Loyalty Marketing

Mike Duncan (November 2009)

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The Loyalty Program: Providing Strength in Brand Equity

Canada is loyalty crazy. How crazy? Approximately 86% of Canadians identify themselves as loyalty participants. We trump the Americans in this regard. There are some good reasons for this and Canadian marketers are looking hard at loyalty program marketing as a meaningful way of touching their customers and providing them with added value. More and more, it is becoming a point of differentiation for a brand.

I recently put together a panel of loyalty program experts at an American Marketing Association (Toronto) discussion. We explored the evolving landscape of loyalty programs, and talked about where we think they are heading and what are the key considerations for managing a successful loyalty program.

The panelists were Steve Allmen of Aeroplan; David Soberman, a professor at the University of Toronto; Rubina Havlin from Scotiabank; and CRM consultant Pat McGoey. The following is taken from our discussion.

Loyalty is Hot

As mentioned, Canadians are big on loyalty. No less than 75% per cent of consumers in Canada say they actively participate. Nationally, we average two and a half retail programs, two financial programs and one and a half travel loyalty programs, which equates to an awful lot of plastic in someone’s wallet. Contributing to the difference between our situation and that of the US is that Canada has fewer brands with large market share. Then there's our success with coalition loyalty marketing programs, including the internationally well-known example of Air Miles. Air Miles was once described, by CRMtrends.com, as the '1,000 pound gorilla' and it led household penetration in Canada until the Shoppers Drug Mart Optimum program took over.

So how did loyalty become so big? It started in Germany in the '50s with S&H Green Stamps. It was introduced at that time because some industries had restrictions on price-based competition and companies were searching for other ways of differentiating themselves. When consumers bought groceries or gas from S&H, a large national retailer, they would collect a number of stamps for their purchases. These stamps were collected until there were enough to redeem them for merchandise like toasters, clothes or toys.

I mention this example because it demonstrates the core of what loyalty marketing is about. As competition increases, it becomes important for brands to resist entering a price war with others. In Germany, this was prevented with regulation, so an enterprising retailer found a great way to build its brand equity by offering an additional incentive to stick with it. This translated into brand loyalty, equity and increased profits for the company.

The same holds true today in today’s super competitive marketplace, where you have many more brands and options. To be successful, brands or retailers need to avoid “commoditization” brought on through discounting prices to match or undercut the competition. Brands which want to continuously build brand equity and stay profitable must find more efficient ways to add value and replace the need for deep discounts. Loyalty programs fit the bill.

If this is the core of why brands undertake loyalty programs, who is driving its evolution? Consumers and retailers, that’s who.

The Consumer Drives Innovation, Not the Brand

Consumers are the biggest drivers of innovation. First and foremost, Canadian consumers want the programs to be easy to use. They want to be empowered and have a say in how can they collect, use and redeem their points. They don’t want to be put into a box or overly-structured framework, which limits them.

This opens up the door for the banks and credit/debit cards to make some great strides in the future of loyalty programs, as consumers look for ways to spend and collect every day. Rubina Havlin says that the industry is going back to basics and that it's striving to add value for target customers and be 'honest', noting that the establishment of trust between the consumer and the brand is where equity is built and share of wallet increased.

Relevancy: the Success Determinant

Since wallets can only fit so many plastic loyalty program cards, one key to success is how relevant a reward is to a consumer.  This point was discussed for a lengthy period of time. The group concluded that if you strive to provide relevancy and choice, you can drive program success.

A good example of the marriage of relevancy and choice is the Rewards Network (formerly iDine) loyalty program. It reaches a core audience of consumers who like to eat out and it offers the opportunity to register any credit card at its website. From then on, whenever a member dines out at a participating Cashback Rewards establishment, and pays with his registered card, an automatic 10% credit is added to his next credit card statement.

Retailers also drive innovation, as they are now demanding more creative solutions. In order to differentiate themselves, retailers want to find solutions to look after their consumers in ways that are superior to their competition. What we see now, and will see more of in the future, is the use of more robust data to separate customer segments and then treat each segment differently. Monitoring the amount spent, or the type of products a loyal customer buys, will allow custom offers to be made. For instance, retailers can offer a special promotion to increase the share-of-wallet of infrequent visitors, and consumers benefit along with the retailer.

