Metzner Schneider Associates, Inc.

I Already Have a Loyalty Program. Now What?

We've been saying that traditional, structured customer loyalty programs are beginning to lose effectiveness. That in many cases they are a needlessly complex, needlessly expensive burden for marketers. That programs may be growing irrelevant to consumers. That we have entered a post-CRM world.

So where does that leave you if your company is one of the many that has a loyalty, frequency or reward program in place? "I've got a program, and it seems to be working just fine," you might say. "After I've spent lots of time and money establishing my program, are you suggesting I scrap it?"

Not at all. At least, not necessarily.

If you have a customer relationship program in place, we'd suggest, first, that you periodically re-examine your goals and objectives, and evaluate how well your program is helping you achieve the results you need. In other words, are you getting the maximum return on your loyalty investment? You owe it to yourself to check your "R.O.L" ("Return On Loyalty") from time to time.

Relationship programs, like other forms of direct marketing, should be objectively measurable. Assuming you hold out control groups, you can see just how those in your loyalty or CRM program measure up. You should see higher retention rates, longer relationships compared to control customers. You should see greater dollar volume versus the control group. You should be able to measure incremental sales over time, and incremental share of wallet. Weighed against the expense of your program, and against the performance goals you've set, you should be able to get a pretty good idea of how well your program is performing.

Let's assume you regularly look at your program's performance, and it pretty much meets your goals. Then it certainly does not make sense to discontinue it. However, we would advise that you make any additional investments very carefully. Rather than continuing to add infrastructure and cost when you are meeting current goals, you might be better advised to look at the audiences you are not currently reaching.

Today's environment is rife with opportunities you may be overlooking if your relationship efforts begin and end with a "formal" program. Let's look at a few of the initiatives you could be taking, even if your current program is meeting your company's expectations:

	•		Don't assume every customer relationship effort should be part of your program.

	•		Not every customer, even best customers, may want to be part of your program. What about the other half? Shouldn't you find the valuable customers who aren't joiners?

	•		Programs usually can't keep track of moving targets as customers change. Rather than trying to "fix" this failing, use other, less costly methods to deal with individual behaviors.

	•		Do you have some "super premium" customers? It is difficult to keep adding new tiers (what is better than Diamond or Platinum?). However, on an unpublished basis, you can provide special services and offers to your very top customers.

In addition to missed opportunities, there may also be current aspects of your existing program that are not maximizing. However, on balance, it may be working for you, and you do not want to expose yourself to widespread customer dissatisfaction by making wholesale changes.

You can also deal with this situation and improve your overall results. One technique many companies have used is providing a "cash-out"opportunity for those customers who result in more marketing cost than revenue. Often, a cash-out opportunity will re-activate a customer, and even if it doesn't, it may cause someone to choose to go away. One leading hotel frequent guest program used such initiatives for years, with results that approach "the best of both worlds."While pruning the program of customers who aren't particularly profitable, they also regularly succeeded in re-activating double-digit percentages of customers who had begun to drift away, simultaneously enhancing revenue while decreasing costs.

Any good program has an exit strategy from the very start. If you have not given yourself the right to terminate, do so, with sufficient notice so that customers have time to indicate whether or not they wish to continue. You can also grandfather all existing customers, and change the rules or stop enrolling new customers. Natural attrition will eliminate those that are not worth investing in; and you can always do targeted efforts towards those you wish to keep.

The best "Return on Loyalty"will come from a combination of reducing the cost of your current efforts towards customers that do not provide incremental profit as a result of your existing program, and targeting future efforts towards specific customers and behaviors that increase incremental profit without providing entitlements to those from whom you gain no additional benefit.

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