Today’s loyalty marketers are challenged to inspire profitable customer behavior in changing economic and competitive environments. Loyalty program managers face several critical questions, including:

• How do we improve value to our customers without overspending?

• What can we do to differentiate our rewards program from the others?

• What are the key factors influencing our future loyalty strategy?

In general, successful loyalty strategies must have a greater role in the marketing plan, a role that seeks to identify and leverage relationships, and then extend that equity to achieve a competitive advantage. Along the way, practitioners of this new model likely will encounter some of the following trends.

Volume, clutter and noise are increasing. Several studies put the percentage of Americans participating in at least one loyalty program between 50% and 83%. The only downside to this high penetration is that ubiquity and commodity are related. Loyalty marketers have only themselves to blame.

Reward charts are indistinguishable from each other, resulting in feature gridlock. Members are bombarded with exciting offers “just for you” featuring the same dining, retail, merchandise and travel offers. Awards often are stripped to a simple dollar value, reinforcing the discount-driven mentality that promotional currency was created to eradicate.

It is no longer sufficient, profitable or wise to simply have a loyalty program. To lower the costs of operation and raise the level of profitable behavior among the customer base simultaneously, loyalty marketers should invest in brand-driven recognition benefits that can’t easily be duplicated; channel partners’ money into closed-end redemption options that are unique and proprietary; and communicate extensively.

Effective loyalty marketing merges the best of online and offline realms. The lesson learned from the rapid experimentation of Internet-based loyalty programs?Communications costs can be cut by taking a program electronic — but only after the customer has engaged substantially with the program and demonstrated a willingness to modify behavior.

Personalization is an effective strategy for increasing the perceived relevance of the message, but is not a substitute for relevance in itself.

The core of the brand relationship is the proper place to root the loyalty program. If the program is the core, it will be short-lived.

Technology enables, but shouldn’t rule. Aided by powerful technology and sophisticated analytical techniques, loyalty programs that deploy a personally relevant value proposition in real time or near real time have the potential to surpass many of the established solutions.

Loyalty and CRM are cousins, not strangers. Loyalty is the first step in the CRM discovery process. It provides a way to gain the identity of the best customers, even in industries where transactions are blind. It creates a common interest between company and customer upon which to base a dialogue. Marketers must gain customers’ permission and establish themselves as the favored providers in their category. The personalized communications afforded by a loyalty program deepen relationships with customers.

Loyalty programs are becoming wider in scope. Successful loyalty program managers are strengthening program branding and enhancing value by broadening customer benefits and earning opportunities through new markets and partnerships.

New markets: The lines between the public and private sector may be blurring. For example, the new UPromise program allows members to patronize any of more than 30 companies and then put their program earnings in a government-sponsored, tax-deferred education account. Nonprofits and large associations also represent exciting occasions for brand building because these associations cater to specific interest groups. There is hard value to be gained.

Partners: Partners can add relevant rewards and greater earning opportunities to a loyalty program. Partner relationships can evolve with the portability of currencies and soft benefits. Members can carry their relationship with company A into their dealings with company B. American Express does a good job of this with its Gold Card members, allowing them to use their points to reach elite frequent-flyer tiers that shower members with perks.

Another variation on the theme is the cooperative partnership. Sainsbury’s, the U.K. grocery chain, now includes mini Boots the Chemist drugstores in its stores. Shoppers receive loyalty points from both Sainsbury’s and Boots’ programs, and Sainsbury’s attracts a shared customer base.

Coalitions are on the rise. A loyalty program can increase the impact of its communications at the same time it cuts message delivery costs. Rewards can be boosted to five times current rates without a similar hike in funding rate. The same program can generate new customers obtained at an acquisition cost a fraction of what other programs pay. Such compelling economics are just part of the case to be made for coalition loyalty programs, where several companies pool budgets and customers.

In the United States, momentum for coalitions is building, and obstacles are being overcome. Corporate consolidation is changing the U.S. market structure by reducing the number of competitors in several industries and making it less unwieldy to devise a short list of partners to fit a given category.

If you’re serious about enhancing the effectiveness of your loyalty program:

• Build off the brand, not in place of it.

• Blend recognition with rewards.

• Communicate relevant offers.

• Engage customers in dialogue to uncover unmet needs.

