The tags that hang on your keychain…
Or the cards that fatten your wallet...
Even the rewards applications that fill your phone…
These items prove you love the brands with which you do business. They’re tangible evidence of your loyalty.
Or are they?
Real loyalty (the type that manifests itself in the form of higher customer lifetime value) can’t always be manufactured or earned in just a few simple steps. It’s one reason why a “points for purchases” mentality alone isn’t enough to drive growth tomorrow and beyond from your existing customer base.
Rewards are one important component of a larger, more comprehensive growth strategy designed to create a total customer experience that yields lasting customer loyalty. Understandably, this type of long-term solution cannot be achieved when loyalty is deployed blindly.
In fact, loyalty done wrong can actually trick you into thinking your customers are loyal, when in fact they are anything but.
Your reward for a faulty loyalty program?
Disloyalty, profit margin pressure, and worst of all, incentives that inspire customer behavior that actually hinders growth.
The Illusion of Loyalty
Successfully earning customer loyalty requires more than simply signing customers up for your program.
On the surface, loyalty appears to be increasing across the board. In fact, research suggests membership in loyalty programs has increased 26% to 3.3 billion.
Notice, however, that there's a key factor missing: active engagement in loyalty programs beyond the initial signup. The 2015 COLLOQUY Loyalty Census revealed just 42% of those enrolled in loyalty programs actively participate.
Put differently, the average U.S. household is enrolled in 29 loyalty programs but actively participates in just twelve:
It means loyalty can be an illusion if you only look at vanity metrics such as "number of customers enrolled". Furthermore, loyalty programs that don’t inspire participation or aren't distinguishable can actually cause a brand to blend in with competitors' programs rather than differentiate your business.
Here’s how Jeff Berry, COLLOQUY’s Research Chief, assesses the current state of affairs regarding loyalty:
“Playing follow-the-leader by creating a lookalike program that doesn’t differentiate itself isn’t going to help. In fact, such blah efforts that don’t stand out from competitors can actually do more damage than good by syphoning money into copycat value propositions and helping a competing program that offers a more meaningful experience. In other words: the exact opposite of loyalty, and potentially a nudge right into the arms of the other guy.”
Unfortunately, our team sees this all too often. It's the brand running a "buy 10, get 1 free" program when their average customer only makes two purchases per year. It's the business which hides their program in a footer on their store, so that all of the time they invest is barely noticed by their customers.
Loyalty undoubtedly works, but is significantly less impactful if your customers aren't excited about participating.
The Missing Piece
Here's our recommendation: Stop seeing loyalty as a one-size-fits-all phenomena that occurs in a vacuum.
Loyalty comes in many colors, shapes, and sizes and must be woven throughout the customer experience. Earning loyalty that can save your business hinges on:
- Not becoming overly reliant on discounts
- Differentiating loyalty programs based on customer demographics and business objectives
- Ensuring rewards are relevant and valuable to the customer
What does this look like in the real world?
It means identifying exactly how you want your customers to behave and reverse engineering an experience that is injected with strategic incentives. This experience can be designed to elicit your targeted behaviors in a way that is valuable to both customers and the brand.
Retaining Customers With Loyalty
Trading discounts for purchases is a surefire way to acquire brand new customers. This is because consumers unfamiliar with your brand or offering may perceive a discount as something that de-risks the purchasing decision.
Existing customers, however, likely perceive value differently. After experiencing your product, they often times require a different value proposition in return for loyalty. In fact, blindly offering discounts to existing customers as you would new customers is not likely to earn long term loyalty that results in higher customer retention rates and repeat purchases.
“When loyalty involves bribery, it’s bad for business, morale, and customer expectations. Confusing loyalty with retention, promotion, and rewards undermines brand equity more than it creates new value opportunities. Organizations should have the courage to either take loyalty seriously — to be as loyal to their customers as they hope their customers will be to them — or get out of the game.”
-Michael Schrage, Harvard Business Review
The best ecommerce performers significantly reduce the time it takes to earn customer loyalty. Those in the first quartile (Q1), according to research, convert new customers into repeat customers 12-days faster than lower performers:
One way to reduce the time it takes to earn loyalty is a robust and holistic loyalty program that appropriately understands the customer and offers rewards based on the value of customers who make repeat purchases over their lifetime as a consumer.
