Should loyalty efforts begin earlier in the process?

Discussion
Sep 30, 2014

Through a special arrangement, presented here for discussion is a summary of a current article from LoyaltyTruth.com, a blog published by Hanifin Loyalty.

Many marketers believe that loyalty efforts should kick in at the retention stage.

After all, it’s six to seven times more costly to attract a new customer than it is to retain an existing customer, acording to the White House Office of Consumer Affairs. And the probability of selling to an existing customer is 60 to 70 percent, according to Marketing Metrics, while the probability of selling to a new prospect is five to 20 percent.

I believe that this points out a narrow and out-of-date way of thinking about loyalty. Starting loyalty programs later in the customer acquisition and retention process deprives companies of legions of committed customers who are willing to engage in deeper relationships that result in greater — and earlier — support of a brand’s products and services than we’ve previously acknowledged or seen.

There are five main factors helping to make sustained loyalty programs possible today, from the initial customer touch point onward:

1) Loyalty stigma diminishing: The stigma that loyalty programs bribe and buy-off customers just to get them to open their wallets and flash their credit cards is receding because an increasing number of loyalty options go beyond just being purchase-based. In fact, there is a growing comfort level with the notion of reciprocal, or two-way, loyalty between customers and companies.

2) Changing consumer behavior: Partly driven by mobile, behavior is changing significantly throughout the funnel — from discovery to comparison to decision and evaluation.

Beyond informing and educating in the discovery phase, we need to provide social proof of our loyalty to customers by providing up-front value in the form of, say, free resources or thought leadership. At the comparison phase, we need to reward customers for engagement, for example, by explaining what they get in the relationship beyond a mere product. Traditionally, at the decision point, we stressed pricing triggers; now, we need to help customers — especially Millennials — feel our products and services are cool, unique and worth the investment.

3) Word-of-mouth and referrals: Customer retention and acquisition efforts can be mutually supportive and even synergistic. In today’s quicksilver-fast digital economy, the value of word-of-mouth spreads much earlier and much more rapidly.

4) Non-dollar-backed currency rewards becoming ubiquitous: For years, CFOs resisted loyalty programs, saying they were a cash drain on company coffers. With cost-effective non-dollar-backed currency, that’s no longer the case.

5) Identifying prospects early: Thanks to social tools and tactics like Facebook, customer journey maps, customer personas and search analytics like Google Analytics, all make anonymity much more a thing of the past.

Are changing shopper behaviors and other factors opening up more opportunities for initializing loyalty programs earlier in the customer acquisition process? Should loyalty program efforts be focused on customer acquisition or retention?

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18 Comments on "Should loyalty efforts begin earlier in the process?"


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Don Uselmann
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Don Uselmann
7 years 7 months ago

Loyalty programs of the past only “kicked-in” after the customer proved his or her loyalty. Even today’s airline loyalty programs give few, if any, benefits to the infrequent flier. It’s rather like the airline saying, “prove you love me and I’ll love you back.” (Shouldn’t they be courting me?)

I think the greatest opportunity is still in the first-time customer which I guess you would call retention, however, in my experience almost 66 percent of this group does not make another purchase for at least 12 months. By virtue of their first purchase they have qualified themselves as a customer, especially when compared to all the people who walk through the doors of a store or visit a website and don’t make a purchase. It seems far more opportunistic to spend some more effort on this qualified group, increase their retention, and turn them into lifetime customers.

Dr. Paul Helman
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Dr. Paul Helman
7 years 7 months ago
This is a very interesting, important and difficult question. Current research views as a holy grail the problem of identifying early in a shopper’s experience his or her potential to be turned into a loyal customer. This can be treated as a supervised learning problem, where statistical machine learning algorithms seek patterns in early shopping behavior that are predictive of this potential. Of equal import is the dual problem: To find the incentives that are most effective in elevating a new shopper into a loyal shopper. Again machine learning algorithms are employed, to match specific shopper behavior to specific incentives, with the goal of engendering loyalty in mind. The long-term temporal nature of the question is what makes answering these questions so difficult. Following a customer’s journey over months invariably exposes any learning model to huge amounts of noise, which is a challenge to even the most sophisticated learning algorithms. Nevertheless, as more and more data from a variety of sources becomes available for analysis, we have confidence that advances will be made. Given the… Read more »
Anne Howe
Guest
7 years 7 months ago

To me, the biggest opportunities here are number five and number three. However, adding to the current customer base is the only way that many retailers are going to survive the upcoming major shift in spending (billions) from Boomers to Millennials. So identifying new prospects needs to be a key first step in what I will call “potential loyalty.”

Word-of-mouth, particularly that which is done IN REAL LIFE, remains the number one method of purchase influence. So human engagement has to be a core principle in how retailers communicate with those prospects whom they wish to convert to shoppers. And that must happen across the entire path of influence.

