A few weeks ago, I wrote about the design fundamentals of a loyalty program, which had been inspired by discussion with one of my readers Kim Skaaning Jørgensen. After I published the post, Kim offered me a rather lengthy and thoughtful feedback on the topic. So I invited him to write a a little more about it. Today, I am happy to introduce to you Kim’s guest post discussing his 10-step strategy to setting up a loyalty program.
10 Steps for Setting up a Loyalty Program
By Kim Skaaning Jørgensen
Step 1: Evaluate the Product
The first step is always to answer the following questions honestly:
• Is my product good enough?
• Is my product worth the investment?
If the product does not sell because of a significant quality, distribution, design or price problem, then the customer loyalty program will not be able to salvage it. In that case, you can apply the framework from W. Chan Kim and Rennee Mauborgne’s book Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant
Step 2: Identify the Value Proposition
This part is one of the absolutely most important steps before implementing a Customer Loyalty Program. What to offer customers? What is the value proposition? If the value is not well received by customers, the program will not work at all. Therefore use extra time to develop your value proposition. Here are some general guidelines:
1. The value, reward, benefits have to be of “high value” in order to make the membership attractive. The benefits must meet the expectations of the target groups.
2. It is not enough to think that a benefit offered are of high value. The benefit must also have a high “perceived value”. If customers perceive it differently because it is not the benefit they desire, the program will not work.
3. Selection of benefits. Benefits can be “Hard” or “Soft” (See figure below).
4. Timing of benefits or rewards (i.e., instant or delayed reward) needs to be considered.
Step 3: Create Program Goals
Goals can be divided into core, primary and secondary loyalty program goals. Below are some possible goals:
Core Goals:
• Revenue
• Profit
• Market share
Primary Goals:
• Customer loyalty
• Win new customers
• Build up a strong database
• Support other company departments
• Create communication opportunities
Secondary Goals:
• Increase visit frequency at point of sales
• Increase usage and purchase frequency
• Develop problem solutions
• Support public relations of company
• Add customer support capacity
• Support dealer network
• Improve product, brand and company image
Step 4. Determine the Financial Cost
The main costs you should consider are:
• Technical, organizational and personnel infrastructure
• Program service centre
• Development, storage and shipping of the rewards
• Communication measures
• Initial development and constant improvement of the program concept
Of course, the cost of a loyalty program will differ from case to case, depending on the industry, the customer structure, the competitive situation, the set-up of the program, and so on. But on average you can estimate the cost per member per year in the range of US$20-60 for B2C loyalty programs and US$100-300 for B2B loyalty programs.
Step 5. Develop a Communication Platform
A loyalty program must include communication methods that reach its members with themes that are of interest to them. You must further bear in mind that the program has to communicate in three different environments, each with different interests and goals:
• The loyalty program members
• The company´s employees, management and stakeholders
• The external loyalty program environment, which includes the media, the industry in which the sponsoring company operates, external partners, and so on
For each of these three groups, different means of communication must be developed to send the appropriate messages.
Step 6: Determine program organization and management
In order to guarantee a smooth development of the loyalty program concept and its implementation, your company should put together a project team made of people from:
• different departments (marketing, sales, IT, research, finance and so on) and
• different management levels (from top management down to customer service representatives).
If there is diversity in the team, it will be easier to integrate the loyalty program into the organization and the existing marketing plan. Instead of representing a top-down decision, the loyalty program will be supported on all levels. John P. Kotter has done extensive research on how to create urgency in implementing new programs into organizations. His work
can be recommended.
Step 7: Set up a database
A database that contains detailed and correct information on your customers is a strategic weapon that will greatly influence your success. Companies with CRM success all take a pragmatic, disciplined approach to CRM, launching highly focused projects that are relatively narrow in their scope and modest in their goals. CRM often fails when the customer strategy is put in the back seat and CRM in the front.
Step 8: Research on other loyalty programs
You need to consider the following questions:
• How do competitors organize their customer loyalty programs?
• How are loyalty programs set up in other industries or in other countries?
• What can we learn from other successful customer loyalty programs?
• What can we learn from loyalty programs that have failed?
• Is there any specific literature (for example, case studies) on the subject?
• Are there external specialists whom we can consult?
This research will allow proper benchmarking and inspiration in “best practice”.
Step 9: Implement the loyalty program
One of the questions that need to be addressed is how to implement or integrate the program into your company’s organizational structure. The most popular alternatives are:
• Founding a totally independent company to manage the loyalty program;
• Integrating the loyalty program into an existing department;
• Outsourcing the entire loyalty program management to an outside agency.
There is no best solution, so this decision depends on the individual situation of your company. It is more important to ensure that the customer loyalty program´s enormous support potential is fully exploited within the company. In most cases companies should wait six to twelve months before seeing the results of the program.
Step 10: Prepare a strategy for program defectors
A loyalty program should be able to identify program defectors in order to try to win the customers back. Customers who leave can provide a view of the business that is unavailable to those inside, and whatever caused one individual to defect may cause many others to follow. In most businesses, 60 % – 80 % of customer defectors say that they were “satisfied” or “very satisfied” on the last satisfaction survey prior to their defection. The reasons for satisfied customers defecting are often due to competitors changing offerings and/or the customer developing new requirements or buying habits and beginning to look for alternative products or the customer simply moving to another location. A proper strategy should be put in place to identify the exact reasons and determine how to address each.
I really appreciate the time and effort Kim put into making this great information available for my readers. To learn more about this 10-step program, you can download a white paper that he has kindly released, which describes each step in more detail. Now a little information about Kim:
Kim Skaaning Jørgensen is a manager at Bestseller. He received a Diploma in Marketing and Export from the Danish Export Institute in 1999 and a Diploma in Management from Henley University of Reading, UK in 2006. He is expecting an MBA from University of Reading, UK in June 2010 with customer loyalty programs as the dissertation topic. Kim Skaaning Jørgensen has a strong background in sales and many years experience form retail management.