The Practice Of Loyalty Marketing

Defining the Loyalty Marketing IndustryLoyalty Marketing can be defined using many terms: Loyalty, Frequency, Retention, Relationship Marketing, etc. While specific meaning can be applied to each term, in reality these names are used interchangeably to define the same marketing solution:A long-term flexible marketing strategy that helps companies identify, retain and grow best customers by communicating to them and recognizing and rewarding them based on their purchase activity.The Loyalty market is not measured, but is estimated to be very large. Based on The Cowles Report, which claims there are over 2,250 Loyalty programs in the marketplace, the Loyalty industry is estimated at $5 billion and on the rise. While telecommunications companies are responsible for many of the nation's leading programs, Loyalty Marketing can be found across all industries and segments. Whether companies are trying to retain their customers, motivate them to increase their purchase activity, or trying to establish loyal relationships, the basic principles of Loyalty Marketing are being applied all over.Why LoyaltyMore and more, companies are realizing that their most precious asset is their existing customer base, and among that base not all customers are created equal. Loyalty Marketing provides countless benefits to marketers who are trying to market to their best customers. To summarize, well-designed and executed Loyalty programs can:Result in a better understanding of what customers want across product and service linesDrive customer behaviorEstablish a competitive advantage, allowing companies to differentiate without price discountingAllow marketers to allocate marketing resources to those customers with the greatest potentialEnable marketers to track and measure customers' spending and service behaviorsProduce profitable long-term customer relationshipsMaximize return on investment in a measurable way, allowing companies to identify profitability among product and service variablesGenerate a multi-year revenue streamThe Practice Of Loyalty MarketingLoyalty Marketing has become the buzzword of the nineties. It has generated a seemingly endless stream of philosophical debates, viewpoints and application theories. But the concept is not new. Loyalty programs have been around since the middle ages and the "baker's dozen" concept. Its theory was based upon "the more you spend, the more you earn" philosophy. That basic concept is the foundation for what we now refer to as the Relationship or Loyalty Marketing industry. There are many issues facing U. S. companies that have brought on the current increased demand for marketing strategies focusing on Customer Loyalty. Everything from the increasingly global economy to the rapid onset of technological advances and smarter consumers are issues faced by almost every company, selling almost every kind of product, in almost every marketplace.Turning Best Customers Into Loyal CustomersUnderstanding customers is the first step. Understanding who they are and what influences them is critical in the development of value-added Loyalty initiatives. Examples of some of the basic components include:Demographics -- Who are they? Age, income, location, number in household, etc.Behaviors -- What are they doing? Product line, usage patterns, tenure, etc.Attitudes -- Why are they doing what they're doing? How they feel about the company's quality, service, competition, value, level of choice, etc.Gaining a better understanding of these elements allows marketers to profile their customers with segmentation and profitability measures to identify their best customers. To be truly competitive, and this is particularly true in the telecommunications industry, best customers must not be solely defined in terms of the value they represent today. Understanding key share of wallet drivers help companies identify customers who represent greater degrees of profitability in the future. Once those customers have been identified, service enhancements and product bundling strategies can be employed to yield greater profitability. While a solid foundation of customer understanding is critical, it's not all that needs to be done before launching a Loyalty program. Marketers need to gain an understanding of competitive Loyalty offerings to ensure that their program can be differentiated with perceived value. Once companies have a basic understanding of their targeted customers, their choices and the competitive arena, they can begin to design their Loyalty Marketing program components. These components should include:Communications Plan - the right messages delivered the right way to the right people at the right time.Rewards Structure - an effective payout schedule with a broad selection of rewards matching customers' needs and desires.Operational Plan - a plan to leverage Loyalty Marketing technology to track customer usage and response activity, and integrate the right mix of communications and rewards. Reporting & Analysis Plan - a plan to track and measure key performance objectives and analyze data against program objectives The Loyalty Marketing ProcessSince Loyalty Marketing is not new to the telecommunications industry, there are many tried and true lessons that have already been learned. Perhaps the most important, is the need to follow a strategic process when practicing Loyalty Marketing. In order to successfully identify best customers and develop marketing strategies targeted to their needs, a proven method for planning, designing, operating and evaluating the marketing initiative is required. The "Maritz Loyalty Marketing Process" is a direct result of Maritz' experience with a variety of Loyalty Marketing initiatives in the telecommunications industry. This four-phase process guides the entire Loyalty initiative, from the earliest objective planning meeting, through measuring the success and determining the forward strategies. Key Considerations And Critical Success FactorsCustomer Understanding - The success of the communications plan depends on how closely the message hits the customer target. Gaining knowledge about the targeted customers' demographics, behaviors and attitudes is critical to developing and delivering effective messages and rewards.Measurement - The objective of Loyalty Marketing is to increase revenue via retention and increased purchases, therefore, measures must be implemented to monitor how effectively the program generates returns on investment. In order to effectively track program results, the design must stem from clearly defined objectives tied to key performance measures.Long-Term Commitment - Customer Loyalty takes time. After all, loyal relationships are not built over night. A company needs a minimum of two to three years to thoroughly understand its customers, deliver on evolving customer expectations and build sufficient brand equity in the customer's mind.System/Database Management - The database is the engine that drives marketing activity. Questions to consider are: What information needs to be captured? How will the information be used? What is the database supposed to do? What system enhancements will be required to perform these functions?Testing - What customers say and what they actually do often differ significantly. Testing enables companies to try various program and communications options on smaller customer segments to obtain actual vs. research-based results. Key learnings can then be incorporated before being launched to the larger target population.Flexibility - Because Loyalty is an ongoing effort, the program design and structure must allow for flexibility. The industry is filled with examples of competitors introducing comparable offers within six to nine months after a new program launch. Marketers may need to enhance their program with a new award offer, new bonus opportunity or other value-adds to react to competitive threats.Investment - The investment in a Loyalty Marketing initiative is cyclical. In the first six months, the majority of the investment is for program set-up and communications. Award redemption and customer participation begin to accelerate between the twelfth and sixteen months, as customers begin to respond to the motivational drivers and gradually become more profitable. At this point, the majority of the investment switches to redemption and program management costs, making the investment commensurate with the resulting increase in profitability. This causes the ROI to climb steadily and maximize throughout the second and third years.

The Practice Of Loyalty Marketing

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