Choosing your loyalty strategy

In last month’s Forrester report, Vendor Landscape: Customer Loyalty Solutions, analyst Emily Collins emphasized the importance of choosing your overall loyalty strategy before selecting the vendor that will help you implement it. And we think she’s absolutely right – knowing what type of approach you’re taking to loyalty will influence the technology, consulting and creative support you’ll need.

So how do you decide what strategy is right for your business?

The first step is to understand what types of approach are available. The Forrester report identifies three main categories: unstructured, structured, and blended.

Below, we’ll look more closely at each of the three categories, plus the benefits and risks of each – so you can select the best option for your business.

Option 1: The Unstructured Strategy

The term “unstructured” shouldn’t be taken to imply that these loyalty strategies are not clear cut, carefully planned or well-organized (and likewise, a structured approach doesn’t equate to rigidity). An unstructured strategy seeks to earn customer loyalty through the overall customer experience, rather than a defined loyalty program.

Sometimes this involves a pseudo-program – for example, customers might sign up to an email list or download a mobile app to receive special offers and content.

In other executions, the organization simply focuses on providing excellent experiences – joined up across channels – to create a community and culture around the brand. A customer’s loyalty under this strategy is usually measured by repeat purchase and advocacy.

This approach works best for luxury brands that can create a lifestyle, status and identity for customers based around their product or brand – Apple is a great example of this. It’s also suited to brands with long purchase cycles, where a spend-based loyalty program wouldn’t garner much engagement.

Benefits

• Customer experience is a growing source of competitive advantage, particularly in sectors like retail. Placing a strong focus on customer experience as a means of driving loyalty can help business differentiate themselves from the competition. Wrapping your loyalty strategy into a wider customer experience initiative is a smart move.
• An unstructured approach relies on many different teams / departments within an organization to play out effectively. This ensures that loyalty (and by extension, customer experience) is a central goal at every touchpoint of your business – this is essential to earning customers’ allegiance and advocacy.
• Many standard points-for-discount programs are struggling to engage members. Taking a different approach to loyalty helps a brand stand out and fights loyalty card fatigue.

Risks

• An unstructured approach often lacks a clear value proposition for the customer – in other words, loyal customers may get the same experience as those who are not-so-loyal. And even if they do receive benefits – shorter wait times for customer support, for example – highlighting what these benefits are, and how customers qualify to receive them, can be difficult without a structured program in place.
• If shopping with you is less convenient or more expensive, customers must be convinced that their commitment to your brand is worth the effort. As consumer expectations for personalized, relevant and exciting experiences increases, it may become harder to add enough value with this approach alone.
• An unstructured approach requires buy-in from more departments, and the support of senior management. If the importance of customer experience, and the overall loyalty strategy, is not well-communicated to other departments, the strategy is likely to fail.

Option 2: The Structured Strategy

When it comes to customer loyalty, most businesses (and consumers) think of the traditional model – a rewards scheme and a membership card. Whether the scheme uses points, stamps, or its own unique “currency”, whether it’s based on spend or visits, the premise is the same: membership is loyalty and loyalty has perks.

These programs not only reward their members, they incentivize ongoing loyal behavior. Usually this behavior is limited to purchase, although modern programs are beginning to reward other signs of loyalty, such as social sharing, advocacy, or general engagement with the brand.

As a result, successful loyalty programs have been shown to influence where customers choose to spend, with many saying they’d change their purchasing habits to take advantage of a rewards scheme. This means a structured approach works well for brands with short to medium purchase cycles, including retailers, subscription businesses, telecoms and so on.

Benefits

• This approach gets around one of the key issues with an unstructured strategy: With a set program, there is a clear value exchange. Members get benefits that non-members don’t – and members who actively show loyal behavior should (in theory) get even more value from the program.
• Setting objectives and measuring success should be easier with a structured strategy. Loyal customers can be identified, and their spend, engagement and advocacy can be compared to that of non-members.

