Steps for implementing successful card marketing loyalty program - increase activation

The first thing that retailers and other organisations should consider is if a loyalty program is going to meet their strategic objectives. Is there a point to having a loyalty scheme for their particular business? Retailers should decide if they may be able to better use the capital devoted to developing a loyalty card scheme in doing something else that will achieve their objectives. KPMG suggests that retailers seeking to implement a successful loyalty card strategy must ask themselves first four questions.

1. Do my overall business objectives mean I need a loyalty card scheme as if so, which one?

2. How do I know if my card strategy is successful or not?

3. How can I develop an existing successful, or rework a failing card scheme? (KPMG, 2001).

4. How can I develop an existing successful, or rework a failing card scheme? (KPMG, 2001).

Loyalty card strategies need to be regularly evaluated and evolved. Every loyalty card strategy must have clear performance targets. Our research suggest retailers should consider three critical success factors:

Has turnover increased and is this attributable to the loyalty card scheme?

Have costs increased or fallen and by how much?

Has the scheme helped to strengthen or extend the retail brand? (KPMG, 2001).

Once these questions have been answered and you are serious about enhancing the effectiveness and efficiency of your loyalty program in today's marketplace, then strap on your rocket and come along for the ride (Colloquy, 2000). The loyalty program manager needs to be able to cover a tremendous amount of strategic landscape without losing sight of the simple correlates of success. The following are just a selection of areas, which a loyalty program manager should consider for success in the market place.

4.1 Build off the brand, not in place of it

Many corporations today are using loyalty cards to achieve maximum branding effect and to enhance customer loyalty (esmartcom, 2002). Sometimes though retailers make the mistake of building a loyalty card program, and then find some time after that the loyalty card has replaced their branding strategies in their whole marketing plan. Loyalty cards should be used as another channel to present the brand to the customer, but it should not be the be all and end all of the branding strategy. As has been shown in this report, loyalty programs can often fail if not implemented and monitored correctly. If the loyalty card is the only method a retailer has built your brand upon, this means that the brand has failed along with the program.

The aim is to ensure you have an established brand and then build off this foundation to implement your loyalty card program. Orla Eagan from Rams Home Loans wants the Rams loyalty program to be a combination of both branding and reward - with the branding coming first. "We believe rewards don't work unless they're on a solid foundation of two-way communication, so that people already feel they're with the best brand (Houghton, 2001).

4.2 Blend recognition with reward

A retailer should vary the recognition and reward in their loyalty program.. This will allow the program to cater for all types of customers. Some customers ultimately want to be valued by the retailer, while some are in for the freebies, and discounts. Don't over reward or under recognise. Never forget the First Rule of Frequency Marketing: all customers are not created equal (La Pointe, 2000).

Customers invariably respond to the right combinations of recognition and reward - soft benefits and hard benefits. Success lies in delivering compelling hard benefits and defining soft benefits (Colloquy, 2000)

Deliver Compelling Hard Benefits

Most retailers offer vouchers, discounts or money-off coupons through their loyalty cards. Giving special discounts or vouchers certainly helps customers to stay and reap the rewards, but that does not necessarily make them loyal or, even better, an advocate of the retail chain or brand. The net result is that every retailers offers, more or less, the same scheme.

A compelling hard benefit is a tangible reward, irresistible in perceived value, and available to the member free. Don't mistake discounts for hard benefits. Discounts are not rewards as they make the customer have to buy something in order to receive the reward. Discounts are known as soft benefits. A successful loyalty program should offer both hard and soft benefits, and have a good mixture of both.

Avoid dollar-denominated benefits. A compelling hard benefit is one that engages the imagination, usually achieving that magical threshold of a 5% perceived value in the eyes of consumers. A mile-per-dollar offer will always have a higher perceived value than 3% towards a gift certificate (La Pointe, 2000).

