Companies often offer loyalty programs that focus on hard benefits to retain customers, but hard benefits are sometimes not enough. The benefits must have a high-perceived value from the customer's perspective.
Posted Feb 17, 2003
To retain top customers, companies have historically offered loyalty programs that focus on hard benefits. Hard benefits deliver tangible rewards, typically by providing something free that would otherwise cost the customer money, such as frequent flier programs that award free air travel or free upgrades.
Yet, we are seeing that hard benefits alone often are not enough to engender true loyalty. Remember, the success of any loyalty program depends on the quality of the benefits it offers. The benefits must have a high-perceived value from the customer's perspective. Sure, frequent flier rewards offer value for some customers, but will these rewards alone drive loyalty?
Consider this scenario: Joe, a somewhat frequent business traveler between New York and Chicago, had been a member of an airline's loyalty program for years. In light of the challenges facing airlines, he noticed that he was getting solicited with offers from airlines touting their frequent flier programs. On his next business trip, he chose to travel on an airline that was offering double miles if he signed up during a specific time period. The airline's flight times fit in well with Joe's plans and he figured the extra miles would be worth it. A couple of months later, he needed to travel again. This time, he chose to go with a different airline that was offering an even better incentive --- double miles for his hotel stay for joining their loyalty program. Their flight schedule and pricing was competitive. The offer enticed Joe, so he jumped ship and joined their loyalty program. So, which airline is Joe now loyal to?
Does this happen? Sure. It happens because hard awards alone do not garner loyalty. Long-term loyalty can only be attained on an emotional, more intimate level. This happens when "soft" benefits, which often include services such as concierge and personal assistance, are added to the mix. They drive loyalty because they take aim at the emotional, more intimate side of the customer relationship. They add depth and uniqueness to the loyalty program and make it hard to duplicate. They tell the customer that they are part of a special group by bestowing a unique status on them via giving them special treatment or access to exclusive services.
Soft benefits offer a dual benefit. On the one hand, offering them makes the customer feel appreciated and special. On the other hand, they provide the company with valuable customer-specific information that enables you to engender their loyalty. Why? Because when customers access these services companies gain valuable personal information about what their customer values -- what he likes and dislikes. Having this information is the key to creating the most meaningful marketing messages and will drive his loyalty.
Most companies have a limited understanding of their customer base. They have some general demographic and purchase-behavior groupings derived from data provided during enrollment and a transactional record. For instance, an airline might know from their frequent flier records that a certain person travels regularly between New York and Chicago. But, do we know why? Do we know if these trips are for business or for pleasure? Not having a full picture of the customer prevents companies from maximizing the value that their client base can generate for their firm.
To derive the most value from their customers, companies need to look beyond what they are buying, and examine what their customers are doing...the actions they are taking. It's not about just understanding their transactions -- it's about understanding and impacting their actions.
Transactional data, which tells what customers are buying, gives companies insights into trends across their customer base. True value is derived, however, from going to the next level and mining data that tracks customers' actions. By capturing lifestyle and preference data, companies arm themselves with the information they need to create more personalized segmented and individualized marketing initiatives. By providing this detailed level of customer analytics, the economies behind direct marketing are changed. Companies are no longer aiming for a traditional 1 to 2 percent hit rate. Armed with the power of actionable information, hit rates for direct marketing can be upwards of 15 percent.
Take Joe again, our somewhat frequent business traveler. Joe decides that, because he is a member of Airline ABC's premier frequent flier program, he calls their concierge service to get help planning his wedding. The concierge helps him find the location for the wedding -- a castle in Scotland -- arrange hotel accommodations, a wedding cake, flowers, etc.
In helping Joe with his planning, his concierge learns some valuable information. One hundred guests from various places around the world will be flying to his wedding. Airline ABC offers discounted group rates for Joe and his entire wedding party on their airline. Not only does the customer increasingly value the brand (helped him plan his wedding and saved money for his guests), but the airline also gained immediate access to a revenue stream, that they wouldn't have known about otherwise. Joe has effectively moved up the value chain.
Soft benefits are the key to accessing a broader scope of each customer's life. The information gained via a customer's interactions with services like a concierge or personal assistant enables a company to match relevant portions of the customer's life with the company's business objectives -- providing a strategic advantage and real value for those willing to invest in it. After all, if companies can engage customers in an actionable dialogue with goods and services that are relevant to them, they will spend more with the company ... and stay longer.
About the Author
Janet Kraus is CEO and cofounder of Circles, a provider of loyalty management solutions. Circles' loyalty management services are available to employees and customers of the nation's leading companies, including British Airways, J.P. Morgan Chase & Co., Millennium Pharmaceuticals, Pepsi Cola North America, Prudential Real Estate & Relocation, Saint Barnabas Health Care System and Unilever Best Foods North America.
Consumers continue to look for additional value through loyalty programs. Millennials show the highest increase in participation.
Sponsored By: Marketo and Real Magnet
Sponsored By: Informatica