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Loyalty programs good, observers say, but customer service must lead

Anna Fiorentino, Contributor
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To ensure they thrive in a struggling market, companies everywhere are experimenting with a whirlwind of loyalty programs that allow them to track and gather feedback from

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existing and new customers. As these companies figure out what works best, observers such as Matthew Keylock -- recognized as an industry leader in building winning customer strategies -- weigh in on the debate.

When it’s time to grow a business, Keylock, senior vice president of new business development and partnerships at dunnhumbyUSA, suggests a word-of-mouth campaign through those loyal customers. “I generally grow my circle of friends through my existing ones, and in most cases this should be the same in business, but many companies and brands spend their time and effort chasing new customers,” he said.  

Customer loyalty falling

According to The Effects of the Recession on Brand Loyalty and 'Buy Down' Behavior: 2011 Update by comScore, 54% of consumers said they bought the brand they wanted most in 2008. By 2010, that number dropped to 45% and further to 43% by 2011.

The comScore study, which illustrates the impact of the economic climate, found consumers are buying what’s on sale rather than staying loyal to a particular brand. This has opened the doors for businesses to enhance their customer base through a series of rewards and incentives programs where they are most likely to see them -- on the Internet. The key is knowing which programs are most likely to attract loyal customers

These marketing strategies range from search engine optimization (SEO) to pay-per-click advertising and newsletters. They include social media and social customer service management, mobile and even website registration. Furthermore, online metrics now present companies with immediate results, showing how well these customer loyalty programs are working, and that’s based on feedback and then number of visits to their sites.

“Since consumers are increasingly active in the social and mobile channels, most companies I talk to have developed or are increasing their online presence,” said Emily Murphy, a customer intelligence researcher with Forrester Research. “Marketers understand that consumers have increasing expectations for how and when companies will interact with them, and turn to the digital channels to fulfill that.”

Customer Service Still Comes First

Whatever program a company chooses, most industry watchers say the best way to generate loyal customers is through good customer service first and good loyalty programs second.

“The loyalty programs that work best are those in which a business really seeks to be loyal to its customers, drives this philosophy at a strategic level and implements it everywhere across the business--not just via a marketing tool,” Keylock said.

You don’t want to lose sight of your best customers -- you may need to acquire more than 15 new customers to replace one loyal customer, he added.

But according to Murphy, the reality is more companies are using their loyalty programs as a strategy for acquiring new customers or members, not just a retention strategy for existing customers. Murphy breaks loyalty strategies into two categories that often work together: Explicit loyalty and implicit loyalty.

“Explicit loyalty is what we consider loyalty programs -- enrollment programs with a structured give and get that often have their own P&L [profit and loss statement] within the organization,” Murphy said. “Implicit loyalty strategies are made up of any data-driven initiative aimed at increasing retention and improving customer satisfaction, for example, customer experience management. These strategies often work together.” Online account management and enrollment is vital for loyalty programs to work to the best of their ability, since enrolling at the point of service takes time and can turn away customers, she said.

Denis Pombriant, a CRM analyst firm Beagle Research Group, said companies shouldn’t be asking what loyalty programs work best but instead how to shape the attitude of the customers you’re targeting. This is something that is rarely explored beyond the realm of repeated sales.

“The value of loyalty is derived from things that are at best tangential to the purchase. For example, knowing customer support makes sense for your product is far more instrumental to loyalty and to promoting it than simply by looking at sales figures,” Pombriant said.

Assessing customer loyalty

Companies can assess customer attitudes toward a business by using software programs such as Get Satisfaction and Radian6. Get Satisfaction is primarily a service and support modality that helps keep customers in the fold so that they eventually buy again, whereas Radian6 lets vendors gauge customer sentiment.

“By tracking customer sentiment, companies can get far more revealing information than simple survey scores such as net promoter scores because sentiment precedes a loyalty decision,” Pombriant said.

Whatever approach to retaining new or old customers a company takes, in today’s net-centric world there is no reason every loyalty program shouldn’t be using analytics. Those metrics identify customers who have asked to be identified just by signing up.

“Program members are often more willing to give up identifying and personal information. So when loyalty programs target too broadly and don’t take advantage of that opportunity to engage these members, they’re doing themselves a disservice,” Murphy said.

“The customer intelligence function and loyalty programs make great bedfellows because applying analytics makes loyalty program segmentation, targeting and offer management smarter, while loyalty programs generate a lot of attributable data that feeds back into the customer intelligence function,” she said.

Path to successful loyalty programs

Successful loyalty programs are often multi-tiered to provide rewards with a high perceived value and target incremental behaviors. For most companies, these rewards come in the form of discounts.

“Many loyalty programs use external-facing tiers to make it easy for members to understand benefits and provide them with aspirational motivation,” Murphy said. “A customer that can see the distance to achieving the next level of benefits will be more likely to want to close the gap.”

Murphy also noted that companies are now integrating rewards and incentives with online social marketing programs. “They will incentivize tweets, product reviews and Facebook ‘likes’ to start a conversation with their members and engage with them in a new way,” she said.

Loyalty programs can also retain members with something called gamification, which doles out rewards that focus on experiences, such as tickets to a concert and improved service, such as a direct line to the call center.

With so many competing programs in the marketplace, this can lead to forcing that customer to choose between transactional loyalty, based on a single transaction, and long-term brand loyalty, which is based on an emotional response.

“It’s all about interacting with consumers when it’s convenient for them,” Murphy said. And not just through pay-per-click ads.

“How does bombarding customers with ads engender loyalty?” Pombriant asked. “If anything it frustrates people who want an uncluttered experience.”

Pombriant warns that companies should tread carefully when it comes to customer loyalty gimmicks. He agreed that the best way to generate the truest customer loyalty is through good customer service. Any vendor can offer a product at a price and sweeten the deal with a discount if a customer convinces a friend to join. Sure, that deal size may be multiplied through word of mouth. But it’s a model that could backfire without good customer service.

“The company may not have earned that display of pseudo-loyalty, and if the product or service is not up to snuff, the customer could suffer significant blow back,” Pombriant said. “Ultimately, the vendor could have many people angry rather than just one.”

At the end of the day, companies should connect across all online and office channels to ensure the customer’s experience with the loyalty program is consistent and keeps up with the many new online channels available.

“Creating different mechanics and solutions is more likely to fragment the customer experience and can erode loyalty,” Keylock added. He noted that companies can often use customer loyalty offers to reach out to new customers, but only when done correctly.

“Sophisticated customer insights and the ability to act on them with customer-specific offers and benefits that use the right channels and surprise and delight new customers do work very well.”

 


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