June 8, 2018, 12:32 PM EDT
The 4 Pillars of Loyalty in Customer Lifetime Value
Few metrics better illustrate a company’s wellbeing than Customer Lifetime Value. In previous eras, retailers could employ tried and true loyalty practices that would reliably juice CLV. Today, they are challenged with savvy customers who demand more for their attention and dollar.
Leonard Jennings, SVP of Loyalty Marketing for Synchrony, says that once-dependable loyalty plays such as free shipping, hassle-free returns, POS offers and even basic points-based rewards programs are now table stakes. “As a customer, yes, I’ll still take the offer or discount, but there’s no guarantee I’ll be there tomorrow,” he says. “They’re no longer loyalty drivers per se — they’re all easily replicable by competitors.” Instead, retailers have to dig deeper, and work smarter, to move the needle.
To expand CLV in this new landscape, Jennings recommends abiding four core pillars of loyalty strategy.
1. Make rewards achievable
Jennings says a common pitfall of many rewards programs is having payoffs that are too far out of reach, leading to frustration and abandonment — a situation that’s self-defeating all around.
Instead, consider this formula as a best practice when structuring a rewards system:
- your best customers (those with highest lifetime value) should achieve rewards in three months;
- medium tier customers (decile seven or eight) within six to seven months;
- and everyone else within a year.
“If your customers need longer than a year to achieve a reward, either you need to create ways for them to spend more, or you’re giving rewards that simply don’t drive business,” he says. Either way, time for a revamp.
2. Always be relevant, personal and meaningful
Any company devising a loyalty program faces a blunt reality: what may appeal to one customer may repel another. This used to be a challenging issue for companies to confront at scale, but modern data-collection systems and machine learning processes make it not only possible but push-button simple to craft highly personalized offers for every customer.
Jennings says many loyalty providers are now leveraging automated customer personalization engines: customer response databases that aggregate at the customer level and, once fed into algorithms with other data streams, spit out the best possible offer for a specific segment or customer. “It’s technology that every retailer and loyalty provider absolutely needs to be paying attention to,” he says. Companies today will gain an edge by using customer data and automation tools like this, which allow them to engage in an intimate, personal and exclusive way with offers that translate to increased conversion and a boosted CLV. Fifty percent of consumers surveyed in a recent Synchrony study say that if a favorite retailer sent relevant offers to a mobile device, they would shop there more often. “I like to compare loyalty to dating,” Jennings says. “As a consumer, I expect you to know about me. And if you’re going to make an offer, make it feel like we’re in a one-to-one relationship.”
Every retailer and loyalty provider absolutely needs to be paying attention to automated customer personalization engines.
3. Sell to a “Market of Me”
The concept of one-size-fits-all has its place — socks, gloves, garbage bags — but Jennings says a modern loyalty program isn’t one of them. Rigid systems that force customers to apply bonuses to rewards they don’t especially care about are, at face value, a losing proposition. “Customers today think, ‘I’m over being rewarded with things I don’t actually want or need’,” Jennings says. “As a customer, I want to be able to choose my bonus category, my bonus day — I want to have it my way.” Companies should instead explore ways to create flexibility in their rewards programs that allows customers to apply them in ways that are personally fulfilling.
Jennings recommends adopting a per-customer rewards budget akin to the way retailers rely on a markdown budget for sale items. The concept is that companies budget for an average reward payout per year, and rather than divvying the payout across all possible rewards, use insights—or simply ask the customer—to allocate them to categories each customer specifically desires. “The whole paradigm shift is allocating rewards resources per customer rather than level-setting rewards and offers across the entire customer base,” Jennings says. In the past, this sort of specificity and precision would have been far too difficult to achieve, but with today’s AI and machine-learning–powered CRM systems, the process has become truly automated — and essential.
The whole paradigm shift is allocating rewards resources per customer rather than level-setting rewards and offers across the entire customer base.
4. Surprise and delight
As thrilling as crossing off that last coffee cup icon to earn a free $3 latte may seem, it’s the absolute minimum effort for a company’s loyalty program — and crucially, it doesn’t drive new or better sales, much less enthusiasm for a brand. Jennings says companies are missing out by not trying harder. “When’s the last time a non-airline or hotel really gave you a reward that stuck with you — and more importantly, made you stretch yourself to achieve it,” he says.
Companies should start with their best customers, those with the most spend potential and highest CLV, and devise offers and rewards that are not only of specific personal value, but are offered in novel and surprising ways. “We have to reimagine things and get customers to stretch a bit — not too far — and drive the business.”
If you are going to surprise and delight your customers, do it in a relevant way, Jennings continues. “Surprising and delighting a vegetarian with a discounted steak dinner doesn’t work. Also, a surprise and delight can just be a sincere acknowledgement from the company that appreciates the customer for spending their hard-earned money at the retailer. A surprise thank you note can change shopping behaviors in a positive way.”
We have to reimagine things and get customers to stretch a bit — not too far — and drive the business.
The overarching philosophy that informs all of these pillars is what Jennings says is a need to be intuitive to the customer’s journey. We have entered an era when companies, in order to move the needle on CLV, should be persistently mindful of a customer’s every move, and have a highly personal and individually appropriate action at the ready. Jennings says it’s important to detect when a customer is in your store or online shop, and finding ways to uncover relevant suggestions or assist in converting your shopping cart to a sale in that moment of opportunity. “Companies need to ask, when a customer enters their store and opens their wallet, how are they capturing and rewarding and dialoguing that,” he says. “Through all the touch points in a journey, retailers should be ready to act like a good friend.”
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