Features and tRends

(August 2009)

Creating Loyalty and Incentive Programs
By Shannon Benton and Lyndsey Forster

According to a recent study conducted by Jupiter Research, nearly 75 percent of all shoppers in the U.S. are involved in customer appreciation or loyalty programs. Unfortunately, with this high-level of involvement and participation, many if not most, loyalty programs fail to keep the consumer involved as an active participant. Many valuable opportunities for customer relationships are missed. It is imperative for a company to develop loyalty programs based around the needs of its users.

Before launching a loyalty program, companies should appreciate that analysts from Jupiter Research found that the majority of customers who participate are generally satisfied. But the question to ask yourself is if a competitor offered a shopper a more enticing offer… would they still be true to your brand, or would they cross over? A statistic from a July 1997 article in the Harvard Business Review states that only 10 percent of buyers in these programs are loyal to a particular brand for more than one year. What can you do to extend this metric?

Actively reviewing your customer base and evaluating what customers value most about your company and its products will help influence the type of success program your business implements.

Following are three of the most common types of customer appreciation programs to consider: membership, rewards and building a community.

The Membership Program
The membership program consists of having customers fill out their demographic information and providing them with a “VIP” card for every return visit to receive a specific discount or benefit. Many large brand stores such as Kroger, Borders and CVS use the membership program to help build an engaged community. Companies can track more accurately the “who, what and how many” a patron in a certain region is purchasing. Moreover, the membership program offers psychographic information about your customer base that can be used to better target future audiences.

The Rewards Program
The rewards program is where participants earn points for every purchase they make through the provider. According to CIO Insight, airline companies are famous for the rampant use of rewards programs. By offering rewards points for a particular airfare ticket, the customer earns points they can then use toward future purchases. Rewards programs have become increasingly popular outside of the airline industry. For instance, when given the option to receive cash over the provided points earned, the member may well choose the points. A recent study by Dreze and Nunes revealed that consumers observe taking the cash as another everyday option… and that they will most likely turn around and pay a bill with it. This “reward” represents something that lacks glamour or intrigue. By accepting the earned points, the customer realizes they can use it toward travel or a later purchase, thus providing anticipation and excitement for the future.

Building a Community
Community building is typically facilitated online where a business invites its customers to interact and share information. Incentives may be offered at times, but ultimately these communities create a place where the customer can interact with the brand and other enthusiasts who enjoy similar activities or products.  The most prominent brands in the world including Coca-Cola, Anheuser-Busch and Disney, to name a few, use these online communities to develop greater brand awareness and to foster loyalty. What these brands realize is that it takes five times more money to obtain a new customer than it does to retain a repeat. The investment is well worth the start-up costs to create and manage a community when compared with new customer solicitation rates.

In general, customer appreciation programs serve as valuable catalysts to develop and retain business.  When selecting the type of loyalty program that suites your business offerings, be sure to evaluate your customers’ interests and needs before implementing. Insight and research are key as well-designed loyalty programs will ensure long-term success.

For more information about how K&A can help you create highly effective customer loyalty programs for your brand, contact Steve Kleber at sk@kleberandassociates.com or tweet him @stevekleber.

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