The 4 Pillars of Customer Loyalty Program Success What Separates the Winners from the Losers

Everyone, welcome to today's webinar, The Four Pillars of Customer Loyalty Program Success. This is Carlos Carmona, and happy to welcome you to today's event. And kicking it off with Tim.

Thank you, Carlos. I'm Tim Harmon, and I'm joined today by my ever-popular color commentator, Husseni Rasiwala-Yali. Hello, Husseni.

Hey, Tim, good to be here.

So as Carlos said, we're going to talk about the 4 pillars of successful customer loyalty programs, right? And here they are: targeting, incentivizing, communicating, and measuring, in black and white. And we're going to go into each of those, each one of those, in detail to explain to you what they are and why they're important or critical to the success of a customer loyalty program. And then we'll finish with what separates the winners from the losers, you know, and I'll give you a clue. It's how you go about applying and building those 4 pillars into your loyalty program. So it has to do with the methodology. Okay, so I don't normally like to read my slides. In this case, I'm going to make an exception because I think These industry statistics are very important. They have to do with why you should be considering, if you're not considering or don't already have a customer loyalty program, right? They're just— they're important. So first one, a 5% increase in customer loyalty can increase a company's revenue by up to 95%. Let me read that one again because that's a big number, 95%. A 5% increase in customer loyalty can increase a customer's revenue by up to 95%. That's a huge number. This is— it's almost like a market share number. I mean, 1 point in market share can oftentimes mean millions or tens of millions or hundreds of millions in additional revenue. In this case, it's a relatively, relatively small increase in customer loyalty that can have a big impact on your top line. Second, it's 6 to 7 more times more expensive, more expensive to acquire a new customer than it is to keep an existing customer. And I realize that you may know some of these statistics. They are either explicit or inherently known by you. But again, I want to set the stage for what we're going to talk about in terms of these 4 pillars. Thirdly, existing customers spend 2/3 more than new customers, right? They just— so it's not only not only is it less expensive to keep an existing customer than to acquire a new one, your existing customers spend more, right? So that's almost a double positive whammy. Fourth, 83% of customers agree that loyalty programs make them more likely to continue their purchasing, right? So that's a good number. And then finally, 61% of retailers cite customer retention as their biggest obstacle. So, you know, if customer retention is hard or difficult, maybe you want to employ a loyalty program. And I'll go beyond that, I'll say a good or great loyalty program, because as you're going to find out here in a minute, not all loyalty programs that we've been able to find, you know, across our own research qualifiers good or great. But if you do, you know, if you find that it's hard to retain your customers, maybe you want to employ a loyalty program. So that's 5 pretty good reasons, very good reasons to consider what you do in terms of customer loyalty. Let me give you a 6th: data, customer data. So, you know, the, the original reason or raison d'être behind customer loyalty programs was to get their data, right? Most of their transactions— and I'm rolling back the clock a good number of years now— but most of their transactions were at a physical location, you know, a store or some sort of facility where they, you know, paid cash or credit card or debit card more recently for their purchases. And oftentimes, most of the time, all that data about what they were purchasing, brands didn't have. And so brands could not only not reach their customers to learn more about their customers or to engage with their customers, they weren't able to use that data, um, of what their customers purchasing to inform their product roadmaps or to inform their marketing strategies, or to inform their investments, or anything else. So that was the original raison d'être, as I said, behind customer loyalty programs. Let's get the customer data so we know about— more about our customers, so we know what we should be doing to serve their needs, right? And the, um, but it goes beyond that now. It's not only having data for your own purposes, which is very valuable, right, but companies are now collecting customer data and selling it, right? It is now the most valuable resource, uh, in the world is data. You know, it's quoted from The Economist, right? And the, um, let me give you some, some statistics here. So in 2017, that's just 3 years ago, the worldwide revenue from companies selling their customer data was $642 million. 2018, a year later, jumped to $730 million, and it's continuing to grow at about 27 or 28% growth each year. Now, some other interesting statistics. On average of— these are publicly traded companies— the average revenue that a publicly traded company gets from selling customer data is $22 million. That's not insignificant. Uh, in the insurance industry, the average is that tops the— everyone— the average insurance company gets $40 million of revenue from selling customer data. Telecom, which ranks second, an average telecom company gets $29 million selling customer data, right? So industry average, $22 million per company. Let me give you a more explicit example. Facebook, all right, so Facebook makes somewhere between $38 and $76 million selling customer data according to one source, right? The way they got this is that the data of an average American, as calculated by Facebook, is worth somewhere between 20 cents and 40 cents. And Facebook has about 190 million users in the United States, so again, that translates to between 38 and 76 million just on selling data on American users. Now you go outside of the U.S., where Facebook has over 2.2 billion users, it means its global revenue from selling selling data is probably much, much higher. So it's a big, big industry. And not to put a damper, but I've mentioned earlier about good or great loyalty programs, of which there are many. We'll give you this example of a few, but the majority of customer loyalty programs fail. This is according to a study by Capgemini. Gemini, right? Now, reasons for failure are, are many. Um, here are some of the more important ones. So number 1, a lack of reward relevance and reward flexibility, right? Uh, this, the second cited issue, uh, in this research, a lack of a seamless multi-channel user experience. So You know, in terms of a loyalty program, customers are finding a different experience from, you know, when they go into a store to when they log into a website to when they use a mobile app. So different experiences. Number 3, poor customer service quality, right? Number 4, uh, reason for failure: retention programs are transactional. Remember that one because we'll talk about it later. Retention programs are transactional. It means that what brands are doing in terms of their loyalty programs, they're rewarding customers for their purchases and not going beyond that. 97% of loyalty programs today in the world are transactional programs, and yet that's a major reason cited for the big failure rate as well. And last but certainly not least, lack of personalization, right? So that's, that's 5 big potholes, right? And we are going to, you know, walk you through the, the Target, Incentivize, Communicate, and Measure framework you know, one at a time, which will guide you on how to avoid those very big potholes and not be one of the 77% that fail, but as opposed one of the 23% that succeed, and hopefully one of the, the tops that succeed very well with their loyalty program, right? So the ideal customer loyalty program structure is a model comprised of 4 essential components, which was inspired by Don Peppers and Martha Rogers' IDIC model for managing customer relationships. IDIC stands for identify, differentiate, interact, and customize. Those components are target, incentivize, communicate, measure, and these are the necessary components of a loyalty program that will lead it to be successful. So then I'm going to turn it over to Husseni to start walking you through some of these pillars.

