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The Power of Points: Strategies for Making Loyalty Programs Work

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The Power of Points: Strategies for Making Loyalty Programs Work Consumer and Shopper Insights April 2013 The Power of Points: Strategies for making loyalty programs work By Liz Hilton Segel, Phil Auerbach and Ido Segev Americans love loyalty cards. Three-quarters of households are enrolled in at least one frequent customer account, such as airline miles, hotel points and grocery cards. Many shoppers have a whole stack of cards to their name – the average household has signed up for no less than 18 memberships. And while participation in loyalty programs Exhibit 1: On average, US households are now enrolled in over 18 loyalty programs; although financial has been growing over the past six years, services, airline, and specialty retail are the largest, enrollment in other sectors is substantial as well usage of them hasn’t. (Exhibit 2) Most loyalty cards never actually get used at all. Average membership per US household loyalty membership by sector American households are active in less than US household 2010, programs per HH 2008-2010 CAGR 50 percent of the programs they have signed 2010 18.3 Financial up for. 3.7 1 Mass services 1.1 2 merchant What’s worse, most of these programs, 2.8 8 Airline Department 1.0 11 even when used, are not driving sales or store Specialty 2.5 23 boosting customer satisfaction. Fewer than retail Drug 0.8 15 20 percent of loyalty members say their store 1.5 5 memberships are influential in purchasing Hotel Fuel & 0.3 (11) decisions and only 33 percent of loyalty 1.5 7 convenience Grocery customers feel that those programs are Car rental 1.1 12 0.2 13 addressing their needs. Gaming & cruise Total Such irrelevance represents a significant 1 Note: additional categories not shown include “Restaurant” (0.1), “Other” (1.4) loss of opportunity for marketers. Loyalty SOURCE: 2007, 2009, 2011 COLLOQUY Loyalty Census programs are one of the best means companies have for collecting information about their customers and, if done right, sales increase, while those without loyalty Too many companies have built loyalty for enhancing customer satisfaction and programs saw 4.26 percent gains. There programs that don’t actively engage their generating new purchases. Not long ago, we are a number of possible reasons for this customers or give them compelling reasons did an analysis of U.S. retailers that yielded ironic disparity, but marketing leaders see to want to use them. To fully take advantage stunning results: Companies with loyalty a big warning sign: Just because you have a of the promise loyalty programs hold, programs posted a 2.28 percent comp loyalty program doesn’t mean it’s working. marketers need to first design everything they do with a crystal clear sense of Exhibit 2: purpose. For instance: What do you Overall number of loyalty programs and enrollment in the US continues to grow want your loyalty program to do? Win U.S. loyalty program membership new customers? Increase wallet share? Millions of memberships Save money? The first step to any loyalty +12% p.a. program is concrete objectives. 2,089 1,796 Total perceived value of points 1,335 This may sound obvious but, in our issued in 2010 estimated to be $ experience, most ineffective or value- 48 billion, or $622 destroying programs lack this basic per participating discipline and thus end up adopting too household 2006 2008 2010 many “me-too” approaches. Knowing Canada had 90% your goal will help you move beyond % of US 57% 68% 74% participation in population who 2010 (has large just points and rewards – by targeting participate in and established the right customers, designing the right loyalty programs coalitions like Aeroplan and Air benefits, and analyzing the right metrics. miles) Through our research, we have identified SOURCE: 2007, 2009, 2011 COLLOQUY Loyalty Census several innovative approaches to making loyalty programs yield results. Here are six strategies, along with examples of featured in the email will also consider within range, a sensor automatically companies that have found ways to keep the customers’ previous purchases. prompts NM Service to act (e.g., it their loyalty programs engaging and provides purchase history and a Facebook relevant. As with all of our publications, photograph). Once the app is engaged, all references to individual companies 2. Keep your offers fresh: the customer is alerted to which of her are based entirely on publicly available Customers want to feel like they’re getting preferred sales associates are currently in information. something of real value, not just the the store. It also indicates upcoming store same old accumulation of points that events, new product arrivals and sales, and will be forgotten and ignored. Amazon emerging fashion trends. 