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Study shows 4 critical failures in many loyalty platforms
Monday June 20, 2005
Many of the 30+ customer loyalty platforms examined in a new study are failing to provide the functionality required to meet the demands of running an effective loyalty programme in today's marketplace, according to UK loyalty consultancy MJA Associates.
Mike Atkin of MJA Associates recently carried out a detailed investigation into the capabilities of over 30 loyalty programme platforms being used to operate programmes around the world, and came up with these surprising results. This article is copyright 2005 TheWiseMarketer.com.
Software solutions from New Zealand, USA, UK, Poland, Germany, India, France and many other countries were reviewed as part of the Benchmarking Study and Gap Analysis process that MJA Associates offers its clients.
Just for points?
Atkin notes that many of the solutions examined were merely "points engines" that could increment and decrement the points in a members account but were limited in the functionality required to manage bonussing, lifestyle data collection, surveys, partner management and other fundamental operations.
MJA uses a 550-point checklist for the capabilities required to operate an effective, robust and future-proofed loyalty programme (in either a multi-partner or proprietary application), which is used in a weighted spreadsheet analysis to identify the best solution for a particular requirement.
Critical concerns
According to Atkin: "Many so-called loyalty solution software platforms were sadly lacking in many areas, and should be a cause for concern to many loyalty practitioners. The most important areas that are weak in many software solutions are bonussing, partner management, survey functionality, and contact centre information screens."
As an example of some of the most important points in MJA's list of critical requirements, the following show some of the more essential features needed for a workable loyalty platform:
- Application and member number tracking
- Archiving of programme data
- Audit logs including database table changes and transaction posting
- Awards redemption and all related processing
- Bonussing functions and flexibility
- Card management
- Configuration including currencies, languages and attributes
- Correspondence processes
- Documentation for programme operation
- Events management
- Interactive Voice Response (IVR) provision
- Fees management
- Kits and cards processes
- Location hierarchy
- Member services provisions for call handling
- Member management, transaction and attributes recording
- Partner management
- Pending member controls
- Points expiration controls
- Point types abilities
- Reporting functions
- Security controls
- Software development kits and APIs
- Statement generation
- Survey functionality
- Tiering options
- Financial transactions and points management
It is also important to look at the system architecture and its ability to integrate into existing data networks, how the platform will incorporate, access and update legacy system records, capabilities for high volumes (scalability) and how contact centres can be linked with it - e.g. via wide area network (WAN), local area network (LAN), etc.
MJA found that most of the platforms examined did not fully enable interaction between the loyalty programme operator and the consumer, making segmentation very limited and resulting in irrelevant offers being presented to consumers. Consequently, Atkin offers the following advice on best practice where most of the programmes fell short:
28. Bonussing:
Best practices in running an effective Loyalty Programme requires segmentation of customers to identify Best, Best Potential, Likelihood of attrition and lifetime value. Once this segmentation process has been done it is necessary for practitioners to allocate their funding to the relevant sector i.e. Bonussing. MJA recommends that operators should allocate at least 50% of their funding rate for targeted bonuses to reward Best customers, defend the business and create real loyalty. Platforms need to be capable of creating bonus offers by Member, by Retailer, By Region, By Branch, By Terminal, By Date, By Activity etc etc.
29. Partner Management:
While this functionality mainly applies to multi-partner schemes it is important that a platform can operate with issuing and redemption partners. Points are a liability and, in some countries, this requires auditable data on points issued by partners and funds sequestrated so that points awarded are paid for even long after a scheme has closed. This functionality is also important if an operator is transferring points from an existing programme to a new one and where an issuer allows members to collect other currencies e.g. Exchange points for Frequent Flyer Miles.
30. Surveys:
MJA believes this is a weakness in many platforms and is critical in the development of effective segmentation and the development of strong customer relationships. Whilst transactional data on members provides very useful data to identify customer spend and spend potential, the lifestyle data that surveys provide completes the picture and enables relevant offers to be made to members. Too often loyalty programme members receive offers that are not relevant to them and are ignored. Software platforms should allow Programme Managers to create surveys for Contact Centres/Websites etc.
