Loyalty Truth

Over the past two years, I’ve attended quite a few conferences, each one having at least one presentation covering Loyalty Marketing.  Most presenters found it useful to set the stage, describing the current state of the business before going deeper into their particular topic. The common ground that most found was to observe that loyalty programs have permeated the consumer world while people as a whole are less engaged than ever.

Nearly every one of these presenters cited the same statistic from  the 2011 COLLOQUY Loyalty Census – Growth and Trends in Loyalty Program Membership and Activity:

“While the average U.S. household has enrolled in more than 18 programs, they are active in only 8.4″

I’ve mentioned the same figures in a few of my talks, but it was not until recently that the big hammer of common sense struck me between the eyes, telling me that the situation is even more extreme than the Colloquy survey reported.

My research budget is probably just a bit smaller than Colloquy’s, but an informal survey of a close group of colleagues in the business tells me that the average business person probably belongs to about 40 loyalty programs while the average citizen who lives and shops mostly locally belongs to a figure closer to the Colloquy number. Our group counted membership on average in 11 airline programs, 7 national retailers, 6 hotels, 3 rental cars, 2 credit or debit cards,  2 in pharmacy, 2 in gaming, and at least 7 more composed of movie theaters, local restaurants,  and local merchants. We didn’t choose to count Groupon Rewards, registered card programs, Belly, Perka, etc. as we thought the total was high enough to illustrate the point.

The bottom line is that we are more consumed by loyalty and rewards programs than formal research has revealed. The programs represented by the bevy of plastic cards in our wallets and tags on our keyrings can be thought of as a visual representation of our meanderings in life. We’re willing to engage and enroll in lots of programs, especially when an immediate discount or benefit can be earned at the time of enrollment.

Apparently the trouble of keeping our attention is also worse than Colloquy reported it.  Colloquy defined an active membership as a “membership that demonstrates at least one instance of activity within a 12-month period”. Even in their words, this is a generous definition. Among our survey group, we arrived at a total of no more than 10 programs that we remembered enough to acknowledge membership and even less that we felt influenced our next purchase decision.

Consider the difference between the program that is top of mind enough for you to present your card upon each purchase to make sure you receive credit and those where you are continually pleading with the cashier to find you in their system because you’ve forgotten your card again. The difference speaks volumes about the effectiveness of the program. Do I value the brand and its offer enough for me to add it to my shopping list, or do I just take advantage of a freebie when it is put right under my nose?

The bottom line on engagement is that it’s probably closer to 25% than the 40% reported by Colloquy.

In this case, the absolute numbers are less important than the trends they indicate. Loyalty program membership is highly saturated across North America. Give marketers the nod for driving membership totals through the roof. Unfortunately, the tougher task of engaging members for steady visit and purchase, increasing lifetime customer value, is where we fall down.

Where Loyalty Truth nets out is that we have a big opportunity before us. Launching a loyalty or rewards program is something almost anyone can do. You can probably buy punch card formats from your local printer and every point-of-sale software vendor will tout that they have a loyalty solution that’s “all you need”.  I’m going to call “hogwash” (or worse) on that one. To offer a comparison, just about anyone can finish a local 5K race, but to complete a half or full marathon, you are best advised to be well trained to finish without injury and some semblance of your pride in tact.

Here are a few “Loyalty Truths” that you can take away from this exercise:

1. Realize that launching your loyalty program might be the easiest thing you ever do. Make sure you do the work needed to ensure that your program will make a difference in the mind’s of your customers and keep them coming back, even helping them overcome service failures.
2. You’ve got to create your own definitions of an “active customer”, “redemption rate” and “churn” that fit to your business. The right formulas are influenced by sales cycles, accounting practice, and regulatory concerns, not to mention competition.
3. Realize that customer engagement is not just one step in the loyalty value chain towards increased profitability. Engaging the customer (now your program member) has to be a sought after goal at all points along a lifecycle of interaction. Regardless of new customer or old, low value or high, online or offline, engagement is the first step in triggering the next purchase.
4. Remember that customer experience is not something you isolate and polish like a new car. Every interaction between your brand and the customer contributes to an overall “customer experience”, over time accruing to create positive or negative brand impressions.

Your loyalty program should be integral your customer experience and you should never skimp budget on analytical support that unlocks a clear view towards program effectiveness. That’s we we talk about loyalty being Contextual. If you want to read more about our take on why this is important, download a copy of our Loyalty Manifesto 2013 here.