At the discussion, Pat McGoey mentioned West 49’s All Access program as a leader in this regard. One reason for its success is that it has made its loyalty program more of a social meeting ground. It's all online and loyal customers can access special offers, download music, and take part in forums where they can share with other like-minded individuals and learn about upcoming events.

"There's great innovation here," McGoey noted. "The future could hold more examples of this type of creativity and the fusion of social marketing with a loyalty program. If a loyalty program can also become a ‘meeting place’ for consumers, it opens the door for dialogue with purchasers and can provide the opportunity for deeper client understanding."

Thinking of Jumping on the Loyalty Bandwagon?

These examples sound pretty exciting, but a brand that's looking to develop a loyalty program must be sure to put itself first. The company offering the loyalty program has to win. Ultimately it comes down to the question: did the program deliver increased business, increased number of loyal consumers, and increased market share? And did it build brand equity?  If it is just the consumer who purchases your product or shops at your store who is profiting, shut down the program. It’s not working.

For loyalty programs to work in the future, companies will need to consider a few factors when developing their program.

First and foremost, does it make sense for the industry and the audience?
This notion of relevancy is very important for a program to even get off the ground. Interview a sampling of customers and do some secondary research to get a read on your audience.

Can it set your brand apart from your competition?
If so, leverage the stuffing out of it to  deter ‘copycats’. The Optimum program from Shoppers Drug Mart is an extremely complex and expensive operation, as it handles an immense amount of data. The value to the business and the consumer is great, but so is the undertaking. Few can hope to follow and Shoppers takes full advantage of that.

Will it provide real value to the customer?
Will your audience see it as useful or annoying?

Can it collect useable data?
Customized offers are an excellent way to keep building loyalty. An innovative program that exemplifies the use of the Internet and the power of collecting information is www.breakfastcentral.ca. This is the first-ever non-transactional loyalty program launched by Quaker/Tropicana and Aeroplan, with strategic direction and implementation by OSL Marketing. The Internet is the key enabler, as individual Quaker/Tropicana products purchased in store have PIN numbers printed on the packaging, and the loyalty program member enters these numbers into their online profiles. The website is the lynchpin, as it houses terrific consumer data on the consumer to be used for later promotions. Using this information to cross-sell provides greater opportunity to reach a higher potential audience and eliminate wasteful spending.

It seems daunting for a brand to create a program from scratch, especially for a tier-two player. However, the stiff competitive landscape is forcing many to consider the implementation of a loyalty program, which is why we see the future bearing many coalition loyalty programs.  Together, retailers can leverage the power of individual loyalty program brands, like Aeroplan, and not have to manage or invest fully. More partnerships between top-tier reward providers are making loyalty programs more feasible and successful.

The fundamental goal, or core, of loyalty programs is building brand equity and increasing the 'stickiness' of your brand with consumers. Ongoing loyalty programs not only allow for instant added value with purchase, they also allow for the collection of relevant purchase behaviour data that can then be used to provide customized offers and relevant programs on an ongoing basis.  

A loyalty program is a highly-strategic and cost-intensive addition to a marketing mix. When done correctly, the investment is easily recouped. Educate yourself, or find those that can provide the expertise needed to find or develop the right program to suit your needs and the needs of your customers.

Best Practices: A Top Ten List

At the end of the roundtable discussion, the panel came up with a set of loyalty marketing best practices. The following points may be a checklist or roadmap to loyalty program success.

GET CREATIVE – Try something new and different to make your program a competitive advantage that you can maintain and continue to leverage.

EXECUTION – Too often does a program fizzle due to a poor roll-out. Do your research, look at case studies and work to create and implement the program correctly the first time.

EASE/EVERYDAY USE – Make it easy for the consumer join, accumulate and redeem.

LEARN AND EXTRACT INFORMATION – Use your collected data to know your customers, and use it to add value for them.

MODULATE REWARDS – Use of data can differentiate customers to maximize return on your investment in the program.

DRIVE THE VALUE – Up the value to the consumer on the purchases they make every day.

SEGMENTATION – Targeting your core customers and making the program relevant to them increases brand equity, loyalty and sales.

AFFORDABILITY – Have a value you can afford. Coalition loyalty programs can help provide your brand value.

GET AHEAD TECHNOLOGICALLY – As technology continues to develop, try to stay ahead of the curve and be where your customers are.

Mike Duncan is Managing Director of Toronto's OSL Marketing.