Serving Customers Through Loyalty Programs

Amy Harvey, Rockbridge Associates

Creating targeted loyalty programs is a key business strategy for building long-term relationships with customers. Rockbridge Associates shares their pointers for making customer loyalty programs work.

In this fiercely competitive marketplace, many companies are using loyalty programs to create and retain loyal customers.  These programs are becoming commonplace in both product and service industries, from retail to telecommunications to travel.  Administered correctly, the programs encourage repeat business while fostering relationships with customers, which in turn makes the customers more committed to the company. 

The first step to developing a loyalty program is to research the customer database and target key customers for the program. Segmentation is a useful tool for researchers to help identify customers and their needs, in order to more readily target them.  It can also be used after the program has been established for a period of time to examine reasons for any customer attrition. 

Another helpful research technique is to examine customers' expectations for the program compared to what the program actually offers to them.  Items with the largest gaps between these two are worth exploring and improving.

Below are additional pointers for making customer loyalty programs work, based on research Rockbridge has conducted.

Make the loyalty program part of your long-term business strategy.  Successful loyalty programs require more than just a short-term marketing effort.  The first step is to analyze your customer database and target key customers for the program. Once customers have been targeted for the program, be sure to match the benefits and features of the program to the customers' needs.  It is also important to offer customers something they will find useful and valuable.  For example, in the case of a travel loyalty program, it would make sense to target the benefits to those who are heavy travelers. Along the same lines, it is important to ensure that the program offers something unique  and different from that of the competition.

Clearly communicate the benefits and features of the program.  It is important for customers to understand what is involved in the program before they enroll, so there is no misunderstanding about the terms, conditions, and benefits of the program.  It is also crucial for customers, once enrolled,  to receive up-to-date information about the program   This communication gives the company the opportunity to build a relationship with the customer.

Value your customers.  One of the purposes of a loyalty program is to establish a relationship with customers. Customers want to feel valued and be treated accordingly. It is important for companies to listen to their customers' concerns and resolve problems promptly so that they can further enhance the relationship.

Be selective when considering other companies to partner with for a loyalty program. Before partnering with a company, management should first analyze their company's image in the market, as well as the prospective partner company's image.  Do the images and core values of the two companies mesh well?  Does it make sense to partner with the other company?  This is particularly important if the firm is a not-for-profit organization or an association that stands for and operates by basic tenets or beliefs.  Partnering with the wrong company could alter customers' perceptions of the company, and any negative publicity could hurt the company and weaken the partnership.

Companies are beginning to learn that retaining customers is less costly and more beneficial to them than trying to acquire new ones.  Loyalty programs are key to retaining customers; indeed, many customers have already come to expect such programs as routine.

Amy Harvey is a contributing writer to Rockbridge Online. View the Rockbridge Associates listing or visit their website at www.rockresearch.com.

[Sep 17, 2009]