Adapting to consumer behavior is the strategic advantage marketers have in a peer-to-peer economy. Gaining relationships, trust and shoppers is the upside of doing this well. Only then does “potential loyalty” have a chance to even get started, turn into preference and grow sales in a sustainable way.

Mohamed Amer
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Mohamed Amer
7 years 7 months ago

This is a wake-up call that fires a shot across the bow of traditional retail loyalty thinking and doing.

The consumer-retailer relationship must evolve to reflect the changing reality of consumer power derived from 24/7 information availability and transparency of (nearly) everything that happens in retail.

That means loyalty is not about retailers doing customer acquisition. Who wants to be thought of as being an object of acquisition? Retailers must start to think of consumers differently. They are now making informed decisions on where, when and how they spend their time and money. Building sustained programs from the initial touch point that redefine customer engagement and acknowledge the changing consumer behavior is a foundational first step.

Phil Rubin
Guest
Phil Rubin
7 years 7 months ago

We’ve long maintained that loyalty programs have an integral place early in the customer (and prospect) life cycle. This is not just a function of changing customer behavior, though such changes absolutely reinforce the merit of such a strategy. Loyalty programs done right reinforce the brand, amplify its core value proposition and make it tangible for the customer. Thus a loyalty proposition should be relevant from the earliest points of customer and prospect engagement. The more considered a purchase is, the more important a loyalty proposition becomes, even at the point of acquisition.

Ryan Mathews
Guest
7 years 7 months ago

Of course they are, assuming that retailers are fast and adroit enough to walk through the doors technology is opening for them.

The answer to the second question is both. As brand loyalty decreases (in general) customers can’t be taken for granted at any point in their relationship with retailers. Getting them early is equally important to holding on to them, although there is no guarantee that the latter will be an automatically implied consequence of the former.

Loyalty has to be earned each and every shopping occasion, and customers can no longer be taken for granted,

Ralph Jacobson
Guest
7 years 7 months ago

True loyalty is brand loyalty. Retail and CPG brands, that is. I don’t think anyone is still fooled by mass, untargeted discounts given at POS by the retailer that “demands” you use their discount card in order to get the lower prices. Brand loyalty captures the audience and acquires those new customers, as well as keeping a compelling value proposition in place to retain its loyal base. It spans the entire customer lifetime. Anything less than that approach opens up opportunity for competition. Grab the audience at first impression and drive awareness throughout your messaging to keep them.

Roger Saunders
Guest
7 years 7 months ago
Loyalty programs belong on the Conversion, Retention, Acquisition, Frequency and Ticket side (C.R.A.F.T.). Loyalty programs are owned by all aspects of an organization. Sure, there is a CLV or CRM lead group. However, every associate has to feel a part of the effort. Fly on Delta and the baggage check, ticket agent and the gate agent will say, “Welcome aboard _____, thanks for being a Gold Member.” Go into a Kroger and the register operator will ask, “Do you have your Kroger card?” before ringing up the order. Walk into a Marcus Theatre movie theatre, and you’ll hear the ticket master ask, “Would you like to be a part of the Magical Movie Rewards Program?” All of these merchants have reinforced a powerful strategy for their companies. They have made their associates a part of the plan, built confidence and appreciation in the minds of the consumer, and in the process, at any point in time, they are ready to influence the current customer as well as the one standing in line behind them. The… Read more »
Camille P. Schuster, Ph.D.
Guest
7 years 7 months ago

Yes and yes. What is loyalty? Finding products and services that meet consumer needs, realizing that they perform as promised and purchasing them over and over or from the same retailer. Loyalty is influenced throughout the process by many factors. It has taken retailers a LONG time to figure out how to use loyalty cards and that is only one program that can be used to create loyalty. It is time to think more broadly about what influences consumer loyalty and how loyalty can be influenced with what tools. There is a lot of opportunity around the loyalty issue.

Mark Burr
Guest
7 years 7 months ago

Loyalty is earned by a retailer and granted by the consumer. By its pure definition it can’t exist with out experience. Thus, the entire proposition of loyalty is driven by experience.

Incentive programs are not “loyalty programs,” they are incentive programs. The program, no matter at what stage of engagement, will not by itself induce loyalty. In combination with the anticipated experience, an incentive can help.

Offering them at the lower tiers of spend is where the true opportunity lies. The mistake retailers make is focusing solely on the higher tiers. Growing your base comes from increasing the spend of the lower tier where the potential in most cases is limitless.

Shep Hyken
Guest
7 years 7 months ago

Most loyalty programs are really marketing programs. True customer loyalty should be earned. The loyalty program should be icing on the cake.