Thanks, Tim. So let's take a closer look at these 4 loyalty program pillars. Let's start with marketing— or sorry, targeting. The first pillar is target. Very, very important. You know, a successful loyalty program segments the company's existing and potential customers into subgroups that have similar characteristics. There's two reasons for this. First, this will help you understand what each segment values, the member likes and needs, their purchase behaviors, interests, etc. You have to understand what motivates and drives each segment to deliver the right content at the right time to the right people to ensure objective achievement. Secondly, segmentation will allow your company to identify the most accessible, actionable, and profitable groups, helping you make smart decisions on what segments to direct your resources and marketing efforts to. So in today's market, companies want to build meaningful relationships with their customers, and to do that, they are moving across a targeting process spectrum that goes from no segmentation to mass segmentation to micro-segmentation to finally one-to-one segmentation. If you treat all your customers the same way, they won't remain your customers for long. You have to deliver different and relevant offers for each of the segments to make them stick with you. Building a relationship program means creating benefits that will incentivize clients to change their behaviors. So the first step towards this is to move away from a program that does not segment your customers at all to a mass segmentation model. You know, loyalty programs that have member tiers is an example of mass segmentation. Mass segmentation will allow you to study characteristics of each segment, and based on this data, you will have better understanding of what they like, need, what they find valuable, their purchase behaviors and interests, etc. This will help you figure out the right incentives that will make them alter their present behavior. For example, one field client is a department store. They have done a good job in segmenting their customers, and by understanding what they need and value they have delivered the right content and rewards accordingly. You know, this— for one of these, for this retailer, an Australian fashion retailer, Fila created distinct customer loyalty programs for two brands it was rolling out, each one being a multi-tiered loyalty program separating the customers according to different purchase behaviors. The result was a program with five different segment tiers, each having access to different and exclusive rewards. So thanks to today's technology, it is possible to segment your customers further and end up with a micro-segmentation strategy. As shown above, you can create different segments according to customers' engagement with your brand or their purchase behavior and the stage they are considering in their lifecycle. For example, the graph above shows a company that has a total of 9 segments. These have been divided according to customers' purchase behaviors that have been divided into 3 segments: Shield, which are the more profitable customers with the most engagement and which have to— we have to protect and keep. Warm Target, customers that are not as profitable, but they do buy from you and they have a decent level of engagement. And then we have a Cold Target here, the customers that have less engagement with your brand and do not buy from you frequently. And the stage that they are in the customer life cycle: Activate, the initial stage of relationship. Bond, stage in which loyalty has built up and is at a mature level. Retain, stage where the client's engagement levels are diminishing. This is when the brand has to work to recover the customer's loyalty. In studying each of these 9 segmented characteristics, there's a chance that you will deliver the right offer to the right segment at the right time. Each customer segment will perceive a greater value in the offer they receive, their satisfaction will increase, and they'll be willing to change their behavior, driving the desired results of your program. So now, artificial intelligence. See, artificial intelligence allowed for more of a personalized, one-to-one offer delivery. Before this technology, it was basically impossible to administer segments on such a granular level. It was much too costly and manual, but new techniques in personalization have started making this a possibility, and they are allowing companies to move forward on a one-to-one segmentation strategy. As you can see in the slide, with micro-segmentation, you can offer a specific brand of sneakers to a specific segment, but through personalization, you have the possibility to offer a create different products to each one of your customers, as now it is possible to detect the customer's interests and needs on a more granular one-to-one level. You know, the Amazon Prime loyalty program makes good use of this kind of segmentation based on previous purchases and a customer's navigation across the website. The program member receives suggestions on what to purchase next. Through AI and machine learning, the program is capable of making smart decisions on viable products that the customer might be interested in. Great, let's go to our second pillar, incentivizing. So once you've segmented your customers, you will need to incentivize them to change their behaviors. Incentivize being the second pillar here. The behavioral changes you will incentivize will depend on your business objectives. For example, if you want your business to have a larger profit, You can incentivize your consumers to increase their purchase frequency or spend more with you by pushing cross-sell and upsell incentives. If you have clear objectives and you know what you want to achieve, it is possible to identify behaviors associated to marketing, sales, or engagement that need to be altered to ensure that said objective. To increase loyalty, you can incentivize engagement, motivating customers to subscribe, to your content or engage more in your portal, as an example. So to achieve the necessary behavioral changes in your customers, you first need to understand what motivates them. As we had determined the different customer segments you will work with, you will have to understand now, not only do they— each of them have specific characteristics, but also different things to motivate each segment. And you have to figure out what motivates each segment if you want them to change their behaviors. One way to do this is through surveys in the initial program drafting phase. Understanding what your customer thinks about your product and pricing, the customer journey they go through when buying your product, if they are satisfied with your communication frequency, and if they find value in what you are offering. Also, it is important to know if they trust your brand and if they share the same values, values as you do. All this information will be very valuable to gain on what your customer wants and how they feel about your brand, so you can understand what is the best way to motivate them to change their behaviors. Urban Outfitters is actually a great example of this. They've done an excellent job of understanding their customers, and based on that information, incentivizing them to take up various behavioral changes depending on where they are in the life cycle. As all customers are different, Urban Outfitters decided to incentivize and reward lots of different behaviors. Giving their customers the possibility to choose how to gain points. Customers can get points by joining the program, making a purchase, downloading the app, subscribing to emails, making product reviews, and enabling push notification. Based on the number of points obtained, they will belong to a specific tier which will provide them with meaningful rewards. Tim, over to you.

