Customer loyalty managers: Build affinity first; customer retention will follow
Focus on customer experience fosters customer loyalty
Chances are, your keychain or wallet is loaded with loyalty cards. But do loyalty programs – designed to help retain valuable customers – really work? In a recent study from the International Institute for Analytics (IIA), only 16 percent of respondents reported they have a “very effective” loyalty program. Can this be improved?
Sponsored by SAS, “Keeping Customers: Successful Loyalty through Analytics” surveyed 325 organizations operating a customer loyalty initiative. The study found that those with “highly effective” programs had two goals: creating strong brand affinity and improving customer satisfaction. They emphasize customer experience over inward facing goals of customer retention, and before expecting customer loyalty.
How do top loyalty programs succeed? Five key differentiators emerge from the research:
1. Dedicated customer loyalty function/department.
About 80 percent of highly effective programs have a dedicated department or team managing their initiatives. Among ineffective programs only half says the same.
2. Emphasis on customer experience.
Organizations with highly effective loyalty programs tend to target specific initiatives or programs on managing and improving the overall customer experience (i.e., engaging with the customer from pre-sale throughout the customer lifecycle). They’re also more likely to house such programs together for maximum impact.
3. Rewards personalized for individual customers.
To maintain customer interest, loyalty rewards must be relevant. Companies that rate their loyalty programs as highly effective typically personalize offers and benefits. They incorporate a variety of components, such as customer-specific offerings, VIP services and personalized recommendations. They host special events or provide free products or services to members. In contrast, companies struggling to offer valued rewards fail to segment members effectively and are less likely to base offerings customer-specific needs and preferences. Strikingly, they tend to overlook such important sources of data for understanding customers as web traffic, mobile device data, social media data or consumer lifestyle information, relying instead on customer transaction data.
4. Using social media to support customer relationships.
Organizations with highly effective loyalty programs are social-media savvy. They follow up with individual customers who post complaints and respond publicly to customer posts on social media. This demonstrates that the company is focusing on the customer first, versus just pushing promotions or seeking competitive intelligence.
5. Data analytics as a core program component.
Nearly three-quarters of organizations with highly effective loyalty programs call data analysis a core component of their loyalty initiatives; even more perceive their organizations as having a data-driven culture. In contrast, only about one-third of those with lower-performing programs said the same. Correspondingly, successful organizations have the right analytical talent in-house – in particular, dedicated analytics resources – to make maximum use of customer data.
“Transactional customer loyalty programs that focus only on tangible rewards such as redeemable points or discounts aren’t cutting it for creating true loyalty,” said Wilson Raj, Global Director of Customer Intelligence for SAS. “Leading brands view loyalty as a corporate priority. Through their mastery of data management and advanced analytics, they also concentrate on experiential loyalty by enriching recognition and engagement with their customers in a natural way.”
The upshot: retention of the most valuable customers flows naturally from focusing on customer needs. Companies that understand their markets and the different needs of customers by segment will earn greater customer loyalty. Finally, analytics are indispensable in enabling organizations to effectively target customers with better, more personalized rewards and create long-term relationships throughout the customer experience.
"With this report, we now have a view of business side of the customer loyalty market, and it is clear that proliferation and performance are not aligned,” said Jack Phillips, IIA CEO and Co-Founder. “We have revealed a major opportunity for companies to master customer loyalty with greater commitment to and investment in analytics."
The International Institute for Analytics (IIA) is an independent research and advisory firm for organizations committed to accelerating their business through the power of analytics. Founded by Research Director Thomas H. Davenport and CEO Jack Phillips, IIA works across a breadth of industries to uncover actionable insights from its network of analytics practitioners, industry experts and faculty.