One successful example of a hard benefit, without giving discounts or points is Boots the Chemist with its Advantage card (Through the Loop, 1998). Analysis of the database has enabled the company to organise a special Almay beauty evening which was well-attended by existing customers. Sales grew remarkably in the following weeks. There are opportunities for retailer-manufacturer partnerships here (Through the Loop, 1998)

Customers should be rewarded for considering your products when walking into the store, points for shopping, points for comparing, points for sharing, and rewards for just showing up (La Pointe, 2002). This is one of the ways that a customer will feel valued, and show that a retailer is not giving them the card just in order to make them spend more. The retailer must really value the customer. It also gives the retailer an opportunity to develop a closer relationship with the customer, and acquire more and more customer information.

Defining soft benefits

While a retailer should focus on hard benefits, some analysts state that there has been too much of a hard reliance on hard benefits versus soft benefits (La Pointe, 2002). Soft benefits are economic, certainly, but privileges available to members, requiring the customer to spend in order to realise them. Soft benefits separate those programs that just pay lip service to customer loyalty from those that are committed to engaging their members with experiential, lifestyle driven benefits that bestow and unquestionable set of status. Give your customer an experience she'll never forget, and she'll never for you for it (Colloquy, 2002).

4.3 Develop One-to-One Marketing with your customers

Developing and operationalising a direct-to-consumer strategy within the context of the current Category Management process is the next progression. The direct to consumer strategy is a continuous process that starts with segmenting consumer information, choosing target consumer segments, developing strategies and tactics to reach theses consumers, executing one-to-one marketing, evaluating programs and then refining the offers. The process can be seen as a wheel that keeps revolving.

The move to one-to-one or loyalty marketing is all about making customers feel satisfied and special enough during their shopping experience to come back for more. Treating customers as individuals is not only a nice thing to do, but those manufacturers and retailers who choose to build a direct-to-consumer strategy will reap great rewards in the loyalty marketing game (Tomei & Hausfater, 1999). Driving consumer loyalty takes more than a standardised reward program (Tomei & Hausfater, 1999).

Communicating with each of your customers is essential to discover what each customer needs, in turn to deliver relevant rewards and offers. Retailers are advised to engage customers in dialogue to uncover unmet needs (La Pointe, 2000). While this mostly occurs in the physical store, retailers could use other methods to communicate with their customers, such as email or phone. A great example of using technology with developing one-to-one customer relationships is using SMS text messages to communicate with your customers. If over 2 billion SMS text messages were sent in Australia in 2001, how many did you send to your customers? (The Anode Group, 2002). The practical benefit for your business is that through SMS technology you are now able to communicate even more directly with your customers (The Anode Group, 2002). The bottom line is that the retailer should be able to have constant contact with their customers to know what their needs and wants are.

On a financial side, ensure that your company is able to offer a multi-tender program, that allows all different types of payment to be made. Don't shut out potential good customers who prefer other forms of payment besides you store card (LaPointe, 2002). Ensure your loyalty card can be made separate from your store charge card if you have one, to allow all of the customers to be able to reap the rewards for being loyal to your store.

4.4 Design a promotional currency

A well-designed promotional currency is the most versatile tool in your loyalty toolbox: it facilitates scorekeeping, enables strategic partnerships; functions as the ideal behavioural lever and separates price from promotion (La Pointe, 2002). The question still remains though what currency is the best to use. The answer however, depends on your type of retail organisation. Ultimately, find a promotional currency that will match the type of customer. Using the communication and data information from the retailer's database, this should be easy to attain what is the best format. Analysts agree that the promotional currency is a tool that your shouldn't leave home without.

A good example of determining what is the best promotional currency is Priceline in Australia. Their strategy was to implement a customer loyalty card with a trial to determine what customers wanted out of a customer loyalty card. It was determined that while points were alright as a means of collecting value for their spending, the Australian consumers were rather discerned about loyalty schemes in regards to them being able to easily attain the rewards (Inside Retailing, 2002). Priceline decided to communicate to their customers that Priceline points will never expire, and not only would they provide a small discount as an incentive, but also give bonus points on selected merchandise, without consumers having to spend any more (Priceline, 2002). After the one year trial and attracting 320,000 members, Priceline have decided to continue with the program, called ClubCard.

4.5 Integrate your physical and virtual worlds.

As mentioned previously, the new technology of using email and the Internet to communicate with your customers ensures that you are attempting to contact all of your customers. For those retailers that have online virtual stores, it is even more difficult to get customers to retain loyalty, due to the ease of clicking off your virtual store with the press of a mouse button.