1. Use data to personalize offers its Prime members unlimited customer offers: streaming of a free Kindle book each Caesars has leveraged its loyalty program, Effective utilization of data is crucial to the month and thousands of movies and TV called Total Rewards, to create a true success of any loyalty program. Amazon. shows. And a variety of brands are now multi-channel journey for customers. com CEO Jeff Bezos once said, “If we have offering deals to consumers who check in By leveraging proprietary technology, 66 million different customers, we want to at their establishments via Foursquare. Caesars can identify where customers have 66 million different stores.” To this This app-based company sees itself as a are within one of its properties based on end, Amazon has crafted its email offers modern version of the ‘Marauder’s map,’ where they have swiped their card (e.g. at based on the information it gleans from becoming a recommendation engine for a particular slot machine). Caesars then customers’ browsing behavior on the web places and brands. More than 20 million targets those customers with special site. They use item-based collaborative people have checked into Foursquare over offers based on their play behaviors, or it filtering to figure out what items customers 3 billion times. highlights specific customer events, such might be interested in. as a birthday, by dispatching individuals to greet them or sending the customer Similarly, Best Buy uses data from its 3. Turn your loyalty program into offers directly to the machine. Caesars Rewards Zone program to power targeted a multichannel experience: has also expanded its reach outside its and timely cross-sale emails. For instance, To leverage multi-channel opportunities, properties, partnering with a range of a customer who visits a Best Buy store on Neiman Marcus is testing a new iPhone digital companies, such as Facebook, to a Sunday and uses his loyalty card to buy a app that enables sales associates to interact deliver marketing messages and offers new Play Station 3 will receive a targeted directly with customers. If a customer with to specific individuals based on their email on Wednesday for the PS3. Games the app loaded on her smartphone passes behavior at Caesars properties. 4. Expand beyond your initial It also helped double the average coupon The Ritz-Carlton uses its CRM database, focus: redemption rate to 20 percent. coined “Mystique,” to track information The right partnership can give your on preferred guests, such as their loyalty program a whole new level of There are several analytics shops that can frequency of visits, issues that have come appeal. The grocery chain Kroger, for effectively measure the ROI of marketing up for them during their previous stays, instance, has teamed up with Shell to give programs across all channels, both and their favorite snacks, magazines, customers a discount on another staple online and offline, and to a great level of movies and music. Such recognition goes just about everyone can’t live without – detail— ad impressions, page views, clicks, beyond lip service, and can be a powerful gas. Kroger loyalty customers can use leads, sales, opportunities, closed deals influencer of customer behavior. their points for a per-gallon discount at and revenue. Shell gas stations. For every 100 points Loyalty programs are one of the most at Kroger, you get a 10 cent per gallon important tools marketers have to discount at the pump. 6. Identify who your best connect with customers on both an customers are and provide them emotional and rational level. Yet like all In another example, Starwood Hotels with enhanced offerings: marketing efforts, they require a good and Delta recently announced they were Many companies get a large chunk of deal of creativity and innovation to make teaming up to give their best customers their profits from a small percentage of sure they stay relevant and in sync with reciprocal elite-level benefits. Called customers. At Starwood, for instance, consumers and the market. Crossover Rewards, the program will their top 2 percent of travelers are offer some Delta frequent-fliers enhanced responsible for 30 percent of the http://csi.mckinsey.com perks when staying at any of Starwood’s company’s profits. And while forging hotels – perks such as priority check-in, 4 an emotional connection with your Liz Hilton Segel is a director in p.m. late checkout, free in-room Internet customers is critical across all segments, McKinsey’s New York office, where Phil access and the ability to earn Delta miles it is even more valuable when it comes to Auerbach is a principal. Ido Segev is an for every dollar spent on room rates. these big spenders. associate principal in the Boston office. Likewise, top members of Starwood’s loyalty program will get priority boarding One technique for rewarding these and check-in on Delta, one free checked customers is “badging,” which involves bag, and one Starwood point per a mark of public recognition, such as dollar spent on eligible flights.
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