Husseni talked about the first two pillars, target, incentivize. I'm going to take up the third, communicate, because great communications is absolutely vital, right? For a loyalty program to be successful, the brand has to maintain a constant stream of communications with your customers. This is going to build trust and sets expectations of what to expect once they join your program. If they understand what they have to do, customers will be more willing to engage with your brand and change their behavior. And communications should include the creation of the program, promotions, services you provide, improvements, the communications channel they can access to solve any issues, new promotion launches, feedback requests, etc. If your communications are clear, valuable and constant, you will create long-term relationships with your customers, all the while constantly receiving feedback on what they want and be able to roll that back into your loyalty program to make it even more valuable to them. And it's necessary to keep in mind as well that not only do you have to think about what you will communicate to your customers, but also When the communications model you develop should consider not only the purchase behavior segment you're addressing, but the customer lifecycle stage they are in as well. Let's consider this example of a customer belonging to the warm segment. Now, if they're in the activate stage, it would make sense to offer them a welcome kit for joining your program. And you can ask them for more information to learn about them through surveys or offer them discount vouchers to get them to purchase more from you. As the customer progresses to the next stage, bond, you can enroll them in an engagement campaign to get them to have more contact with your brand. You can launch a customer satisfaction survey to gain insights on what they value at this point and what they expect from you. Or you can offer them a member get member promotion. That's MGM member get member. And finally, when the person reaches back— reaches the retain stage, your communications have to change accordingly, enrolling them in a win-back campaign to keep them as your customer, or offering a points redemption program where their points will be worth more. So what is important to keep in mind is that, yes, the communication you create has to be valuable to the segment you're addressing, but it also has to be relevant considering the lifecycle stage they're in, as this is going to determine the relationship they currently have with your brand. And some examples of programs that really utilize effective communications to drive their program success. Starbucks. So whenever there's a new promotion, a member get member opportunity, or points to be redeemed, etc., the customer gets all the necessary notifications about how they can take advantage of it. ExxonMobil. So when they canceled the Plenty program in 2018, they actually replaced it with Rewards Plus. They auto-enrolled their customers in this new program, and all the new program changes and rules were probably rolled over and then the members were notified accordingly. And this last pillar, measure, right, analytics. So this last pillar of a loyalty program is a capability, an indispensable capability that enables you to measure your efforts. There has to be constant feedback between the results of your efforts and of your adjustments made to your program to allow for program improvement, constant value delivery, and objective achievement. An effective loyalty program must capture relevant data and set up dashboards to get a holistic view of your company's loyalty efforts. And this was going to do— go a long way to helping your company analyze the tactics and make the intelligent decisions in the future to ensure success. Now we've grouped, uh, various types of metrics that we have found very valuable for our customers that they are using into 3 different groups, right? One is concerning the loyalty program itself and its performance, so that's loyalty program metrics in the lower left. The second group, lifecycle marketing metrics in the upper right. And then the third grouping, metrics responsible for the behavior experience of your customers in the program, right? Whether it's lifetime value, new members, redemption rate, churn rate, return on— the big one, return on marketing investment, right? So all of these are examples that we have pulled from our customers across the globe that are using to measure what their— how their customer loyalty programs are doing and act as a feedback mechanism into improving their customer loyalty programs. So let me turn it back to Husseni.

