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Four Steps to Grow and Cultivate Your Loyalty Program

Posted by Judy Melanson on Thu, Oct 11, 2012

A version of this post was published in Loyalty 360's Loyalty Management Magazine

Loyalty gardenMy colleagues can tell you that although we're well into fall in New England, I still love the garden as loyalty program metaphor. That's because loyalty programs, like gardens, are living entities that require ongoing monitoring and periodic refinements to ensure they grow stronger, continue to operate at peak performance, and deliver the results you need for your business. Here are the four steps to getting your program ready to support growth:Step 1:  Review your goals and the (competitive) landscape

Before you tackle the issue of “what” and “how much” to offer to members to incent their behavior, take time to review:

Desired behaviors:  Are you trying to encourage members to visit more frequently?  Spend a bit more?  Advocate to friends and family?
Customer’s needs: 
What goals are your members trying to realize?  What activities are they passionate about?
Brand alignment
:  How well does your program reflect the unique selling point or values of your brands? Where are the misalignments? 
Program goals
:  What key metrics do you measure to report on program success: member acquisition or retention, e.g. the percent of customers who redeem?
Competitive activity
:  What outcomes are these programs focused on?  How differentiated is your program from theirs? 

Determining which, and how many, rewards to give your customers, requires careful consideration of multiple factors. Before you proceed down a “program optimization” path—test the soil.  It’s impossible to build a successful garden if you’ve chosen the wrong plants or haven’t added the nutrients your soil needs to support them.    

Step 2:  Focus

“If you persist in trying to be all things to all people, you will fail. The alternative, then, is to be something important to a few people.” – Seth Godin, in We Are All Weird

The focus of your program may be on high-value members and that’s okay.  Today’s high value customers are fairly easy to identify; they’re the ones who buy higher margin products, visit often, and spend in multiple departments and categories.  But concentrating solely on these customers means that you may be missing an opportunity to lay the foundation for future success.  Consider identifying customers who have high value potential (via predictive modeling) and nurture those relationships as well.  In addition, you may find, upon reviewing your goals and objectives, there are certain other segments of customers that matter as well – and for whom you need to focus activities and attention.  For example:

  • Caesars Entertainment’s re-launched its Total Rewards program to celebrate its position as the country’s leading entertainment loyalty program.  The new program offers additional offerings and experiences designed to appeal to Entertainment Seekers (in addition to the core avid gamer); their relaunch included concerts by Cee Lo Green, Mariah Carey, P.Diddy and Gavin DeGraw. 

  • Best Buy gave select members of its Reward Zone loyalty program a ‘surprise and delight’ reward, a ticket to the Twilight premier.  Sales remain the driving force behind their points-based loyalty system, but in surprise-and-delight programs, marketers can choose consumers who might be major spenders but also because they're passionate or the kind of people who drive incremental buzz online. They’re using this approach to build greater engagement among high-value customers and create more PR-worthy and effective programs in a crowded loyalty space.

Bottomline: focus on the people that are aligned with what you are trying to do. 

Step 3:  Differentiate and innovate

Colloquy’s report
on the state of the loyalty industry finds the average US household has 18 loyalty program memberships.  Eighteen! 

If your program is purely a frequency-based program, differentiation isn’t your goal.  However, dialing up program innovation to differentiate from competitors may prove valuable if your desire is to create loyalty, drive incremental spending, stronger customer engagement, and additional brand advocacy.

I love home-grown vegetables, and the varieties I pick are those that do well in my garden and that I can’t buy in a store.  Although I love to garden – if the only product I could grow was one that I could easily buy, I may reconsider the time I was willing to invest.  My pride in this activity would decrease and I’d tell fewer people about my garden. 

For the members you’ve decided to focus on, differentiate your program from competitors.  Give your members a reason to return— pride in their association with you and something to talk about!

Step 4:  Optimize program benefits

You’ve reviewed your objectives and the competitive landscape.  You’ve targeted specific members and have embarked on a program to identify innovative ways to differentiate yourself in the marketplace.  What now? 

To justify changes in your program, you’ll need to articulate the incremental value additional benefits will deliver.  You’ll need to do that if the additional benefits require additional investment – or if you are working with franchisors who demand financial justification to justify additional investment! 

Over the last ten years, we’ve worked with industry leading programs to analyze the cost-benefit of program benefits to support program development or refinement.  Here are a few examples where we conducted quantitative research using advanced analytics (like Discrete Choice):

  • A leading upscale hotel chain, needed to figure out an on-property benefit it could provide in place of a guaranteed suite upgrade since some the upgrade wasn’t a viable option at some of their hotels.  An alternative was identified and members are given the choice at check-in. 

  • As it develops and acquires new brands, this hotel loyalty program needed to identify the right type and level of benefits to offer at to guests at its extended stay hotels – benefits that would be of value to guests who stay, on average, for two weeks at the hotel

  • A leading luxury retailer wanted to optimize structure to drive incremental sales and refresh benefits to incorporate more brand-relevant experiential elements for the refresh of its flagship shopper loyalty program

Discrete choice is a great tool for loyalty program optimization because it allows us to:

  1. Optimize programs based on client’s goals:  By examining member interest in thousands of alternative benefit packages – and calculating the cost of providing those benefits – we can identify the best programs in terms of profit (‘high customer value’ and ‘low cost’), or for other key outcomes like member acquisition, increasing take rate from competitor’s customers, etc.

  2. Estimate shifts in market share that could result from changes to your program benefits

  3. Examine incremental spend - attributable to program benefits - from a couple of different angles

If you’re looking to optimize your loyalty program resources to get as much benefit as possible, following this four step plan may cause you to think differently about your program, the benefits it offers and the potential that exists.  Focus on what, and who, is most important and pruning back where you may be over-delivering can help ensure that your program grows stronger, operating at peak performance, and delivering the results you need for your business. 

Judy Melanson leads the Travel & Entertainment practice and loves collaborating with clients on driving customer loyalty.  She's the mom of two teens and the wife of an oyster farmer. Follow Judy on Twitter at @Judy_LC

Topics: strategy consulting, customer experience and loyalty