Insight: Loyalty: The Currency of Business

Enhancing the value of your customers through a loyalty program - First published in IT@Work, The Sun, Monday, 16 July 2001

There are many types of loyalty programs and they are all limited only by the imagination of marketers. Examining the various types of loyalty programs – the most common one that comes to mind is the point-system program. When a customer signs up for a point-based loyalty program, he or she is given a loyalty card. The card can be used for immediate discounts or to collect points that can later be redeemed for prizes, gifts or other goods or services.

We identify with this type of loyalty program for the simple fact that there are so many of them! Our credit cards entice us with points for every dollar spent and we’re constantly seduced by the possibility of a good holiday for pumping petrol with some-branded card. Not to mention the upgrades to first-class seating, if you fly long enough with a particular airline. If you’re part of a loyalty program, you can imagine how difficult it is to switch to another provider. Would I jeopardize losing all my points?

Not all loyalty programs are point-based programs. Many loyalty programs involve some sort of currency that customers earn and redeem for rewards, but more often programs don’t include a program currency. Loyalty programs come in lots of guises and points are merely one type of loyalty program.

My mobile phone operator for instance offer me good rebates for remaining a customer as well as discounts on my call charges depending on the duration of my subscription. At the rate of my usage, I have chalked up such huge amount of rebates to the point that it covers my access charges completely (that’s RM75!). With that kind of program, I wouldn’t even consider switching to another mobile network. After all, I don’t want to start from ground zero again.

A reader wrote to me after last week’s article and pointed out that running a customer loyalty program is expensive and takes massive amount of resources to run. It requires massive systems to develop and maintain just to keep track of all the transactions and purchases so that appropriate points can be properly awarded. While I agree with her, there are quite a few ways you can run a loyalty program that is cost effective and still generate the desired result.

Ellen Reid Smith, President of Reid Smith & Associates, a research and consulting practice specialising in e-loyalty strategy suggests some examples of loyalty programs that don’t require large amount of resources. Some of her suggestions include premium service programs, unexpected “thank-you” gifts, member-only exclusives on new content and advice as well as member-only access to experts, advisors or events.

For e-commerce ventures, the issue is pretty much moot. Most e-commerce sites have already invested in infrastructures and systems that are able to track customer purchase history. Adding a program that rewards customers based on purchase history is a matter of a simple addition to the system.

Issues to consider

Before embarking on a customer loyalty program, take extra steps to address one important issue: Long-term commitment. A loyalty program is a long-term strategy and you will need the foresight and strong commitment to embark on this program. Don’t expect immediate sales from simply starting a loyalty program. However, do expect a steady increase of sales over time. Setting up a loyalty program is only the first step and over time, you will be able to use benefits, privileges and rewards to influence customer behaviour.

Secondly, offer something of value to your customers. You won’t build a successful program by offering benefits your customers don’t want and don’t value. Your offer may not be expensive, but it must be something that your customers value so much, they won’t want to give it up in order to shop with the competition. A good way to figure this out is to simply ask your customers. That act itself could jumpstart your relationship with your customers!

Also, make sure you are actively promoting your customer loyalty program. Make it official and make it known. I’ve seen so many programs fail simply by the lack of awareness amongst customers! So, take your time to highlight that every time you have an opportunity to talk to your customers as well as training your frontline employees to do the same.

One of the areas that sometimes escape the minds of businesses is recognising those benefits to customers in a loyalty program as liabilities, especially if it is a point-based system. You can run into serious trouble if the point accumulation and accounting forecasts weren’t built, forecasted or executed properly. Forecasting point liability is a difficult process and only very few in the industry have experience in building these models.

Finally, remember that a loyalty program is not a substitute for bad product quality, brand image and poor service quality! Therefore, develop a program that enhance the values most important to your customers and continually provide those values in a manner that exceeds their expectations.

[Written by Jui Hong Teoh, Managing Director, BRANDTHINK. First published in IT@Work, The Sun, Monday, 16 July 2001]