Loyalty Programs Reward Consumers,
But Fail to Connect Fully with Them: Study
By Rose Anthony
Are marketers getting all they can from loyalty and rewards programs?
Sure, they spark business growth, and customers like the discounts and deals that come from participating in these frequency programs. But a new report from the Chief Marketing Officer (CMO) Council indicates that marketers are under-valuing these often costly programs. Customers and marketers agree that deeper engagement and personalized contact drives loyalty, not mass blast communications and gimmicks.
The Leaders in Loyalty: Feeling the Love from the Loyalty Club is the latest research from
the CMO Council, tapping into the insights of over 600 marketers, and gaining first-hand perspective from the recipients of these programs in an audit of over 700 consumers.
Sponsored by InfoPrint Solutions Company, a joint venture between Ricoh and IBM, the study shows that loyal consumers expect marketers to understand them better and deliver more relevant and valued offers. Unfortunately, marketers are not giving themselves high marks in meeting the needs of their business, and question their ability to meet the needs of the customer. In fact, the study raises questions about the value and return on investment (ROI) in this area of customer relationship and insight building.
Marketer’s View
Six of ten marketers (61%) believe that participants in loyalty program are the best and most profitable customers. So it is not surprising that an almost equal number of respondents (65%) view customer loyalty program investments as a very essential, or a quite valuable part of the marketing mix.
Unfortunately, only 13% of respondents believe they have been highly effective in leveraging loyalty and brand preference among club members, and nearly 20% don’t even have a strategy for this. Another 25% admit they have not mobilized brand loyalists to become active advocacy agents, either.
The study also found that marketers are mostly inducing loyalty with discounts or free products and premiums rather than quicker, better service or improved customer handling. Four of ten (39%) of respondents view discounts and savings as the key member benefit, a third (34%) view free products and premiums as essential incentives, while a third (33%) are committed to offering points for merchandise redemption as a further motivator.
When asked to outline typical customer complaints about loyalty programs, nearly three of ten marketers (30%) report that some customers see little or no added value to becoming a loyalty member; a quarter of them (24%) indicate rewards lack substance; a similar percentage feel they don’t get enough personalized attention; and 21% have problems with receiving too much spam email and junk mail. Customer complaints also touch on a lack of individualized communication (23%) and issues with redeeming points and miles (18%).
Despite these challenges, investments in loyalty programs will continue as nearly eight of ten (80%) of marketers are committed to maintaining or further funding loyalty programs as customer retention and relationship building vehicles. Over a third of then (34%) report they are significantly increasing their commitments, and nearly half (45.9%) maintaining their current commitments. Just 4% expect to discontinue their programs.
Online channels dominate expected investments as nearly six of ten (60%) of respondents said they planned to make better use of the Web and new community and networking tools to grow and develop loyalty programs. Other key actions for generating a greater ROI from club members include:
- Personalizing interactions and target messages (51%)
- Increasing frequency and relevance of communications (39%)
- Gathering more insights and intelligence for better customer handling (38%)
- Adding new benefits, incentives and inducements (36%)
- Studying industry best practices and making adjustments accordingly (19%)
Marketers appear to be failing to extract greater value from customer loyalists. When it comes to in-depth profiling of customers, the vast majority of marketers still only aggregate and analyze limited customer data sets. Three of four (73%) collect basic demographics and nearly seven of ten (68%) track the location of members. However, critical insights – such as advocacy rates (14%), brand loyalty and attachment (27%), personal preferences (31%), satisfaction levels (33%), and product preferences (38%) – are not being leveraged.
“Relevant profiling data continues to be a limiting factor in customer engagement,” said Donovan Neale-May, executive director of the CMO Council, “Without a deeper customer insight, marketers will be limited in their ability to do meaningful predictive modeling, market segmentation and revenue forecasting. Better understanding of customer behaviors, predispositions, intentions and preferences enables more effective and relevant messaging.
