Ten keys to developing a successful program

Craig Underwood is president of Loyalty Management Group Canada, the company that manages the Air Miles Reward Program in Canada.This monthly column explores issues and provides practical information on obtaining the maximum benefit from customer loyalty programs and database marketing.The concept...

Craig Underwood is president of Loyalty Management Group Canada, the company that manages the Air Miles Reward Program in Canada.

This monthly column explores issues and provides practical information on obtaining the maximum benefit from customer loyalty programs and database marketing.

The concept behind developing a successful customer loyalty program is simple.

Provide your best customers with a desirable reward as a ‘thank you’ for their patronage, and they will return the favor by becoming more loyal to your business.

Easy, right?

In reality, loyalty programs are significantly more complicated than they appear, and many fail to yield the returns their champions envision.

As a student of loyalty programs for the past five years, I believe there are at least 10 keys to developing a successful loyalty program.

In my experience, no matter how well a program is conceptualized, if it does not incorporate these 10 elements, it will fail. Here are the first five elements.

1) A winning strategy

The most important criteria have nothing to do with a loyalty program, and everything to do with success.

Before developing a loyalty program, a company must have a sound strategy based on providing exceptional value to its customers.

As Howard Kitchen of Lansing Buildall says, to compete in today’s environment, you must offer the products customers want at a price equal to or better than your competitors.

Dave Nichol, the former president of Loblaw International Merchants and the originator of the company’s premium-quality private label brand, President’s Choice, says the definition of a brand is a consistent set of consumer expectations.

Companies that develop or enter into a customer loyalty program in a thinly veiled attempt to compete with inconsistent or uncompetitive products, services or prices will not succeed.

2) Aspirational award

Ultimately, the success of a loyalty program is measured in terms of its ability to profitably change consumer behavior: to motivate customers to concentrate their spending with one retailer, rather than spread their dollars among three or four; to not be tempted to try a new competitor that opens in the neighborhood, or one closer when they move, to buy higher margin products and to refer friends and family to your business.

To inspire this kind of behavior, the loyalty reward must be aspirational – meaningful and valuable to your target customers.

The reward must be real and desirable enough to influence a change in consumer behavior.

The ’90s consumers will see through those who try to ‘reward’ them with ‘discounted’ products and loyalty points when the products can be bought elsewhere without points.

3) Attainable award

Attainability refers to consumers’ ability to earn the desired award in a time-frame they consider realistic and fair.

Our research has shown that Canadian consumers are willing to save for an award for three years.

To exceed consumer expectations, you should develop a program that allows your best customers the opportunity to be rewarded on an annual basis.

You may have the most attractive reward money can buy, but if your customers cannot acquire or attain it in a period of time they consider reasonable, you will not achieve your goal of increasing long-term loyalty.

4. Affordable award

Developing a profitable customer loyalty program requires balancing a tricky economic equation: the total cost of marketing, managing and delivering the reward, plus the cost of the reward itself, cannot outweigh the incremental value of increasing customer loyalty.

When you consider that large-scale programs require extensive database capability, the equation becomes even more challenging to work out, particularly for a standalone program.

This underlying economic truth is one of the factors that is driving the popularity of multiple company programs.

5) Consumer awareness

Loyalty is a consumer concept, not a product, which means it needs particularly strong marketing support.

Every time customers enter your store, they should be reminded about the benefits of patronizing your business regularly.

Point-of-sale materials are excellent vehicles for building and maintaining awareness of the program.

Staff should be knowledgable and enthusiastic about the program, and should be encouraged to discuss its advantages with customers whenever the opportunity arises.

These are the first five steps to building a customer loyalty program that will maximize the return on your investment, the level of enthusiasmcustomers feel about the program, and the degree of senior management commitment you enjoy.

I will discuss the remaining five keys to success next month.