Seven Steps to an Effective Loyalty Program

Loyalty program memberships are exploding in the U.S. market, jumping from 2.1 billion in 2010 to 3.3 billion in 2014 as retailers and brands jump into the space. Department store programs alone doubled between 2008 and 2012. Too often, loyalty and other CRM programs are cost centers for brands, even as the opportunity to benefit from them has never been greater. The best programs take loyalty into new terrain, doubling as data-gathering operations, opening the door to more personalized and relevant communication and going beyond discounts to engage customers and enhance brand-building.

At L2’s research briefing on CRM and Loyalty programs, Co-Founder and Head of Research & Advisory Maureen Mullen spoke about how brands can build loyalty and drive purchases through these programs, presenting case studies and data from L2’s upcoming Intelligence Report. A few tips from her presentation:

1. Collect and harness data

Data opens up a tremendous amount of targeting capability. Data capture—both implicit and explicit—must be the first priority, with the smartest strategies tying together online and offline channels and behaviors, from e-commerce to in-store to social media activity.

Many brands have yet to use the data they capture to create stronger offers. Consumers increasingly expect more relevant offers and experiences, but there is a wide perception gap between what they want and what brands are delivering in terms of personalization. One reason is marketers’ fear of a privacy backlash, but privacy is overhyped relative to improving the customer experience.

2. Steer past the privacy hurdle

Consumers aren’t as concerned about data privacy as brands might fear, and frequently their desire for personalization and information will override privacy concerns.

Consumer surveys detect mixed signals on the issue. In one study of Millennial Internet users worldwide, 49% say they like when a company makes recommendations that make shopping easier. Yet 48% say they don’t like when companies use personal data to target offers. One problem is perception, with more consumers perceiving negative use of their data (e.g. believing that it’s shared with third parties) than seeing the benefits of data sharing.

Consumers don’t necessarily know what they want. When offers are relevant and targeting is done well, negative repercussions will be minimal at best. The challenge is to calibrate personalization just right. For example, a personalized email subject line has shown to decrease open rates, while open rates increase when the message is personalized.

3. Enlist email

We tell clients that when it comes to email, “Boring equals sexy.” Channels like social media are declining in importance in the marketing mix, while email continues to increase in importance.

While email is a key channel for highly targeted messaging, it remains an untapped opportunity for many brands. Fewer than 1 in 10 brands across categories that L2 tracks send a birthday email, and aside from sportswear, fewer than half of retailers in categories tracked by L2 send abandoned-cart emails.

With strategically targeted emails, open rates can be impressive. Lanc?me has seen read rates as high as 25%. Pampers has achieved open rates of 50% among engaged users for its bimonthly newsletters, which are tailored based on the baby’s age.

A number of vendors have popped up that specialize in email targeting. Monetate, for example, worked with True Religion to promote local store events and sales via geotargeted messages, sent to consumers looking at email near a store. The emails achieved a 2.5% click-through rate with the offer of $50 off for trying on a pair of jeans in store.

4. Move to mobile

The True Religion initiative points to the potential of email leveraged in tandem with mobile. Mobile has been fantastic for email, particularly the iPhone. Consumers are more likely to open and click through emails on a mobile device. Consider that more marketing email opens now occur on iPhones than on desktops (just over a third take place on desktop, vs. 42% on iPhones).

The newest avenue for marketers to explore here is social mobile. In the Asia Pacific region in particular, messenger apps like WeChat, Line and Kakao Talk are connecting online and offline experiences, and brands are jumping in. Coach, for instance, launched a traditional loyalty program powered by the WeChat platform in China.

While the majority of personalization has occurred in stores thus far, more will be delivered by mobile.

5. Go beyond transactional relationships

The most innovative loyalty programs are rethinking how brands engage with and incent customers. Consumers can be rewarded not only for purchases but for behaviors that drive word-of-mouth and engagement. Lanc?me awards points for connecting social media accounts and watching online tutorials, and plans to add points for writing product reviews. Sportswear brands are rewarding physical activity (both Puma and Adidas have a run score, for instance).

Looking beyond discounts and freebies, rewards can increase brand engagement and preserve brand equity. Nordstrom and The North Face are among the brands that offer a range of exclusive events and experiences. Product exploration is another smart strategy: Sephora provides pre-release access to specialty products, while Neiman Marcus gives wardrobe consultations.

More brands are also offering enhanced customer service—priority boarding, an extended return policy, technical help (Genius bars), etc.—for loyal customers. Another incentive is community, as Harley-Davidson provides with its owners group and Nike offers with run clubs.

6. Customize to markets

It’s incredibly difficult to make loyalty and CRM work on a global scale. Email marketing, for instance, is especially effective in North America and Latin America. In Europe, far fewer consumers trust email marketing, an issue that is holding back some brands in cases where email is controlled globally. Deliverability is a major obstacle to email in China, which has skipped email marketing altogether and moved directly to mobile communication via messenger apps.

Brands must tailor strategy to local market nuances while leveraging cross-market learning throughout the organization. One popular strategy is to pilot ideas in mobile-savvy Asian markets and then reverse-engineer the initiatives in the U.S.

7. Keep it simple

The biggest barrier to participation in loyalty programs is consumer confusion: Research shows that worldwide, over-complicated programs are a bigger obstacle than privacy or too much communication. The top improvement brands can make is to be transparent about benefits and how to sign up, and make a loyalty program as easy for consumers to use as possible.

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