategies that deliver the benefits of loyalty directly to the customers you fought so hard to win in the first place.

Kevin Susman is vice president of consulting at MATRIXX Software, a global leader in converged charging and monetization.

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