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.