This year, the Australian Centre for Retail Studies in conjunction with the Oxford Institute of Retail Management in the United Kingdom conducted research into customer loyalty and loyalty strategies used by retailers over the Internet.

Whilst many noted that did not have a loyalty scheme as such over the Internet, nearly all retailers or 'e-tailers' interviewed had used various activities to encourage loyalty over the Internet in the Christmas period (Jahshan, 2002). Techniques ascertaining to improving the level of e-loyalty leading up to Christmas 2001 differed across e-tailers. The varying strategies included:

Rewards programs

• Competitions
• Internal network promotions
• Personal Christmas greetings
• Gift with purchase offers
• Product promotions
• Give always
• Flat fee delivery
• Stock "on sale"
• Direct mail outs either through email or post
• Publicity and PR

The research findings indicated that these activities were found to have a positive impact on encouraging loyalty. A few of the quotes from the interviewed e-tailers are given below (Jahshan, 2002).

"Promotions across networks…that gives our online customers the impressions that we are in fact in business for Christmas." (books and videos)

"The most impact on encouraging loyalty was the sending out of personal Christmas cards." (beauty)

"In terms of encouraging loyalty, direct mail, either through email or post gives us a good response from our current customers base." (contact lenses)

"Our product promotions did have a positive impact on encouraging customer loyalty. And it increased our basket size, offering them a wider choice of products." (groceries)

"Definitely the give away was good for encouraging loyalty." (fragrance)

The findings re-iterate that loyalty card programs require many forms of activities to communicate to your customers for both physical and virtual stores. Some of the activities described by retailers for the on-line consumers, can be integrated to the off line consumers as well. Many of the activities described were rewards of value that were not associated to buying goods, such as Christmas cards, giveaways and direct mail. Integrating these activities may also save the retailer time and money.

4.6 Deliver reward and recognition in real time.

One thing learnt through the problems of loyalty card marketing is that consumers are impatient and want their rewards when they earn them. The example of Kachingo! illustrates that some customers are not willing to hold onto receipts and so forth for a period of time, and would prefer to know right then at the point of sale if they received a reward or not.

Even with the example of Fly Buys, many experts are noting that many consumers are still not claiming their rewards, and are only collecting points at the particular stores as its convenient, not because they are hoping to collect enough to get their prize. Brian Witts, Managing Director of Tibet Direct says:

"I don't think people decide to visit a particular supermarket or service station because they can get points there - that may have been the case a few years ago but now I think Fly Buys is not an influencer for people. I think they go where the best price is, and if they pick up some points now and then, all the better." (Houghton, 2001).

Advocates of real-time loyalty have an easy answer: it's all about segmenting baby. By finding out what customers want their rewards when through data mining, the sky's the limit (La Pointe, 2000). Not only can you reward a customer with a ten-dollar gift certificate printed on the receipt the moment she reaches a reward level, but you can also tailor the reward based on her spend. Or you can target rewards based on purchase history and demographic. And you can do it all within the framework of the transaction, without the delay of points statement. In the next five years, competing technologies - some based on Smart cards, others on mag-stripe cards with POS readers - will bombard retailers with enticing real-time loyalty solutions. Do the research, compute the ROI within an inch of its life and join the party (La Pointe, 2000).

4.7 The Coalition Era - building strategic partnerships

What has been the biggest impact on loyalty card programs is the coalition era, or building strategic partnerships. Compared with a proprietary situation, businesses living under a loyalty umbrella need less technology, pay lower rewards costs, and enjoy increase program membership because each partner contributes loyal customers (Shermach, 2001). It also increases the opportunities for the retailers' consumer base to receive greater rewards, and increase usage of the loyalty cards.

What could rental car companies and fast food chains ever have in common? Plenty if they unite with other businesses in a coalition loyalty program (Shermach, 2001). Such schemes create a single brand and use a common currency of rewards. Coalition programs offer benefits over proprietary loyalty efforts. A number of coalition partners - rather than a single entity can each advertise the coalition program, thus increasing the number of marketing impressions (Shermach, 2001).