Efforts on loyalty should start the moment the customer interacts with the company. The question we teach our clients to ask themselves is simple: Is what I’m doing right now for the customer going to make the customer come back the next time they need what I sell?

Any program that focuses on customer acquisition is an “acquisition program,” which falls under marketing and sales. Loyalty comes from existing customers, not customers you don’t yet have.

Ed Dennis
Guest
Ed Dennis
7 years 7 months ago
A very serious loyalty program should be initiated with every store opening and continue daily. The basis of this loyalty program is no mystery and requires the use of no cards or numbers. It has been in existence for thousands of years. I refer to “hire right, train your employees, keep your rear on the sales floor and lead by example.” The things that keep customers loyal are not a secret. Depending on your clientele, what needs to be done is fairly obvious. Shoppers have not changed, the market has changed and is offering shoppers what they want with less hassle and more efficiency than ever. 20 years ago if a shopper wasn’t being served locally they turned to mail order or drove to a larger market to buy what THEY wanted. Anyone who has the idea that they can take “what THEY wanted” out of today’s equation by using some kind of card is living in Colorado. You retain customers by giving them what they want, when they want it, at a pricing level… Read more »
Graeme McVie
Guest
Graeme McVie
7 years 7 months ago

Loyalty programs should be about understanding customer needs and then determining actions to take in order to satisfy those needs. If a retailer takes this approach then most of their focus should be on rewarding loyal behaviors on an ongoing basis so that a loyal and valuable customer doesn’t get to the point where they need to be retained before they depart. In our experience grocery retailers typically only capture between 50 to 70 percent of customer spend. By focusing on existing customers there is a very significant opportunity to grow revenues in a very cost-effective manner. Acquiring a customer who has never shopped with you is a large challenge because you know nothing about their purchase behaviors and hence have a limited understanding of their needs.

Loyalty needs to be viewed holistically in three dimensions: Loyalty as a strategy, loyalty as an outcome (earning customer loyalty by being customer-centric) and loyalty as a program. Viewing loyalty mainly as an acquisition or retention tool is a very narrow definition of loyalty which will not maximize ROI.

Bill Bittner
Guest
Bill Bittner
7 years 7 months ago
You cannot look at loyalty programs the same way across all types of retail. Loyalty programs for big ticket retail, such as furniture, appliances, and even high end clothing, address much different consumer needs than the supermarket frequent shopper program. (Although some would argue that the JC Penny experiment proved they are more alike than I am admitting.) Big ticket retail loyalty is much like building a brand image for a manufacturer. It is often built around the special financing provided by a retailer credit card. The goal is to show the consumer that the retailer will ensure they are completely satisfied with the transaction. It drives me crazy when I open up a box and discover a large warning label that says, “Don’t contact the retailer for any problems.” Instead, they want you to call an 800 number. I understand why retailers and manufacturers want to do this but I think it is very short sighted. The retailer who solves a problem for a consumer will always be remembered and the loyalty it generates… Read more »
Lee Kent
Guest
7 years 7 months ago

Loyalty is spawned by a series of customer experience successes. And that, of course, takes me back to one of my favorite topics, customer currency (AKA my broken record).

Every retailer should be looking at ways to purchase customer actions and activities starting at the beginning of the customer’s journey. For example, you can purchase my attention by offering me a sample. Next, you can purchase my interaction by allowing me to upload a picture of my room to test paint colors. You can even purchase my feedback by giving me questions to answer.

And guess what? If you offer me all those opportunities along my path to purchase, you will likely purchase my loyalty.

That’s better than 2 cents!

Martin Mehalchin
Guest
Martin Mehalchin
7 years 7 months ago

Keith is right; there is a big opportunity for brands to build loyalty elements throughout their offering and customer experience. The most resilient brands — think of Starbucks or Patagonia — have built a community of customers. Some of these brands have “traditional” loyalty programs and some don’t, but the care they put into engaging with customers and building elements of community and loyalty are key to retaining existing customers and attracting new ones to join the club.

Alan Lipson
Guest
Alan Lipson
7 years 7 months ago

The goal of every retailer should be to make every shopper a loyal shopper. We know that won’t be the case, however, all of the retailer’s efforts — from awareness, through after-purchase service — should be focused on providing the products, services and information needed to help the consumer make an informed purchasing decision.

If you can do that each and every time, then the consumer may decide to reward you with their loyalty. Loyalty programs need to be more than just words and marketing initiatives.

Loyalty needs to be built into the fabric of the company and how they treat their customers.

Bryan Pearson
Guest
7 years 7 months ago

A loyalty program is a customer engagement opportunity and value extension to the business — not just a retention tool. You have to think about how a program can fulfill part of what the consumer thinks of as your value to them. For the business, you want the data and communication path from the very first transaction. While your data may be thin at this point, if you open the dialogue, you have the beginning of a platform for long-term communications.

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