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5 Barriers to Loyalty, And How Marketers Can Overcome Them

by: Dave Walters (@_DaveWalters)
12 November 2014

There are literally hundreds of market examples of how customer choice and loyalty have both built and destroyed brands over the last 50 years. Today’s customer has an ever-exploding choice of companies to do business with. And if the startup types from Silicon Valley, New York, Austin or Atlanta have their way, many traditional businesses will be broken into smaller component pieces with “disruptors” changing the market dynamics completely.

While innovation has a long history of creating new markets, the age-old question for marketers is “How do I remain top of mind for my customers, and what programs help me build lifelong buying relationships?’ For almost any market segment with two or more competitors, the answer has been loyalty programs. From early examples like Green Stamps to today’s highly sophisticated airline programs, great loyalty programs tip the scales during key buying decisions and centralize a customer’s spend behavior.

So why doesn’t every company spend the time and money on loyalty programs? Because big programs like Best Buy Rewards or Delta SkyMiles cost millions of dollars each year to operate, and it’s hard to justify in the world of increasingly smaller, faster companies. Many believe the product and experience simply have to be overwhelmingly superior to “earn” loyalty.

Yet I would contend there’s a middle ground — that you can solidify relationships for years without resorting to printing millions of plastic cards and discounting your products and services. New-school marketers understand that a differentiated experience for their best customers will demonstrate their core commitment to customer satisfaction, which absolutely affects buying decisions over time.

So if loyalty is achievable by companies of all size, the question is why aren’t marketers doubling down? Let’s look at a few common barriers I hear from marketers, and some strategies to move past them.

1) No Cross-Channel Customer ID

Among the most fundamental reasons brands can’t get traditional loyalty programs in place revolves around understanding customer behaviors (particularly spend) across channels. Something as simple as tying ecommerce purchases to call center buying events can be tough when you don’t have a fully baked identity schema that flows across multiple technology systems and customer groups. Even understanding when a prospect is deeply researching a purchase online but ends up converting in another channel is a use case many marketers can’t solve for — even at the close of 2014.

Solution: If you’re in growth mode, take the time to put a Customer ID project on your 1H2015 product road map. It might not have immediate revenue lift the way a pure acquisition program would, but understand the combination of cost savings and incremental lift during the next 18 months.

Think through making your site login process include the key identity elements of your site-based cookie strategies – for both known and anonymous users. Ensure your touch points all can at least identify your users, and begin to aggregate data in a central place — whether that’s a marketing automation platform, CRM or other central repository. Don’t let perfect be the enemy of good — just get started soon!

2) Marketing Department Bandwidth

Almost none of the 100-plus marketing departments I meet with each year has time to wholesale revamp their approach while still executing their plan. As marketers, we’re swamped and there isn’t usually a cavalry coming to our rescue. This is where you have to simply buck up, and start small.

Solution: Force yourself (and your group) to spend a minimum of one day a month on future-state marketing — do it two to three times monthly if you really want to accelerate your progress. Map out your key segments and dig deeply into how they interact with you. What are their objectives (research, purchase, problem resolution, etc.), and how can your marketing help them complete the task faster and with a few unexpected moments of delight? Don’t wait until you’re 100 percent confident you can execute the entire program before taking the first customer analysis steps.

3) Low- or Variable-Margin Business

I often hear the laments of retailers who feel forced by their competitors into a discounting strategy. Many discounting models are built on everyone on your list receiving the offer and then calculating what percentage of recipients will redeem. This can be a tenuous line for even great marketers to walk — understanding the perfect balance between audience size, margin giveaway and top-line revenue growth. 

Solution: Build on your deepening customer knowledge, and focus your best offers on the smallest, most qualified audiences. Conceptualize and test offers for users displaying overt buying behaviors — and be thrilled to give away a strong discount to a highly qualified user whose repeat business you now have a chance to earn.

Conversely, if your margin is so small you simply can’t (or don’t want to) discount, think about how you could enhance a buyer’s experience via VIP treatment. Often our best customers aren’t motivated by price alone — try having early sale hours or double loyalty points or access to a personal shopper. If your customers aren’t clamoring for discounts, do yourself an epic favor and don’t even start the conversation. Only in rare cases are coupon-driven customers the type you want to build your business on.

4) Lack of Executive Support

I sometimes see a mismatch of priorities between marketing practitioners (typically managers and directors) and business executives (typically VPs and above). Often it’s around staffing and relates to the challenges we discuss in #2, but I also see a small percentage of old-school executives focused on database size. The reality is every person in your database who hasn’t interacted with you in the last six to 12 months is much more likely to represent a risk to the overall health of your programs by messing up your deliverability scores.

Solution: There are plenty of issues to manage upward, but I’m a firm believer that success levels all playing fields. If you can demonstrate money saved, revenue grown or customer satisfaction elevated you’ll have a much better chance of changing the conversation around topics like hiring and list growth.

Become the execution expert in your management chain, test and refine new program approaches, and think holistically about your business — not just the marketing of it. There’s an interesting moment of transcendence for a marketer when you understand the audience so well you can go to the business and initiate conversation around offer strategies. Not only does it beat not being the order-taker all the time, but it demonstrates your ability to think beyond your position — and that’s how you get promoted quickly.

5) Quantification is Difficult

One of the cornerstones of a great loyalty program is its ability to measure the financial impact of multiple customer behaviors on the bottom line. In addition to being able to run a full-blown ROI analysis on the program itself, the resulting customer segments then require their own ROI-based offer strategies that perfectly balance “cost to deliver” and increased revenue. Too often, our companies don’t even have hard cost metrics for events as simple as inbound support phone calls or a salesperson visit.

Solution: If we’re lucky, we have someone on our marketing staff that has loyalty experience, but often it means recruiting advocates from other parts of the business — finance is a particularly useful area in my experience — to build these cost models.

Undertake the hard work to quantify the top five to 10 customer touch points, and you’ll find almost any company can afford to run a decent sized loyalty program based on the magic combination of reduced customer support calls (a minimum of about $8 per call if you’re really good at call centers) and increased spending of your top 5 percent to 10 percent of customers. Again, you don’t have to build a model to withstand MBA-level scrutiny, just get the big numbers right so you understand how much you can afford to spend to drive this new revenue.

Related Resources:

1) Tip Sheet: “7 Tips for Creating a Modern-Day Loyalty Program

2) Blog: “Purchase Behaviors, Promo Codes and Offers, Oh My!

3) Video: “Loyalty Program Tip: Look for New Ways to Differentiate the Customer Experience


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