31. Contact Centre Information
Another crucial part of any Loyalty Programme is the Customer Care screens. Information should enable call agents to not only, give out points balances, but also enable them to access member activity history, process redemptions, carry out surveys, add lifestyle data and personal information. Similarly Customer Care agents should be able (with security controls) to award points to dissatisfied members. This information should also be capable of being replicated onto a Loyalty Programme website for member access.
Conclusion
The adage "technology enables but imagination wins" is certainly true when it comes to loyalty programmes, and the most successful ones are being kept fresh and interesting as a result of using a highly capable loyalty platform and very creative programme managers.
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1. Jane - The Invisible Customer
Invisible Customers are crying out for recognition
Retailers' invisible customers are crying out for recognition - the rules have changed. Instead of battling for loyal customers by requiring them to use a store credit card, retailers need to recognise their shoppers' individual needs.
Imagine a hypothetical customer who is, by any standard of measurement, an avid and active department store and speciality retail shopper. We'll call her Jane. If you are a retailer with a store in the local 'mall', you can bet that Jane has been in your store. She is clearly a 'best customer' - she visits your main store at Bluewater an average of four times a month and spends an average of £50 per visit. Jane also spends three times that amount with your competitors. But you have never seen her. In fact, when she walks into your store, she's invisible. And when she walks out, you have no idea that she was ever there at all.
See Jane ignore her Department Store Card
Let's say that Jane stops at the Store A at her local shopping centre to pick up a dress as a gift for her daughter. Along the way, she sees a handbag that her mother had asked her to pick up for her. But she is fairly certain she can get it cheaper at Store B, so she leaves it behind. When she stops at the cash desk, the assistant asks her if she would like to charge the purchase to her Store A card.
'No, Barclaycard,' Jane says. The assistant rings up her purchase and Jane and her sister go off into the shopping centre. To Store A marketers, she is invisible. Unless she uses that Store A card, they don't know what she buys, when she buys it, or how often she buys. Jane knows she is invisible because the mail-shots that she gets from Store A are not targeted to the buying habits of her or her husband. She only becomes visible if she chooses to do so - and Store A simply hasn't given her a good enough reason. Jane only took a store credit card at Store A because they were offering 10% on the day she was buying her Christmas presents. She paid the account balance in full and has not used it since!
In fact, Jane sees little value in her Store A card. She received a 15% reward voucher when she opened her account, which was nice. But when she purchases anything at Store A, she still uses her 'Barclaycard'.
See Jane walk out of Store B
Now let's say that Jane heads over to Store B to pick up that handbag for her mother. Jane spends almost as much time and money in Store B as she does in Store A; she likes the store layout and the customer service is always outstanding. When she looks for the handbag, however, she finds that they are out of stock. Jane sees that the bags had been on sale, but the display was now empty.
'When did these bags go on sale?' Jane asks the assistant.
'Yesterday,' the assistant answers. Don't you have a Store B card? You should have received advance notice.'
'You mean that you are penalising me for not having your store card?' Jane asks. 'Look, I'm a good customer. I probably spend a couple of thousand pounds a year in this store. But because I don't use your store card, I get left out. Now I am going to have to walk all the way back to Store A and pick up the handbag there. I feel like I'm invisible to you guys.'
These examples beg a question: are Store A and Store B retailers, or are they card marketers? It's difficult to succeed simultaneously in both agendas. Card brands have become so powerful that, in order to win the battle of share of wallet, they have been forced to add significant reward value to their cards. As a result, the Card business has developed huge muscle behind a shrinking list of monster brands.
So the rules have changed. Retailers who continue to fight for loyal customers by requiring them to use a store credit card are ignoring reality: many shoppers would rather be invisible than give up their frequent flyer miles or their Nectar points, and many others still prefer to pay with cash and cheques.
Offer a multi-tender loyalty programme, and previously invisible customers will magically reveal themselves, inviting you to engage with them.