It is also an essential part of customer revenue optimization and lifetime value building,”
Neale-May said.
The study found that loyalty program operations are increasingly challenged. Acquiring and retaining motivated and engaged participants is the number one problem facing half (46%) of marketers. Other obstacles and issues include:
- Measuring marketing value and effectiveness (42%)
- Collecting, integrating and maintaining customer data (41%)
- Deriving valuable insight and intelligence (38%)
- Delivering more personalized offers and inducements (34%
- Creating more customized communications (33%).
Digital marketing channels are definitely taking precedence in ways marketers promote their loyalty and rewards programs, according to study respondents. Nearly six of ten (60%) rely on web sites, nearly 60% on email, 47% on word-of-mouth, 46% on point-of-sale information, 42% on direct mail, and 39% on a sales or service representative. Most member communication is monthly (30%), while 20% interact with members on a daily, weekly or bi-weekly basis. Cost-efficient email is the preferred mechanism for member communication among 84%of marketers, followed by printed mailings and statements (51%), corporate web sites (45%), dedicated club sites (32%), SMS text messaging (24%), and social networks (16%).
“Targeting has taken on a very different meaning in today’s marketing mix,” said Sandra Zoratti, vice president of Global Solutions Marketing for InfoPrint Solutions Company. “Before, targeted messages relied on basic data to engage in rudimentary segmentation and single channel communication delivery. Today’s loyalty leaders are better leveraging customer insights to deliver highly personalized, multi-channel communications that are more relevant to the individual customer and provide for ongoing interaction and attachment.”
Consumer’s View
Respondents report they see value in loyalty program membership. Eight of ten (79%) say they are very, or pretty, satisfied with their loyalty and rewards program experiences. But
seven of ten (70%) want to see more discounts and savings, and half (52%) want more compelling personal deals and offers as rewards for steering their business to loyalty program operators. In a definitive call for personalization, nearly six of ten respondents (58%) say they want more compelling personal benefits and services, as well as more relevant offers or individualized deals.
While social media tops the list of investments for marketers, consumers report that point-of-sale (POS) information, service representative interactions, company web sites and word-of-mouth are the primary sources for learning about loyalty clubs. Nearly 65% found out about the programs in stores, compared to only 4% in social media networks, 3% in blogs and 11% in online advertising..
Too much spam and junk email topped the list of negatives associated with loyalty and rewards program membership (44%), followed by too many conditions and restrictions (38%), and rewards that lacked real value (37%). Other prevalent beefs included members having a hard time redeeming points or rewards, program membership lacking value, as well as communications and service not being personalized or targeted specifically for members.
More than 700 respondents took part in the online research conducted in the third and fourth quarters of 2009. Over half (50%) had household incomes of over $100,000 and were fairly evenly split across gender and age groups. Nearly three of four (75%) reported enrollment in supermarket loyalty programs, 69% in airline frequent flier clubs, and 58% in credit card incentive programs. Drug stores, warehouse price clubs, specialty retailers, hotels and motels, rental cars and restaurants are other providers of loyalty programs.
Surprisingly, the poor economy is not necessarily inducing consumers to sign up for loyalty and rewards programs. Only 22% said the economic climate had raised their interest in these programs compared to 41% who indicated it had no impact at all.
“It is notable that the economy is not a big driver of program participation, indicating that as marketers look to recovery, fully leveraging these programs must be a strategic priority,” said Neale-May. “Figuring out ways to deliver added value to those willing to repeatedly purchase your products and services, advocate your brand on a viral level, or more actively respond to offers and incentives, is critical to marketing effectiveness.”
For marketers, a key question is how much loyalty club membership influences purchasing decisions and customer affinity and attachment to brands. Club membership strongly motivates, or is a big factor, in influencing buying decisions, for half (52%) of survey respondents. When it comes to word-of-mouth, nearly 20% of club members say they are big brand boosters and almost half (50%) say they sometimes talk up the product or service they support. On the other hand, 54% said they would give up their loyalty or rewards club membership if they had a poor product or service experience with a brand.
