Guest Comment: Building a successful loyalty programme is a marathon, not a sprint

The old adage is of course true: Fostering your existing customers is far more profitable than acquiring new ones. Now more than ever though, this principle should be the basis of any marketing and CRM strategy.

The monthly discretionary income for a typical household is now approximately £750, compared with £900 in 2003/04, and to tap into this diminished spend retailers and brands will invariably have to make additional efforts to match their offers to consumer needs. One of the most obvious ways of doing this is, naturally, to give something back to reward your customers for shopping with you.

As operators such as Tesco Clubcard and Airmiles have known for some time, between 50 and 70 percent of customers respond positively to receiving rewards for their custom, and never more so than in the current economic circumstances — our own shopping portal, ipoints.co.uk, is currently gaining up to 100,000 new members per month. Not only can a rewards scheme encourage customers to repeat purchase with you but, from the retailer perspective, by intelligently targeting reward offers you can encourage additional purchases and upsell.

The tactics open to a brand looking to reward its customers — such as cashback, vouchers and points-based schemes — are extremely varied and the key question is ‘what kind of rewards scheme will best reward the customer behaviour I seek?’

This question is best answered by looking at brand engagement. While using tactics such as cashback sites encourage consumers to hunt down the biggest short term bargains, the best loyalty schemes repay those consumers who repeatedly engage with a single brand, building a relationship between the business and the consumer. As such, the key tenet of a successful loyalty scheme is personalisation, offering relevant information and offers to your customers based on their transactional and browsing history.

By analysing your customers’ behaviour, it is possible to segment them into groups or ‘clubs’ that show affinities to a particular type of product and then structure specific offers to those clubs and individuals.

Long term points-based reward schemes actively encourage a different mindset among consumers when compared to short-term tactics such as cashback and voucher codes. One of the principal differences, however, is the fact that cashback or vouchers can encourage consumers to purchase products they might not necessarily want.

Voucher codes are indiscriminate; driving short term value based shopping favour. They appeal to the small percentage of consumers who are highly motivated by saving money, regardless of the fact that in so doing they may have to compromise on the product they want to buy. In comparison, points-based schemes reward members for purchases they would already want to make — offering a more personal experience while encouraging a ‘save and splurge’ attitude. Once a member has spent their points on a single reward, the realisation of the saving process will result in a highly engaging experience, encouraging them to repeat the process again and again.

One of the principal advantages of long term points-style schemes, however, is the depth of customer insight that they afford a brand. Unlike voucher codes or cashback, which encourage one-off purchases, points schemes encourage repeat engagement allowing retailers and coalition schemes to build up an in-depth profile of their customers as they repeatedly engage. Once they have this insight, brands can easily identify those customers that are most valuable and engage and then tailor their CRM and marketing strategies towards them, ensuring the greatest profitability from a scheme.

In these tough times, many brands are inclined to think on a short term tactical basis, to attempt to take advantage of ‘quick hit’ style loyalty tactics. It is a mistake, however, to assume that this will deliver anything other than short term benefits. Genuinely building a community of loyal customers is a long-term project — requiring the development of clear analytics, profiling and CRM programmes, to create an experience that builds value for both brand and consumer.

• Guy Keeling is the managing director of Maximiles UK, a supplier of online loyalty programmes and customer relationship management services. The Maximiles Group serves some four million members in the UK, France, Spain and Italy.