Thanks, Tim. So great, now that we've gone through all the 4 pillars that every loyalty program has to have to be successful, let's take a look at the necessary implementation phase you have to go through and most importantly, how how your brand and loyalty provider you choose will have to make a conjoined effort to make an effective implementation. So first, discovery. Discovery is the first phase and most critical phase. The objective is to prepare a diagnosis and solution draft detailing what the loyalty program is going to look like. This is the starting point for every loyalty implementation project. So everything that comes afterward depends on this stage. So take your time with this one and really think about all the elements you're going to use to create your loyalty project. In this stage, you will have to gather valuable information, define the goals of your program, who is the loyalty program for, the behaviors the program will encourage, the rewards that will be provided to the program members, the channels that you will be used to communicate with the participants, the resources and expenses needed to get the program going in terms of finance, etc. Next is solve. Solve is the second implementation phase. In this phase, you will develop the business solution before building the actual tool. You will, you will use all the information gathered in the discovery stage to create a detailed blueprint of the program you will implement. And then next, of course, is the build phase. And hopefully, if you're using a more standard product, this is a configuration phase where the program is constructed and implemented using the chosen loyalty platform. Also, all the necessary channel integrations are done here as well. And then finally, we have the implementation phase. In this phase, you have to make a constant maintenance of your loyalty program and its campaigns, measure the results of your project, and tweak the program accordingly as you go forward in runtime. And finally, for the implementation to run smoothly, And for your loyalty program to deliver everything that you expect it to, you need to have the right technical platform solution. An effective loyalty platform will allow you to construct your 4 pillars quickly and implement them accordingly and maintain them over time. A CRM solution alone will not do this. A loyalty program has different functionalities than a traditional CRM, making it impossible to use a CRM software to create and manage a loyalty program. You can't, through a CRM, set up the necessary point mechanics, and create the loyalty program rules, accompany customers' behaviors, and attribute the necessary points for each action. A CRM will allow you to segment your customers based on their characteristics. You'll be able to follow how much money they spent with you, the products they bought, how many points were attributed to each member. But you will not have a potent points engine that will calculate how many points should be awarded to separate members based on their behaviors. So the ideal loyalty program depends on the right technology that is integrated across the platform seamlessly, allowing you to build up your 4 pillars and implement them accordingly. Tim, let's summarize this for the group.