JANUARY 2010
Analysis of Data Underscores
Importance of Best Shoppers
By John Karolefski
How important are a retailer’s best shoppers?
They account for a large chunk of the store’s revenue, according to Michael Schiff of Partners in Loyalty Marketing. “What would happen if all those people went away? You wouldn’t have a business left.”
William Young of Concept Shopping advises retailers to spend the lion’s share of their time, effort and promotional dollars on their top-spending, loyal customers. “It costs about five times as much to win a new customer as to keep a current one,” he said.
Analysis of over 2 million grocery shoppers by Concept Shopping shows that the top 10% of store’s customers visit the store more than twice a week, spend over $39 per visit, and represent nearly 40% of the store’s total sales.
The study also found that these most valuable shoppers tend to remain very loyal to the store, with 95% continuing to shop there throughout the year. Conversely, only 34% of the store’s worst shoppers – those who visit the store less than once a month and spend only $9 per visit – remain customers.
“Shopper churn is a fact of life for every marketer,” said Young, vice president of sales and marketing for the in Lisle, Ill.-based firm. “Shopper loyalty continuously ebbs and flows through retail banners and store types, but sorting shoppers by their value helps identify which ones should be courted and which ones can be ignored.”
Most retailers have some form of segmentation or deciling, according to Schiff, managing partner of the Chicago-based consultancy. “CVS does the deciles and they are probably the savviest,” he said. “Kroger does some other segmentation. Wegmans is another good example of a retailer that’s segmenting and trying to make stores more about the experience than necessarily about shopping.of the Chicago-based consultancy. “CVS does the deciles and they are probably the savviest,” he said. “Kroger does some other segmentation. Wegmans is another good example of a retailer that’s segmenting and trying to make stores more about the experience than necessarily about shopping.
“Other retailers know about segmentation, but whether or not they really act on it is completely different. I think most of them don’t. If you look at any of the promotions or anything that
goes out to consumers, the vast majority of it is talking in the voice of that average shopper,” he said.
Concept Shopping’s analysis of the 2 million shoppers divided them into ten equal deciles based on their spending levels during a 12-week period. Only 11% of the dollars spent by the best shoppers were on markdowns, making these heaviest shoppers the most profitable as well. In contrast, over 35% of the dollars spent by the worst shoppers were on sales items, making them unprofitable, assuming a 33% profit margin.
“At the end of the day, there is only a small audience among all those shoppers who are really driving sales,” explained Young. “But most retailers continue to believe that to grow sales they need to attract more shoppers.
“The advanced grocers with loyalty card data that they analyze are beginning to realize that there is a lot of head room among their best customers,” he continued. “From what we have seen – even among the top decile shoppers – a grocer is only getting about 60 cents of every dollar spent on groceries. So there is still a lot of room to grow the business among the
best customers.”
Young explained that it wouldn’t be so bad if the lowest-spending customer shopped elsewhere because they tend to “cherry pick” and largely buy items on sale. But it would be a major concern when the best shoppers begin leaving.
“We help retailers look at their loyalty card data, identify top shoppers who are in decline, and more importantly identify what are the key categories that signal they are heading to the doors. What do you need to do to promote those key categories better to those shoppers,” he said.
That is where a retailer’s trading partners come in. Concept Shopping gets involved in targeted marketing and helping the CPG manufacturers reach shoppers with a branded message. Such efforts obviously help retailers as well. For example, say the frozen pizza category at a retailer is suffering particularly among top shoppers. Several of them who used to buy frozen pizza aren’t buying it anymore, or are buying less than before.
“We identify those shoppers,” said Young. “We work with the frozen pizza manufacturers to develop targeted offers like coupons that are either mailed to those shoppers or electronic coupons on the retailer’s website that are only valid for those shopper IDs. It gets them re-engaged in the category. They may have bought three units of frozen pizza and now they are only buying one. Give them an offer that gets them up to the multiple purchases they were
at previously.”