Risks

• You’ll notice that the benefits above come with a caveat – they should happen in theory. In practice, it’s a little more hit-and-miss. This is largely down to the nature of the loyalty program industry – it’s been around a while and has become somewhat stagnant. Bad practices have seeped in. Once-good practices have failed to evolve.
• Done well, a structured strategy can offer excellent return on investment; execution, however, can be a challenge. Much of this comes down to finding the right technology and strategic support to design and implement the program.
• Following on from this, many brands fall short of providing real value to program members. Although it’s easier with a structured strategy to define what members will get in exchange for their loyalty, ensuring that the benefits they receive feel worth the effort can be more of a challenge. There’s also a risk that customers will become loyal to the rewards themselves, not the brand.
• The positive experience of doing business with a brand is essential to the development of customer loyalty – and in a structured approach, this can sometimes get overlooked. A loyalty program is often seen as a cure-all for customer retention woes. With a structured strategy in place, sole responsibility for earning loyalty may fall on the one department or team that manages the program, rather than being supported and influenced by the entire business.

Option 3: The Blended Strategy

As the name implies, this approach combines elements of both a structured and unstructured approach. And as these strategies sit on a sort of spectrum, a blended approach may lean slightly more toward structured or unstructured, depending on the business.

With a blended strategy, as in the structured approach, businesses will have some sort of membership-based loyalty program in place. At the same time, this approach recognizes the importance of customer experience in earning lasting loyalty.

Benefits

• This strategy incorporates benefits of both the structured and unstructured approach to loyalty. There is clear distinction between the value loyal members derive from the relationship versus non-members, while the risk of customers becoming loyal to the program, rather than the brand, is mitigated by the focus on customer experience and the positive emotional connections this creates.
• Engaging, personalized experiences characterize every interaction customers have with the business – including their interaction with the loyalty program. This shows customers that the relationship between themselves and the brand is more than transactional.
• In this model, the whole business is involved in creating and nurturing customer loyalty – not just the department running the program. Although this presents its challenges (see below), it’s also a great way to differentiate from the competition, adding greater value to the customer relationship and providing richer experiences.
• As with a structured strategy, measuring return on investment and tracking the success of the program should be easier. Incentivized activities, from purchase to referral, can be tied back to individual program members and measured over time.

Risks

• As it emphasizes customer experience, the blended strategy does require more buy-in across the organization than a standalone loyalty program. Staff across teams must understand and believe in the idea that the loyalty program is not the sole factor in earning a customer’s commitment. The strategy behind this approach – not just the tactics – must be clearly communicated by managers and senior staff.
• As with the structured approach, execution is everything. A poor loyalty program amidst an otherwise-excellent customer experience will not yield maximum ROI. Finding the right technology and support to run your program – especially when customer experience is central – can be a challenge.
• Customers will expect consistency when engaging with your brand, particularly if you’re competing on experience. In a blended approach, your loyalty program (and associated data) must be joined up with other departments, to ensure that members are recognized and appreciated at every touchpoint.

The best of both worlds…

In our experience, the best approach for most businesses is a blended strategy. In the so-called “Age of the Customer”, experience is far too important (and its impact on loyalty too significant) to be relegated to one team or department – and the same goes for loyalty. These two disciplines are increasingly intertwined; a blended approach gives proper attention to each.

Although this strategy does have its risks, most (if not all) can be reduced through the right technology and experienced strategic support.

To truly earn customers’ long-term devotion, businesses must deliver exceptional, loyalty-worthy experiences at every touchpoint – from the till through to the service desk, the loyalty app through to the marketing email. In addition, loyal customers must perceive that they are getting value from their continued commitment to a brand – and a structured program is a great way to make this happen.

With a solid, value-add program and seamless customer experience, businesses can create consistent, relevant and memorable interactions – the kind that build positive emotional connections and lead to lasting loyalty.

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HTK was included in the Vendor Landscape: Customer Loyalty Solutions report, as an end-to-end solution for large enterprises. Find out more →