How to Increase Member Engagement by Striking the Right Balance with Loyalty Design
With the proliferation of loyalty programs in the marketplace, wallets are becoming increasingly saturated with membership cards, mobile phones with retail program apps, and key chains with key fobs. In fact, the average American household is enrolled in 29 loyalty programs--the problem, however, is that they only actively engage with 12 programs on average.
So, why are so many programs failing to engage members post-enrollment? For starters, loyalty program design can be challenging. One of the more foundational challenges--and perhaps one of the more obvious challenges--is balancing the interests of the customer with the priorities of the business. Businesses who have managed to do this well are seeing incremental lift in revenue. According to a recent 500friends survey of 1,000 global consumers, 86% of consumers state that they will shop more if they like a brand’s loyalty program. For brands, the need to strike the right balance of business priorities and consumer priorities requires a deep understanding of what matters to your customers (deeper than what might be obvious), alongside clear and concise alignment across the entire business around loyalty objectives. The one-dimensional loyalty programs of the past are being surpassed by multi-faceted programs that are weaved into the overall business, sales, and customer experience strategies.
And the balancing doesn’t stop there. The most compelling programs are not only able to balance customer and business priorities overall, but also specific program levers to drive the desired outcome--in other words: they strike the right balance overall, and within the nuances of the program.
Below, I discuss the balance between the following program levers, as well as their implications on loyalty program design:
- Data Capture vs. Behavior Change
- Transactional vs. Experiential Engagement
- Simplicity vs. Relevancy
Data Capture vs. Behavior Change
Collecting customer data and driving profitable behavior change is at the crux of loyalty program design. A compelling “base incentive”--an offer that is always on--is usually in place to create a reason for customers to “swipe” (i.e. to share their purchase behavior), ideally across all transactions for a robust understanding of purchase patterns. The problem is, the base offer itself is often not enough to drive incremental behavior change to offset the dilutive cost of the program (the cost associated with incentivizing actions members would have done sans-loyalty program).
The key is to leverage the base offer to build a robust customer database and to create a solid foundation from which to derive customer insights. When dilution is, or becomes, an issue, these insights can then be used to layer on relevant and targeted bonus offers--the right offer, to the right member, at the right time. However, if the bonus incentives are too liberal, it is likely that the base incentive cannot be as generous and program enrollment will suffer.
Transactional vs. Experiential Engagement
In loyalty, we see two distinct types of engagement mechanisms: 1) transactional – engagement tied to spend/transactions which drive repeat patronage, 2) experiential – engagement tied to non-transactional elements which includes, but is not limited to, informative content, social interaction, and soft benefits which drive positive brand association.
Each transactional and experiential engagement have their pros and cons (Table 1). For instance, transactional loyalty, although measurable from an ROI perspective, is often not as “sticky” as its experiential counterpart. And experiential programs, although “stickier,” don’t always drive maximum enrollment of best customers and is strongly driven of the quality and relevancy of the content being offered. Ultimately, a balance of both transactional and experiential engagement is ideal to drive truly loyal customers who are positive in both their behavior (repeat patronage) and their attitude toward a brand.
Table 1: Transactional vs. Experiential Loyalty
Factors such as industry vertical, average customer frequency, and competitive landscape can help guide where the program focus should be. For instance, lower-frequency verticals (such as specialty retail) may have to rely more heavily on experiential program elements to drive engagement in between customer visits than their high-frequency counterparts (such as grocery and fuel). Additionally, loyalty program design can be used to differentiate from a competitive space that is saturated with a single-type of loyalty program. For example, Walgreens introduced Balance Rewards, which, in addition to incentivizing on transactions (the status quo within pharmacy), also engages on an experiential level by incentivizing “healthy behaviors” by way of activity tracking mobile apps. Not only does Balance Rewards differentiate from other pharmacy programs, it does so in a way that is relevant to the brand and industry, and beneficial to its members.
Simplicity vs. Relevancy
It’s no surprise that loyalty programs need to be simple. It’s likely that members will disengage when faced with overly complicated program structures and guidelines, so, simplicity is paramount. However, with that said, overly simplified programs may not do enough to differentiate between members. For instance, is the program offering served up to best customers the same as less engaged customers? Are best customers not seeing value in the program? Additionally, an overly simplified program may not be tailored enough to address the unique characteristics of a brand or industry.
Weaving in the element of “status” amongst best customer (i.e. creating a program tier structure) can be a simple way to differentiate members based on their value and reward them proportionately to their value. More importantly, when customers feel valued, they are much more likely to become brand advocates.
Sephora’s three-tiered VIB program is a great example of a simple program that utilizes spend-based tier qualification. It is structured such that it engages the mass and drives enrollment with its entry-level tier, has an achievable mid-tier layered with elevated benefits, and has an aspirational top tier with exclusive perks for its best customers.
The Successful Balance
A 500friends’s client sought to launch a loyalty program with broad appeal that would enable the brand to capture valued customer insights. The program was expected to enable the core business objective of increasing customer lifetime value, which including driving value brand interactions in addition to repurchase and spend. By developing a program to drive valuable member participation, unlocking customer insights from a cross-channel perspective, our client saw a 20% lift in purchase frequency and a 27% increase in member spend vs. non-member.
In summary, designing a loyalty program is not a one-size-fits-all solution, as there is not one rightapproach, structure, or recipe for everyone. However, creating an effective program starts first with a clear understanding of what matters to customers as well as a unified definition and alignment across the business around loyalty objectives. From there, a strong foundation will be in place whereby a program can be built, and loyalty levers can be balanced effectively.
To learn about the loyalty design services provided by the 500friends strategy team, click here.
To read 500friends’s global report on retail and CPG loyalty, “The Great Loyalty Reset,” click here.
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