Nectar is a coalition program that will unite and replace the loyalty programs of three giants in the U.K. consumer market, Sainsburys, BP and Barclaycard. The fourth major player is department store Debenhams. Nectar expects to announce reward partners in July. Virgin Atlantic will probably be the airline partner; the coalition will also include hotel, travel, cinema and restaurant chains. Sainsbury's will also allow members to redeem their points in-store (Colloquy, 2002). The move represents a u-turn for the UK retail sector, which in recent years has moved away from loyalty cards, over concerns that they fail to attract new customers (BBC, 2002). Safeway in England dropped its loyalty card scheme two years ago, claiming customers preferred discounts to loyalty points. People have lost interest in (loyalty card) points and don't think they give value (BBC, 2002). One course of action suggest that loyalty is a dead duck, the other holds it up as a holy grail. Who are we to believe? (Curtis, 1999).

A recent Australian example of a coalition program within the retail sector is Cornerstone Marketing's new loyalty program called Sundaybest. The program has 18 retail members to date, including local top designers Wayne Cooper, Alannah Hill and Liso Ho (Quade, 2002). The scheme, designed by two former Harrods executives, enables shoppers to become members, for a fee of $A95, to get special prices and benefits from the participating retailers. Cardholders transactions can be tracked whenever their cards are swiped at an electronic funds transfer at point of sale network after each sale (Quade, 2002).

An effective currency is the primary requirement of a coalition program if it is to be points based. That currency has to be relevant and the rewards easily achieved and collected (Shermach, 2001). It must be ensured that all participants/retailers that are part of the program will use the same form of currency, to guarantee that customers will be receiving the full benefits of shopping around at all the stores.

4.8 Adopt Innovation

Australians are known as enthusiastic adopters of new technology (Corporate Information, 2002). Recent reports show that there are 11.1 million mobile phone subscribers in the country and nearly 40% of Australians own a PC (ACA, 2001). This is a great indication that retailers should adopt innovation and technology to assist in their loyalty card strategies.

Credit card companies agree that the convergence of the internet and wireless technologies is leading to greater innovations, opening up new opportunities for the industry. Ms Marshall, from MasterCard International encouraged payment card companies to provide more personalised rewards and incentive programs by leveraging new technologies and too look for more ways to reach 'unbanked' customers (Ashworth, 2002).

The best form of innovation for loyalty cards is no doubt, using the smart card. An American report found that the one piece of advice for organisations planning to enter the smart card industry would be to be maniacal with the smart card (Telecommunications Report, 2002). Smart card manufacturers have tried to be all things to all people. Stick with what is you best capability of confidence and really perfect it. Do your thing well and dominate that space (Telecommunications Reports, 2002).

However, organisations must ensure when applying the smart card technology that it is easy to adopt and easy to apply to their business. One of the largest barriers to smart card acceptance in the United States has been application enable meant. It's not the production of the card, the personalisation of the card, or the distribution of the card (telecommunications Report, 2002). One U.S. expert states that "We think we can understand, as an industry, how to do that real well. Its really the other side - once you have the card, how is it used? We spend a disproportional amount of time looking at the front end, but not the back end." (Telecommunications Report, 2002).

An example of success with the smart card in Australia is the coalition program of St George Bank and World smart Technology Pty Ltd, who have teamed up to offer Queensland retailer smart card technology through Visa Cash terminals in more than 50 Queensland outlets of the Giants Liquor and Jackpot Hotel. A planned 40,000 smart cards will be issued to customer over the coming months (Colloquy, 2002). The terminals allow funds to be loaded to the customer's Visa Cash electronic purse and the card to be used for payment. The new alliance will incorporate WST's successful loyalty program, e-asy points. It is the first time that loyalty points, Visa Cash, multi-application smart cards, EFTPOS terminals, cash registers and the Internet have been combined to deliver an integrated and innovative solution at the point of sale for cardholders and merchants (Colloquy, 2002).

Although a smart card technically can perform various functions, it needs to be simple for merchants and consumers to use to gain any traction in the US payments sector, many panellists said (Ashworth, 2002). The most obvious customer service issue is simply providing readers and getting customer familiar with them, and there are companies that can help you with that (Ashworth, 2002).