Schiff, whose firm also specializes in similar targeted marketing programs and has studied top shoppers, agrees that retailers should not take their best shoppers for granted. In other words, a retailer should be more concerned with their heavy buyers than their lighter ones.
“But a lot of retailers think that they’re got a lock on those top shoppers,” he said, “and that’s why you see the focus on the lighter buyers. They think, ‘What can I do to get somebody else? Wouldn’t it be great if I could move a light buyer up to heavy status, to that top decile?’
“And they’re not alone,” he goes on to say. “Manufacturers do this, too. But think how difficult that is. Those low-decile people are probably heavy shoppers somewhere. I would say 80% of retailers’ promotion dollars are trying to get them away from that store. But to me, wouldn’t you rather spend money on making sure that you don’t lose your heavy shopper first? Is there any way that you could increase their market basket? You may have a lot of their dollars, but you don’t have all of them.”
Market Watch
Social Media Here to Stay for CPGs, Retailers
By Lynne Cooke
Social media is causing a paradigm shift in the way that people view products and brands, according to Jill Bach, principal, Marketnet, Plano, Texas. Consumers are becoming brand advocates and sharing their opinions through social channels like Facebook, Twitter and blogs.
“They are doing it whether retailers are onboard or not,” she said. So it’s better for retailers and marketers to get involved. That way, they can also comment, while monitoring what is being said about them.
Citing 2008 research from Forrester Research, Bach pointed out:
- 75% of all active Internet users participate in social media.
- 48.5% of Internet users read blogs at least once a month.
- There are 900,000 blog posts in an average 24-hour period.
- The fastest growing segment of Facebook is 55-65 year-old women.
Among the major social media brands: Facebook has 250 million active users, with more than two-thirds out of college, which was the original target audience; LinkedIn has 47 million members, with a new person joining about every second; Twitter had over 23.5 million unique visitors in August 2009 and 20% of Tweets contain requests for product information or are responses to such requests.
“The social media model is a little different: it is consumer driven,” Bach said in a presentation at the LEAD Marketing Conference in Chicago recently.
For example, consumer packaged goods companies or retailers could use Facebook to build advocates for brands, she said. “One strategy might be to share ideas out to networks both in-store and out-of-store, such as recipes – that is an easy one.” Other possibilities are cleaning suggestions and beauty recommendations.
“People are saying it’s a fad, but it’s really not a fad. It’s becoming mainstream and it’s a different way of influencing purchasers. It’s very similar to how the Internet revolution developed,” Bach said.
Cheesecake Chatter
Social media is helping Eli’s Cheesecake Co. keep its brand in front of consumers. The Chicago-based company is using social media like Twitter, Facebook, LinkedIn, flickr and YouTube, along with more traditional promotions like a local cheesecake festival, to connect with its customers.
Among the ways that Eli’s has used social media is to notify Twitter followers of Tweetup Meetups, putting videos on YouTube, and promoting a cheesecake giveaway on Facebook.
“Social media really is important. If you don’t use it, your consumers will use it without you. It’s viral. It is their voice. They want to be heard. It’s important for the brand to connect with them,” said Debbie Marchok, vice president of marketing in a presentation at the LEAD Marketing Conference recently in Chicago.
LEAD 2010
Thought leaders from the CPG and retailer ranks will present the latest advances in technology as speakers at the industry’s most comprehensive conference focusing on all aspects of Loyalty, Engagement, Analytics and Digital Marketing.
The LEAD Marketing Conference is scheduled to take place October 11-13, 2010 at the Westin O’Hare in Rosemont (Chicago), Ill. The collaborative event for manufacturers and retailers in all trade channels will be on hand to learn how to enhance their business with
social media, virtual shopping platforms, video analysis of shopper pathways, and assorted shopper technology.
