Loyalty Library: Translating Strategy into Program Design
Last month I discussed a basic approach to loyalty strategy. This month we’ll take that strategy and put it into practice. That means developing a program design that successfully implements your loyalty strategy. This becomes “section 2” of your mythical one-page executive summary to be used to sell the program internally.
Your program design options
There are a lot of ways to structure a program, and I can’t cover all of them here. But I will highlight the most common and most familiar structures along with a relevant example.
Rebate. Familiar to almost every cobranded credit-card holder, a rebate program returns a percentage of net sales at the end of the quarter or year. This is a decent option for creating lock-in and for generating visits during nonpeak periods. Cataloger/retailer Recreation Equipment Inc. (REI) has the most-established rebate program, returning a portion of sales to its members every year, which (not surprisingly) generates lots of transactions in the normally slow first quarter.
Currency/rewards. Customers accrue a noncash currency, usually points, based on net sales. The currency is convertible to discounts, products, or partner rewards such as travel. Like a rebate program, this is excellent for creating lock-in, and it’s often partnered with recognition benefits. It can be a beast to manage, however, and can add significant accrued liability to your balance sheet. Most major airline programs are structured this way, as is American Express Membership Rewards.
Frequency. Customers receive a financial benefit based on a sales threshold or a visit frequency, such as $20 for every $200 spent (running shoe merchant Finish Line) or 10% off for every five visits (women’s apparel retailer New York & Co.). Excellent for, well, increasing frequency.
Threshold. Customers receive a sustained or lifetime benefit once they reach a certain level of spending or accrual. Again, this is excellent for generating lock-in as well as for defending top customers against competitors. Most airline programs also have this element, although my favorite example is women’s apparel merchant Chico’s Passport Club, whose members account for more than 90% of sales.
Tiered. Several discrete levels of membership are established, each with its own level of rewards. The differences may be in soft or hard benefits, or both. Tiers are particularly effective, since they make it much easier to align benefits by customer value and can act as a platform for recognition benefits as well. TicketsNow has an interesting program solely based on tiers.
Recognition. Customers are provided with soft or hard benefits based on their commitment to the company. This may or may not be explicitly defined. In reality, just about every program has or should have a recognition element, where good or best customers receive perks for their loyalty. Nieman Marcus does a great job with recognition, as does Harrah’s Total Rewards.
Evaluating design options against your strategy
You may be able to eliminate some options right away. Personal preference or experience, corporate culture, or technology limitations may knock some ideas out. Be sure the ideas are really invalid, since you may miss some unorthodox solutions to your program design by considering extreme cases.
Plot your three to seven strategy selections (refer to last month’s article if you don’t recall what we mean by that) along one axis and the program design options along another axis. Now systematically evaluate each option against the specific strategies. Scoring each combination on a 1-5 scale will help you compare options at the end, but the evaluation is as much qualitative as quantitative. When you look at everything at once, a solution may emerge as the clear winner quickly.
This approach forces you to consider tradeoffs. For example, a tiered program may be great for generating lock-in among high-value customers but terrible for increasing frequency among new customers. In most cases, the best option will be to combine two or three options into a multifaceted program that aligns different benefits with different groups.
If you’ve made it this far, you’ve had to identify your customer segments, state your objectives, develop strategies, and isolate the program structures that will make your loyalty program successful. Congratulations!
If you aren’t comfortable with your results, you might want to get some help. While you’re at it, find someone who can help you with the business case and ROI analysis, the subject of next month’s column and the third and last section of your one-page executive summary.
Michael Greenberg is vice president of marketing for Loyalty Lab, a San Francisco-based developer of customer loyalty programs for the retail industry, and writes a monthly column for CHIEF MARKETER. He can be reached at [email protected].
Other articles by Michael Greenberg:
Empowering the Lonely Loyalty Champion
Microsegmentation for Macro Returns
Balancing Visible and Hidden Relationship Programs
Evolving Loyalty: How to Stay Current
The Best Marketing Investment You Can Make
The Case for Simultaneous Concept Testing
Planning for the Coming Online Standard