• Look to loyalty to spark a broader CRM strategy.

• Plan technology needs around strategy, not the opposite.

• Look for value in partnerships, not just money.

• Have a plan for the coalition era.

Patrick LaPointe is senior vice president of Frequency Marketing Inc., Milford, OH.

Brands used to be perfectly content to just sponsor music tours, ponying upsome cash to gain the “presented by” tag at the end of radio spots, primesignage at events, and some images to use in TV spots.

Roll over, Beethoven, and tell Bill Graham the news.

This summer’s concert schedule includes such brand-drenched festivals asLevi’s Fuse ’99, NASCAR Rocks, Hard Rock Rockfest (PROMO, May 1999), andRhythm on the Road.

Although Ford Motor Co. chose to go somewhat incognito with that last one -an 18-city tour featuring The Cranberries and Collective Soul that willhype the 35th anniversary of the Ford Mustang – sponsors for the otherevents chose to give themselves top billing for tours they actually had ahand in developing.

“We wanted to be able to tailor an experience for our target audience [ofteens and young adults],” says Joe Townsend, music sponsorship manager forLevi’s. So the jeans maker worked with SFX Entertainment, a New YorkCity-based event promoter and venue operator, to produce a 45-city tourboasting star attractions Goo Goo Dolls, Sugar Ray, and Fastball, a secondstage to showcase emerging artists and local talent, and asilverTab-branded tent highlighting hot DJs. The tour kicks off July 16 andruns through September.

“With a big concert tour, there’s the likelihood that we’d be one of manysponsors,” says Townsend. (Levi’s was just that last year, when itsponsored the hugely popular Lilith Fair.) “This really is about being ableto create rather than just join in. Owning the event and being able toshape it will maximize our exposure.”

Levi’s will go solo on the tour this year, the first in a three-year dealsigned with SFX, although there may be some local tie-ins at various stops,says Townsend. “We want to define it first. Then we’ll see what’s out therenext year” for possible partnering.

ROCK, STOCK, AND BARRELThe ubiquitous NASCAR takes a similar tack with NASCAR Rocks, which wasdeveloped in conjunction with media partner CBS Sports. The Allman Brothershead a lineup whose other performers will change from city to city during a30-date tour. CBS, as well as NASCAR partners TNN and radio networkWestwood One, are promoting with on-air spots and programming nationallyand locally.

“This is really our first foray into the music business,” says NASCARvp-marketing George Pyne, noting that the racing association was lookingfor a program that would appeal to “the casual or non-fan” and spread theword into non-NASCAR cities like Seattle, Denver, and Boston.

It’s the first time CBS Sports has gotten involved in a music event to thisdegree as well. “We have a long-standing relationship with NASCAR, and wewant to be good partners,” says vp-marketing Keith Ritter.

Licensing-magnet NASCAR isn’t hitting the road on its own. Sponsors includeTrue Value, Anheuser-Busch, Gatorade, Mattel, Wrenchhead.com, EA Sports,and Visa. True Value alone is doing a premium offer at retail, two on-sitecontests (one a tire-changing competition in conjunction withWrenchhead.com), a race car sponsorship, and a host of media advertising.Currently in its fourth year as a NASCAR sponsor, True Value wants “to doour part to support them,” says national advertising manager John Schmidtke.

All this concert development doesn’t mean brands have stopped inkingtraditional deals. The sponsor list for this year’s Lilith Fair boastsBiore, Chevrolet, HMV, Tower Records, Tommy Hilfiger, Tom’s of Maine, andXOOM.com. Tommy Hilfiger also is sponsoring teeny-bopper babe-of-the-momentBritney Spears, and Sears chaperones the red-hot Backstreet Boys (seestory). In the match-made-in-teen-heaven category, SmithKline Beecham’s OxyBalance acne medicine gets in front of pimple-prone faces by sponsoringadolescent-friendly ‘N SYNC.

“There’s always going to be a place for companies to hook into existingtours. That can still work strategically,” says David Sass, president ofSFX Live. “But marketers are getting smarter about how entertainmentproperties can help them achieve their goals.” Whether the brand chooses astraightforward sponsorship or opts for something more, says Sass, “reallycomes down to whom they want to reach and how they want to reach them.”

And whether or not they want to be the frontman.