Loyalty programs are becoming a pillar in Retailers marketing strategy. But what is really loyalty and how is it measured and managed?
My first loyalty program development was back in 2003 when I was the CRM manager for Maserati and we were about to launch the Quattroporte model. Owners of Maserati cars were our main target and we decided to score them based on their Customer Life-Time Value rather than on their most recent purchase. That is why I do not completely agree with the way most marketers define and therefore measure Loyalty by focusing on short-term transactions and not on Customer Life-Time Value.
According to Yotpo , nearly 80% of consumers said it took at least three purchases for them to consider themselves loyal and 37% said they weren’t loyal until they had made at least five purchases. And bringing back customers means meeting their high expectations: 67.3% of shoppers expect 24/7 customer service, while 71.0% anticipate more frequent discounting and 58.4% seek out free shipping in exchange for their loyalty.
This means that most customers are loyal because they get back something tangible such as discounts, 24/7 customer service, free shipping, and freebies. They are not really loyal to the brand: they are loyal to the specific rewards program rather than the brand. And most of the loyalty programs are based on replicable actions. Those loyalty programs do not represent a real sustainable competitive advantage, that is the ability to stay ahead of the current or potential competition. The real customer loyalty is about establishing a strong bond between the brand and the customer. That bond is based on the long-term and it is not only about transactions. It is about how many times that person visit the store, visit the website, engage on social. It is also about advocacy, how much that person can be qualified as a micro-influencer, capable of attracting friends and followers into the brand omnichannel ecosystem.
Customer Life Time Value (CLTV) becomes crucial for a real Customer Loyalty program long-term based. Customers will still expect discounts, freebies, free shipping, and 24/7 service, but what if they are rewarded not only because of their transactions? And what about surprises like discounts from partners or VIP events?
We suggest to align your CLTV scorecard based on what is your long-term business goal and create the following categories of reward generation:
Transaction: KPI based on sales transactions. You can decide to value more those transactions that are not driven by related to discounts or promotions.
Advocacy: KPI based on Peers value generation, that is the value generated over time because of Customers advocacy activity. Customers should be rewarded also for the lifetime value of their actions. If your tools allow you to do it, you can also, and you should, reward them for their share, referral and review actions even if those activities are not generating sales in the short term.
Affection: Customers should be rewarded for the time they dedicate to the brand by visiting the store, engaging on social media, visiting the website, participating in surveys. Brand Loyalty is not only related to how much Customers purchase, but also on how many times they create the opportunity to purchase. Sometimes, they do not purchase because they did not find what they were looking for, and you want to do something about it.