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2. Mistakes in B2B Loyalty Marketing
Once the tool of Retail Marketers, loyalty programmes are cropping up all over the business-to-business arena. And for good reason: the 80-20 rule is even more pronounced in B2B channels, making the identification of best customers all the more important. Because B2B marketers generally deal with smaller customer bases and higher transaction and lifetime customer values, it only makes sense to develop a systemised approach to improve share of customer.
MJA Associates have taken a look at some of the biggest mistakes that can be made in a B2B Loyalty Programme:
- Over-reliance on discounts. The problem with discounting is that it almost always erodes the marketers pricing integrity. Any equity-style loyalty programme, which involves a promotional currency that converts to a genuine hard benefit, allows the marketer to avoid traditional discounting. An over-reliance on discounts wastes the opportunity to recognise and reward high-value customers while reinforcing standard pricing.
- Ineffective use of incentives. Interestingly, some B2B marketers perceive as loyalty programmes what have traditionally been incentive programmes. Whilst the two are not the same, many incentive programmes are logical opportunities for a loyalty transfusion. Traditional incentive programmes are usually reward driven and characterised by one-way communication. True B2B loyalty programmes are data-driven and characterised by sophisticated two-way communications, which isn't to say that rewards are absent from these schemes. Instead, the relationship is the key, and rewards and benefits are configured as evidence of the value of the relationship. The dialogue between customer and marketer takes on a more prominent importance.
Managing the customer relationship is an even greater challenge in B2B programmes because the relationship is more complex, involving both an individual and a business. This complex relationship requires the right blend of hard and soft benefits. Hard benefits are tricky in a B2B programme, because they absolutely must be business related to avoid any possibility of motivating inappropriate employee purchase preference. So, creative soft benefits are all the more essential in the form of special information, special service and special access. Information is a benefit when it enhances the customers' ability to improve their business performance. Extra dimensions of customer service are perceived as evidence that the marketer is acknowledging the customers' special status.
All benefits in B2B programmes must directly accrue as a corporate benefit, even when they are bestowed upon individual employees. Examples would be professional training or education.
On the other hand, when a loyalty programme's membership is primarily business owners, mixing in business-related rewards that might also be used by the owner personally is fair, acceptable and very effective.
- Inadequate database development. Two-way communication - particularly communication aimed at developing the customer database - is another often-overlooked aspect of B2B programmes. Although most companies know what customers buy, the billing database seldom has the information needed to customise relationship-building communications with customers, such as size of the customer's business, his use for the product or service purchased and special situations based on his industry, geography or business life-cycle. Even basic address and key contact data can be sometimes missing.
Thus, benefits early in the programme need to stimulate dialogue aimed at identifying the key decision makers/influencers and knowing how to reach them in the future. Subsequent communications should expand the customer record further. Mailings should include short surveys/questionnaires. Customer service calls should include two or three extra questions designed at filling data gaps. Even personal sales calls should involve collecting specific information for the database.
As important as collecting the information, however, is using it. Communications should reflect individualised knowledge of the customer, adding relevance to the content and reflecting respect for the customer's involvement in the programme.
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3. Is your loyalty programme in a rut?
It's Monday morning and the membership status report on your company's Loyalty Programme reveals flat enrolment and escalating attrition for the fourth month in a row. You reach for the antacids, but it's really time for Programme therapy, including electric shock.
The objective of any loyalty scheme is to establish long-term relationships with customers so they count on the programme as they would a trusted friend. If that friend - or programme - starts interacting with them superficially or ignoring them altogether, they will probably disengage, if not leave outright, without ever revealing that something is wrong.
You have to catch your customers before they reach this point, because once they are disenchanted, you will probably need a big infusion of creativity and cash to win them back. That is why it pays to look for signs that your loyalty programme is in a rut before the customer notices.
MJA Associates have identified three important trouble markers along with steps you can take now to turn your programme around.
Member participation rates are declining. A thriving loyalty scheme has steadily increasing participation rates. Although rates vary widely depending on the level of customer involvement, the size and scope of the programme and the marketing strategy of the organisation, a few ground rules apply. New programmes should grow steadily over the first two years. A mature programme should generate enquiries at a monthly rate of 4%-5%.
