Stuart Russell, Client Services Director at Planning-inc, discusses the different approaches to loyalty schemes.
Loyalty is one of those ill-defined and evolving marketing concepts. For a long time, it was synonymous with the once popular point-based loyalty programmes, whilst for others it was just another word for retention. Once again, there is neither a universally agreed metric for “loyalty” nor a standard approach to implementing a CRM programme that supports it. Time for a new approach?
The traditional loyalty approach
Loyalty typically refers to the mechanics around rewarding customer spend with the underlying objective being to get the customer to come back and to stretch that spend. This approach is usually completely reactive, based on a reward or an offer, and seldom utilises all the data points at a business’ disposal. For example, two customers on a loyalty programme may have the same LTV so they are treated the same. There is no nuance, and we all know too well that the “tit for tat” approach doesn’t create loyalty, it creates expectations and liabilities. The customer is not loyal to the brand but addicted to points, until they get bored of it.
All this resulted in the inception of the “surprise and delight” approach.
The challenge of delivering “surprise and delight”
Surprise and delight has been an increasingly popular way of engaging customers and delivering a good CX without the hassle and liability of an overt loyalty scheme that has to be governed and managed. As the name indicates, the approach consists of making unexpected and “nice” gestures to the customer. The concept is simple, and we know that the perception is more positive because it is not a direct exchange of spend for reward. But how do you choose who to reward, with what, and when? If you only reward customers reaching a certain threshold of spend or frequency, is it just a hidden loyalty scheme? As much as it might consolidate the position of loyal customers, it does little to improve loyalty across the broader base. How can surprise and delight be managed intelligently and, more importantly, effectively?
Aligning loyalty and business objectives
Let’s not forget that loyalty’s primary objective is to secure the customer in the long-term, in other words, to increase and maximise its LTV.
We also know that not all customers are created equal; they are unique individuals with their own unique behaviours, brand relationships, expectations and, to be blunt, potential as a consumer. The idea is to create a meaningful (and delightful) customer experience tailored to increase the desired outcome (as opposed to just rewarding a past behaviour).
This is what we call Future Value. The approach consists of predicting each customer’s potential (future value) to intelligently focus the surprise and delight effort and budget. Another way of describing it is as a fluid measure of customer-level headroom for growth. In practice, it means that you can offer an incentive or experience relative to the value of the opportunity. This is something that can be integrated in store (website or physical) or within outbound communications; an approach that moves away from just rewarding high value customers (the ultimate self-fulfilling prophecy), and focuses on those with a high value trajectory.
To do so, and to influence behaviours, the solution provides specific Next Best Actions for each customer to contextualise any message. In doing so, loyalty stops being a side-track to the overall CRM effort, it becomes core to its direction and actual delivery. It makes sense both from a practicality and cost perspective.
What next?
The approach naturally fits in with a CRM programme but it can also be integrated into other departments such as customer services (skip call queues, get a proactive call, etc) or any post-sales interaction point during the delivery of a service. The future value approach might come as a surprise and we’re confident it can also be a delight!