So, I started out by talking about giving you some statistics, some pretty positive statistics on how loyalty programs pay off, right? The fact that loyal customers spend a lot more, or customers, existing customers spend a lot more than, uh, than customers that are considered to be not loyal. The fact that just a small increase or uptick in customer loyalty can have a huge impact on your top-line revenue, right? The fact that customers value brands that value them through their loyalty program. So good loyalty pays, what I mean by that. Conversely, bad loyalty programs don't pay, they fail. You saw the numbers, 77% of loyalty programs worldwide fail in their first 2 years. So there's a big difference between the winners and the losers. And those winners are those that have applied the 4 pillars and are— applied the methodology that Husseni walked you through to implement the 4 pillars and are using the right technology platform to support and manage their customer loyalty program. Second, we talked about planning, how you need to plan at least 2 years out, a 2-year plan for how you will target, incentivize, communicate, and measure. You know, I— we go through this with a number of customers where they have an idea for what they want to do maybe in the first 6 months or the first year. It's not enough, and we help them build a 2-year plan about— at least a minimum of 2 years plan to plan out what they're going to do how they're going to segment their customer base, the various types of incentive programs and promotions they're going to apply at certain points in time, how they're going to employ gamification, for example, in some of those promotions, their communication strategy that supports all these incentive programs and promotions that they're going to put out over the course of these 2+ years, and finally, as you, as you As you saw, we help our customers identify the metrics that they can put in place to measure the success and adoption of their loyalty program. And third, Husseni talked about the needs of a technology platform and that it must cover all aspects of target, incentivize, communicate, and measure in a building block paradigm, right? You need to have— you don't want to have various capabilities, you know, your targeting capability in one product, your incentivization or your incentive program design in another, and yet your communications in a third. You're never going to be able to bring a holistic, comprehensive capability to your customers if you're spreading that technology out over a number of different products, if you will. You should be looking for a technology platform that incorporates all aspects of TICM into one common platform capability. So with that, Carlos, did we have any questions that came in?

A look. Yes, we do. And as a reminder, feel free to put any questions that you have in the question box. If we don't get to them during the webinar, we'll answer them through email after. So let's see, the first one is from Mark. Where does the tech industry rank in terms of data monetization?

Oh, okay, let me— I'll take that. Let me look that up. So I mentioned that— so the industry average of a company in terms of the revenue they get from selling their customer data is $22 million. Insurance is first, $40 million. Telecom is second at $29 million. Tech is actually in third place at $26 million a year. And just to give you another idea, at the bottom of all the industries is energy and resources. They only make $2 million a year in selling customer data. So, you know, that's interesting to know as well, that your local gas stations are not really selling your data very much.

Great, thank you, Tim. Okay, here's another one from Lauren. You said that transactional programs are a cause of loyalty program failure. Why is that and what can we do about it?