The most common cause for declining participation rates is loss of creative focus on the scheme. Too often, the loyalty programme gets major support and attention from the sponsor only through the launch year, the assumption being that a successful launch signals the end of the really hard work. Nothing could be further from the truth. The day that you decide that your scheme can be relegated to second priority is the day you plant the seeds of disenchantment in the minds of your members.
It is also common for newly launched programmes to settle in a rut of self-imposed sameness. Members repeatedly receive the same kinds of offers. Member communications repeat themselves in form and substance. Benefits begin to lose their lustre as their delivery becomes inconsistent or insincere. The relationship's special character is belied by the homogeneous nature of all member interactions with the programme.
There is no excuse for this, and it's easy to fix. Simply set as your goal the creation of some kind of surprise value-added offer for at least one segment of your membership base each quarter. By surprise, MJA Associates mean something different in style and substance from anything you have already done. Of course this kind of commitment to testing new and different tactics on a continuous basis means that you will be pushing yourself harder. But that is the price of the game, and the impact is both cumulative and positive. Customers like pleasant surprises and they tend to talk about them, which generates more new members and increasing activity rates.
Return on investment has diminished. When ROI begins to slip in a loyalty programme, management's first reaction is often cost reduction (let's cut the value of the points!). But that is like opening a vein. Reducing programme funding may improve short-term ROI, but it only weakens your ability to recover and thrive.
The better approach to declining ROI is to tackle your benefits structure with fresh eyes and open ears. Talk to members. Ask them what they like and dislike about the scheme and what kinds of recognition and reward they wish for. Look for new benefits or variations of existing benefits that might be offered to stimulate incremental purchase behaviour.
Test carefully. The appropriate approach is with a scalpel, not a butcher's knife. ROI can be affected dramatically if you focus on member segments where share of customer is already moderately strong. These customers are already willing to select you over your competition. By giving them evidence of added value, you might see large gains - without having to deliver the same new benefit to the entire membership.
The Loyalty Programme's been orphaned. Whether through attrition, reorganisation, mergers or downsizing, chances are that both the original 'parent' and objectives of your company's loyalty scheme are no longer around. An alternative scenario is that the whole marketing department oversees the loyalty programme, rather than one individual person being directly responsible.
Loyalty Programmes need a corporate champion and a day-to day leader. The business stays focussed on the customers' wants and needs and that the programme is positioned as one of the key direct contact points that the company has with the customer. The leader ensures that the scheme is directly linked with corporate and product marketing strategies and that the consequences of other marketing decisions take the loyalty programme into consideration.
The day-to-day leader of a loyalty programme needs special skills in order to manage it effectively. He or she must recognise the potential for the programme to build a dialogue with the best customers. He must be well respected within the organisation and recognised as someone who is close to the customer. And he must understand the many facets of making a scheme successful, such as linking programme to strategy, effective communications and ensuring that operating systems deliver information quickly.
One more attribute to look for in finding your programme champion: courage. Select someone who has the dedication and courage to fight for the customer.
It is all too easy to allow the loyalty scheme to settle into the broader portfolio of marketing projects, which are buffeted by the stress and strains of organisational budgets and politics. Unlike your advertising and sales promotion efforts, your loyalty programme constitutes a genuine, tangible connection to your most valuable customers. Your champion must be willing to march straight into the CEO's office, if necessary to defend the integrity of that connection.
When all is said and done only a steadfast, courageous commitment to continuous innovation and creativity in the pursuit of delighting high value customers will keep your loyalty programme out of the ruts that can sidetrack and deplete them.
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4. Database Marketing - Highs and Lows
Use your database wisely
Database driven loyalty marketing can target the best customers with laser-like precision, help maintain their loyalty and increase their purchases and, ultimately, their profitability to the company.
To do all this, however, they must be used with proper upfront strategy and ongoing testing and refinement.
For example, to provide the starting point in programme design, marketers should do a proper initial analysis. The customer base should be split into at least four segments based on the company's current share of customers' purchases in their category and their relative category consumption.
