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Loyalty Myths

It will cost you five to six times more to acquire a new customer than to keep oneand even more when you have to win them back. Loyalty program is one way of keeping your customers but sometimes it doesnt always work. I would like to highlight a few important misconceptions or wrong practices on the design and implementation of a loyalty program. We have learned a lot from the different programs we have implemented. And we have learned that when done properly, a loyalty program can become one of your most important marketing tool in keeping your customer or even winning back lost customers. One must , however, realize that a loyalty program or one-to-one marketing may not necessarily be just for your consumer , it can also be a program for your channels such as distributors, retailers, agents as well as your own employees.

Giving Points is the main selling point of a loyalty program.

A common perception of loyalty programs is that its main highlight is giving points to increase customer purchase. The truth is the success of a loyalty program is highly dependent on its data mining, profiling and what you do with that data. Loyalty program is merely a tool to access your consumers or customers. The first phase of a loyalty program is primarily to build up your database and acquire your customers. It is the customer information which is the most valuable element in a loyalty program. It is knowing not just the demographics, psychographics, lifestyle, purchase behavior but also providing the products and services that suits the customer profile and behavior. Once you have acquired your customer data, it is not something you store like an expensive china in your cabinet but something that you use. Your customer data has to be continuously updated so you will be able to provide the right offer and communications to your members.

Points are enough to attract your most profitable customers.

Some of the most successful loyalty programs do not necessarily have a high redemption rate for their premium customers. What some have discovered is that premium or high-end customers participate in loyalty programs because of the prestige and status that goes with it. This is specially true for those who provide tiering in their loyalty program like a silver, gold and platinum level where the higher the level the more perks or benefits they will acquire. Not only does it signify their purchase capability , since they have to spend more to earn more points and reach the highest tiering level, but also enjoy the feeling of being belonged in the elite group. This is specially true of mileage programs where high level members get to enjoy perks like usage of the VIP lounge, express check-in, upgrade in hotels, etc. So in designing loyalty programs, always think up of the benefits that go with it because it may be the most important selling proposition you can offer. You must keep in mind however that the benefits must match again with your customer profile and lifestyle.

Loyalty Programs Alone Will Build Lifetime Customers.

Developing loyalty among customers is not the job of a loyalty program alone. Once you have determined the needs and wants of your customers through your datamining, you will need to customize your products and services based on those needs and wants. If your profitable customers shop during peak hours, you can not only allocate a special lane just for them but also give them an extra store hour just for your premium members during peak season like Christmas. Some of the successful retailers like Tesco send discount coupons for specific products they know their customers love. Give them discount coupons not just during their birthdays but birthdays of their love ones . Not only will they appreciate the discount but will get that good feeling of being so important.

Loyalty Program Is For All Customers.

Based on many studies, a loyalty program with minimum support can acquire 3 to 5% active members of your customer universe. Active participation could be defined as members who would purchase on a regular basis based on the average purchase behavior. A good loyalty program can produce about 20% active members of the customer base. This would very much be consistent with you Pareto principle where 20% of your customer contribute 80% of your revenue. Achieving this benchmark will already provide a good return of your program. Some of the highly successful loyalty programs generate even higher than 20% active members of the base which have increased the spending level of those outside of the standard 20% main sales contributors. A loyalty program wants to capture your profitable customer and those with the potential to be your profitable customers.

While there are many loyalty programs existing in the market, proper maximization and utilization of customer information is its most valuable benefit to a marketing person. If a loyalty program is well designed and well executed, the program can successfully attract your profitable customers through good times and hard times.

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