Loyalty programmes: Rewards but no connection?

Both customers and marketers in the USA agree: Deeper engagement and personalised contact drives loyalty, not mass blast communications and gimmicks.

The Leaders in Loyalty: Feeling the Love from the Loyalty Clubs 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.

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. Given that over $2-billion is spent annually in the USA in growing and running loyalty and rewards programs, this raises questions about the value and return of investments in this area of customer relationship and insight building.

Most marketers (61 percent) believe that loyalty programme participants are the best and most profitable customers. So it is not surprising that an almost equal number of respondents (65 percent) view customer loyalty program investments as a very essential, or a quite valuable part of the marketing mix. Unfortunately, only 13 percent of respondents believe they have been highly effective in leveraging loyalty and brand preference among club members, and nearly 20 percent don't even have a strategy for this. Another 25 percent admit they have not mobilised brand loyalists to become active advocacy agents, either.

The study also reveals that marketers are mostly inducing loyalty with discounts or free products and premiums rather than quicker, better service or improved customer handling. Some 39 percent of respondents view discounts and savings as the key member benefits, 34 percent view free products and premiums as essential incentives, while 33 percent are committed to offering points for merchandise redemption as a further motivator.

When asked to outline typical customer complaints about loyalty programs, nearly 30 percent of marketers report that some customers see little or no added value to becoming a loyalty member; 24 percent indicate rewards lack substance; a similar percentage feel they don't get enough personalised attention; and 21 percent have problems with receiving too much spam email and junk mail. Customer complaints also touch on a lack of individualized communication (23 percent) and issues with redeeming points and miles (18 percent).

Despite these challenges, investments in loyalty programs will continue as nearly 80 percent of marketers are committed to maintaining or further funding loyalty programs as customer retention and relationship building vehicles. Over 34 percent report they are significantly increasing their commitments, and 45.9 are maintaining their current commitments. Just 4 percent expect to discontinue their programs.

Online channels dominate expected investments as nearly 60 percent 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:

• Personalising interactions and target messages (51 percent)

• Increasing frequency and relevance of communications (39 percent)

• Gathering more insights and intelligence for better customer handling (38 percent)

• Adding new benefits, incentives and inducements (36 percent)

• Studying industry best practices and making adjustments accordingly (19 percent)

Marketers appear to be falling down on extracting greater value from customer loyalists. When it comes to in-depth profiling of customers, the vast majority of marketers still only aggregate and analyse limited customer data sets. 73 percent collect basic demographics and 68 percent track the location of members, but critical insights - such as advocacy rates (14 percent), brand loyalty and attachment (27 percent), personal preferences (31 percent), satisfaction levels (33 percent), and product preferences (38 percent) - 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 modelling, market segmentation and revenue forecasting. Better understanding of customer behaviours, predispositions, intentions and preferences enables more effective and relevant messaging. It is also an essential part of customer revenue optimisation and lifetime value building," Neale-May adds.

OUR QUESTIONS: Do loyalty programmes work in South Africa? Do marketers engage with their clients through loyalty programmes and grow them into long-term relationships using other tools, such as social media? We'd be keen to hear your views on an area of marketing that can be extremely lucrative.