Unfortunately, according to research, most rewards programs tend to focus solely on customer acquisition:
“The irony is that, for many years, loyalty programs were hyper-focused on retention, but the pendulum has swung the other way in some cases, with companies aggressively pursuing new members. Spending half the budget, or more, to acquire new members – many of whom will get their free sign-up desserts and be gone – is a misalignment between investments and business objectives.”
It’s precisely why loyalty alone isn’t enough to save your business.
Integrate your loyalty program by understanding your target customers based on value and focus predominantly on retaining your most valuable customers.
Loyalty Spotlight #1: How Rhone Incents Behavior That Yields Actionable Intelligence
Nowadays, loyalty is about so much more than purchases as well. Providing a small incentive for customers to take a particular action can help you drive targeted behaviors and better understand your customer base.
To integrate loyalty throughout the customer experience ask yourself these two questions:
- What customer behaviors are valuable to me as a company?
- How do I incentive that behavior in ways that are valuable to the customer?
Rhone, a premier men’s activewear company, wanted to get more men to fill out the brand’s lifestyle quiz. The quiz provides the company with actionable insight and data that allow it to better design and market products. Naturally, Rhone rewards customers for completing the brand’s lifestyle quiz:
The customer earns 100 points good for a discount on his next purchase and Rhone acquires valuable customer data it can use to increase conversions.
Rhone’s holistic approach to its rewards program (which also incentivizes referrals, purchases, and social media shares) has not only yielded thousands of completed surveys, but has also achieved the following:
- 2.4 million points earned
- 18,000 desired customer actions taken
- 5.3X ROI to date
Loyalty Spotlight #2: How KidsShoes Incents Customer Behavior Aligned With Business Objectives
One of the biggest threats to profitably growing an online fashion brand is keeping rates of return low.
In fact, online return rates can be as high as 50-percent in certain cases.
One way ecommerce fashion brands can ameliorate this problem is to address one of the prime culprits; size related returns. It’s why KidsShoes.com, which sells kids dress shoes and boots (a space notorious for size-related returns) has created a unique iPad application in which parents can place their child’s foot on the tablet to ensure they order shoes that fit perfectly:
To incentivize parents to use the iPad sizing application, KidsShoes offers parents rewards for using the tool to ensure a proper fit. Besides providing parents peace of mind and reducing KidsShoes’ return rate, the sizing application is integrated with a holistic rewards program that also allows parents to earn KidDollars and redeem them for discounts for engaging in a variety of behaviors the company deems valuable.
Incentivizing customer behavior aligned with specific business objectives has resulted in the following:
- 3,000 desired customer actions taken
- 5X ROI in just three months
Loyalty Spotlight #3: Leveraging Loyalty to Fill the Funnel With Referrals
To build your base of loyal customers you must always be acquiring new ones…
One way to cost-effectively fill funnel and acquire new customers is to intelligently integrate referrals with your rewards program. This is exactly how Cairn, a provider of subscription boxes for outdoor enthusiasts, incentivizes existing customers to become de facto sales associates.
In addition to offering rewards points in return for completing a demographic profile or leaving product feedback (which yields valuable insight that directs mission-critical decisions), Cairn offers existing customers rewards for referring their friends:
To earn points, fans of the Cairn brand use a special referral link that helps the company track how often the referral link is shared and clicked on:
Besides prompting Cairn customers to take tens of thousands of actions, Cairn’s loyalty program has doubled the number of referrals, including:
- 2,000 referral link shares
- 20,000 referral link clicks
- 100% increase in referrals
Tailoring Loyalty For Success
If you want customers to be loyal it’s important that you be loyal first.
When designed as a value-creation tool for both brand and customer, rewards programs for certain brands generate as much of sixty-percent of their revenue. Ensure your rewards program generates two-way loyalty by:
- Incentivizing behaviors beyond purchases that yield actionable insight and intelligence, and allow you to make better business decisions.
- Focusing incentives on behavior that aligns with specific business objectives such as reducing inflated return rates.
- Incentivizing existing customers to refer their friends and fill the sales funnel with prospects you can later work to retain.
Rewards alone may not be sufficient to drive long-term growth, but thoughtfully tailoring loyalty to lift customer retention, and incentivizing the right behaviors can help position your brand to outperform its peers tomorrow and beyond.