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Three Things Successful Loyalty Programs Are Doing Right

August 27, 2015 at 7:42 AM

In my eyes, loyalty programs exist for two simple reasons: to motivate increased engagement with your brand and to collect data in order to build deep customer understanding. But they also exist for a third reason: customers want them. In a study by Nielsen, 84% of respondents said they were more likely to choose retailers that offered a loyalty program. Forrester Research have found that 64% of consumers agree that loyalty programs influence where they make purchases, and 50% agree that loyalty programs influence what they buy.

However, despite growth in membership numbers across loyalty programs, consumers are engaged in fewer than half of the loyalty programs they belong to. It appears that the will of the consumer to engage is there, but many loyalty programs are failing to drive that engagement.  To understand what they are doing wrong, let’s look at what some brands that are succeeding are doing right.

They’re collecting and using customer data

Insights gleaned from customer data analysis place you in a favourable position to build programs that are relevant to customers. Customer analytics enables customer segmentation, targeting and offer management, so that your brand becomes more relevant to customers.

According to a recent study by McKinsey & Company, intensive business users of customer analytics are nine times more likely to outperform their competitors in terms of customer loyalty. When the data is there, use it to become your customers’ “go-to” brand for your particular market segment by becoming the brand that knows your customer best.

Read about how four loyalty leaders are succeeding by using data here.

They’re connecting on an emotional level

According to Forrester Research, strategies that rely purely on loyalty programs that offer points and discounts miss an opportunity to drive deeper engagement through emotional loyalty. Loyalty initiatives must evolve beyond points-based programs to recognise and measure both the behavioural and emotional drivers of loyalty.

One way brands can connect with consumers on an emotional level is by incorporating social awareness initiatives that are aligned with customers’ values and beliefs into loyalty programs. The sense of making a difference together instils commitment to your brand that the competition would kill for. But here’s the thing: one man’s social cause is another’s after-thought, and this brings it back to customer data analysis. Brands need to know what their customers care about and make a genuine effort to speak to those causes. Supporting a cause that your customers don’t care about may elevate the perception of your brand in the market, but it won’t drive loyalty (and more sales) from within your existing base - a point that the well-known Pepsi Refresh campaign has driven home.

Get more examples of how to create that emotional connection with customers here.

They’re constantly evolving and innovating

According to Forrester Research, companies that take a “set-it-and-forget-it” approach to their loyalty strategies will fail. Forrester recommends using your data and moving quickly on a data-driven idea. It’s ok to fail, but if you must, fail fast and cheaply by starting small to test, measure and learn. 

Amazon’s subscription based loyalty program, Amazon Prime, offers a great example of an innovative loyalty program thatuses data insights to increase relevance, engagement and sales. Established in early 2005, Amazon Prime charges an annual fee of $ 99 to belong to their loyalty program. Charge customers to join a loyalty program? That’s innovative. And it works because they offer enough value in return (free shipping), it removes friction from the buying process (the cost of shipping) which drives more sales, and the fee is high enough that people won’t forget to make use of this program. They are motivated to shop more at Amazon, so that they get their money back on their loyalty program fee investment.  

As a result, Amazon customers belonging to their Prime program end up spending on average $ 1,500 per year versus about $ 625 per year for non-members.  Amazon claims that 50% of their customers in the US now belong to their paid loyalty program, and it’s cited as one of the main reasons for their impressive reported profits this year. Amazon have kept evolving this program by offering more benefits to members, such as free video streaming and photo storage, which in turn helps them increase retention to their program (you have all of your photos stored with them) and deepen customer understanding through tracking of media consumption. This, in addition to tracking their browsing and purchase behaviour, helps them improve their predictive product recommendations, which makes them more engaging and relevant to customers.

Read about other companies that are innovating and evolving their loyalty programs here.

Build your brand and they will come

Building something as important - and fickle - as brand loyalty requires companies to step outside of their comfort zones, stop preaching to customers about what’s good for them and start listening. Use data to learn, understand, and innovate. Then make sure to start small, trial and build on your lessons learned and insights gained. With volumes of data at the fingertips of modern marketers and loyalty experts, there’s no excuse to get caught in the headlights.

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Julian Diaz
Julian Diaz
Julian Diaz was Head of Marketing for Principa until 2017, after which he became Head of Marketing for Honeybee CRM. American born and raised, Julian has worked in the IT industry for over 20 years. Having begun his career at a major software company in Germany, Julian made the move to South Africa in 1998 when he joined Dimension Data and later MWEB (leading South African ISP). Since then, Julian has helped launch various South African technology brands into international markets, including Principa.

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