The four major segments include:
- LoLows: low current share, low-consumption customers. The LoLows don't spend much money with your business now, are not big spenders in the category with your competitors and, for whatever reason, lack the capacity to increase consumption in your category in the future.
- HiLows: high current share, low-consumption customers. HiLows are generally quite loyal and can be reasonably profitable, but they spend comparatively little in the category. While they often represent in the aggregate an important base of business, they have little growth potential.
- LowHighs: low current share, high-consumption customers. LowHighs spend comparatively little with your company but spend significantly more with the competition. If you consider only what they spend with your company now, they may look like HiLows, but in the larger context, they emerge as the real growth opportunity.
- HiHighs: high customer share, high-consumption customers. HiHighs are the crown jewels - your best customers - and all your competitors are scheming to take them away. They are unusually loyal, but with many HiHighs, there may be little room for improving spend.
Getting to that fundamental first level of customer value segmentation requires a little work, adding dialogue where the data leaves off. Most companies with a database loyalty marketing programme segments its customer file using member purchase data that provides only a two-dimensional perspective. Understanding potential value of each segment requires gathering of data directly from consumers via surveys or by obtaining competitive purchase data from other sources. Surveys or questionnaires are the preferred approach because they are voluntary and provide an opportunity for positive customer interaction.
Once segmented, a common error in loyalty marketing programme planning is overlooking the value of varying combinations of rewards and recognition. You need to approach each of the four initial customer value segments differently to maximise programme effectiveness, and as each segment is further refined, you can vary your approaches even more. Blending hard and soft benefits - reward and recognition - in various ways creates the most compelling value proposition to each segment at the lowest cost.
The following suggestions outline a simple strategic approach to applying variable benefits to address the four value segments:
- Starve the LoLows. If you can avoid recruiting them to your loyalty programme from the beginning, do so. In many cases, however, until they have joined the programme, you have no way of assessing their value. To prevent LoLows from consuming a disproportionate share of programme resources, establish a low base offering of rewards and recognition, but promise rich returns for the true best customers. LoLows have little real opportunity to advance beyond basic membership status and soon lose interest, and their inactivity allows you to reduce or eliminate communication with them. The goal is to starve them out of the loyalty programme quietly but effectively.
- Tickle the HiLows: The objective here is low-cost maintenance. Communicate often enough to make the customer feel special, and use occasional bonus offers to supplement the base-earning rate for rewards. Remember, there's little opportunity to grow these customers' purchases, so offer only enough benefits to sustain current activity.
- Chase the LowHighs: This is where the big growth opportunities are, but to overcome loyalty to competitors, you have to offer significant added value. Use frequent bonus points, always tied to increasing purchase levels or frequency and designed to produce reward accumulation rates of double or triple the base rate. Being recognised with a special status is also important to LowHighs, but the best approach is to tantalise this segment. Let them sample the advantages of special status while making them reach to achieve and maintain it.
- Stroke the HiHighs: Surprisingly, it is easy to overspend on this segment. HiHighs have reached a level of loyalty and commitment that requires comparatively less reward, but significant recognition. They know they are important, and they are looking for constant and meaningful evidence that you know how important they are. A fixed status bonus rate that rewards them above base on every purchase can replace the lavish bonusing used with the LoHighs. Offer special deals, access, information, unique identifiers and personalised service to keep the HiHighs happy.
Marketeers are often concerned about whether these variable approaches can alienate some customers when they realise they are getting less than others. In practice, however, you can usually turn customer envy into a positive by tapping into the aspirations that variable benefits engender. Tiering, or published membership levels that relate benefits to status achieved through purchase behaviour, is the best way to achieve that. Customers understand that simple equation.
The appropriate combination of recognition and reward has always been fundamental to successful loyalty marketing programmes. By applying the right blend of benefits - varied according to the differing needs and relative value of different customer segments and continually revitalised by creativity - marketers will find loyalty marketing to be among their most powerful and indispensable database marketing tools.
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