Keeping High Rollers Happy With Loyalty Rewards
In the old days, the general store knew each of its customers by name, and even offered house accounts as a convenience for customers. Although those accounts were kept on handwritten ledgers, it was really the humble beginnings of the loyalty clubs we know today: Because you shop here regularly, we will allow you to run a monthly tab.
From club memberships to mobile apps, merchants encourage customers to return by offering them incentives like discounts or gifts in exchange for their loyalty.
As a result, shopkeepers got to know their customers. Today’s loyalty clubs offer that advantage as well as, hopefully, a few more perks for customers. Retailers that capture data regarding past shopping history can use that information to reinforce that customer behavior — “Come back to Joe’s when you need paper clips again” — but it does little to extend revenue. The report, “Customer Lifecycle Engagement: Imperatives for Midsize-to-Large Companies,” reveals that marketers think they know their customers well: 53 percent of respondents said they have an excellent understanding of customers’ purchase history, followed by 42 percent for basic demographic information such as gender and age. However, the reported concluded that they lack the deep data insights that would enable them to send personalized, relevant campaigns. Less than 25 percent of marketers are using channel-preference data, propensity scores or household composition. Such often-overlooked pieces of data will reap results, because of their inherit value and because competitors are unlikely to be considering that information.
Loyalty data of past behavior is valuable because when the correct analysis is applied, it becomes predictive — and that’s where retailers will really profit.
While some retailers are stingy with what they offer customers in return for personal data — a strategy that, ultimately, will be unsuccessful — beware of giving away too much in an attempt to improve loyalty. A study by the Harvard Business Review revealed that offering too many perks or services can be unproductive.
Authors Louise O’Brien and Charles Jones in, “Do Rewards Really Create Loyalty?” note that small businesses have traditionally compensated loyal customers with free or bonus items. But as companies grew, it became harder to tell which customers were being loyal as well as the most valuable to keep:
“Rewards programs are widely misunderstood and often misapplied. When it comes to design and implementation, too many companies treat rewards as short-term promotional giveaways or specials of the month. Approached that way, rewards can create some value by motivating new or existing customers to try a product or service. But until they are designed to build loyalty, they will return at best a small fraction of their potential value.”
There is a difference between the loyal customer who comes in monthly and spends $50 and the one who spends $500. Both are loyal, and both are probably worth rewarding, but the customer spending more would probably enjoy (and respond favorably to) receiving a unique promotion. Most companies treat all customers as equals: Everyone gets a 10% off coupon. Those VIP customers are quick to pick up on this and if they aren’t made to feel special, they are likely to find appreciation in the arms of your competitors.
O’Brien and Jones note, “A company that offers average-value products and services to everyone wastes resources in over-satisfying less profitable customers while under-satisfying the more valuable loyal customers. The outcome is predictable. Highly profitable customers with higher expectations and more attractive choices defect, and less desirable customers stay around, diluting the company’s profits.”
What are you doing to keep your high-rollers happy?