Yeah, so, um, so some of the underlying, um, aspects of transactional programs. And again, these are programs that are again rewarding customers just for their purchases and nothing else, right? And what's happening is, and this is actually, you know, stated by customers in surveys of customers, survey over survey, they're saying that these transactional loyalty programs are really just a means of cross-selling which maybe perhaps they are, but they perceive these programs where cross-selling is to be the chief motive and not really providing value. And so I think a lot is in the, you know, the way that a loyalty program is marketed. You know, customers are becoming more and more knowledgeable every year. We know that. And if all a customer thinks is that you're just trying to extract more from their wallet, they're not going to be really impressed with your loyalty program. Now, there's— so I mentioned that 90, 97% of loyalty programs are transactional. Let me give you a few other statistics as well that might help guide your thinking in terms of what you can do about that. So only 16% of loyalty programs are engagement engagement-based. In other words, and that's not very many, right? But what I mean by engagement-based is that they are rewarding customers for not just their transactions, but for their behaviors, right? For their social advocacy, for their visits to the brand's website, for their subscription to a newsletter or some other type of content. So that's one. Only 14% of loyalty programs today across the globe employ gamification, and gamification is a key factor that we have found in the success of a loyalty program. Now, we did a webinar earlier this month on gamification as it applies to B2B channel incentive programs we're going to be following up with how gamification can be applied to customer loyalty programs as well, so you can stay tuned for that. And one more, so 16%, only 16% are engagement or behavior-based, only 14% employ gamification, only 11% personalize the content and rewards, right? And yet we heard at the beginning that lack of personalization was one of the major reasons for the 77% failure rate. And so when Husseni was talking about that segmentation pillar, take that to heart because that is a real clear differentiator between success and failure.

Great, thank you, Tim. Let's see if we have time for one more question. Here's one from Arun, speaking of segmentation. Husseni Rasiwala-Yaliwala-Yaliwala, uh, segmentation was mentioned in terms of mass, micro, one-to-one. How does Fialo solve for that? We have limits with our current platform.

No, excellent, uh, good question. And actually, just to segue from what Tim said, you know, before I answer around Fialo, again, segmentation's very, very underutilized in the market, right? You heard Tim mention 11%, and obviously there's different maturities of segmentations we discussed today. And even at the mass level, it's not being done properly. But of course, as you want to move to micro and then one-to-one, a really, I mean, a lot of business and marketers dream of this, but they don't have the solution technology chops in their products and their platforms to do this. So Field does have that, right? So we have a real-time segmentation engine, and the great thing about it is that it has a great user interface. So the marketers themselves can go in there and create segments in real time. And because it can— it's real time and it transacts on static and dynamic information about the members captured within the CRM, we're able to do those kind of mass, micro, and one-to-one segments. The cool thing is once you get to one-to-one, as I was talking about, you really get into more AI machine learning, and that's something that we're pioneering in Fialo, and it's on our roadmap for this year to further use and leverage machine learning and AI APIs from different platforms, like the Salesforce platform that we're on, in terms of having that one-to-one recommendations that you would need for that, for that level of granularity. You know, take a step back from this, it's not just about segmentation, obviously, but across TICM. You know, you recall the slide I was showing you guys about the technology platform. You know, to have a technology platform that captures everything around TICM, which are the 4 critical pillars here, into their engines is one capability that you should find in your technology. Secondly, and we have this in Fielo, is configuration and agility around those 4 different aspects. So within Fielo, you can, with configurability, create those segments for the targets. Equally, we have in our incentive engine the agility and configuration of our flexible rules engine to offer the different kinds of incentives. And then lastly, of course, we have integration with communications and we have the analytics to do that as well. So, you know, be very, very— do your due diligence on the right technology provider.

Great. Thank you, Husseni, and thank you, Tim, for answering those questions. If we didn't get to yours, we'll be answering through email. If you are joining us for today's webinar, if you have any, uh, more questions, or if you have, uh, if you want to learn more about Fialo and Fialo services, please visit us at fialo.com. And with that, we want to thank you for joining us again and have a great rest of your day.