Richard Branson once said that “customer loyalty” is the same as “customer satisfaction” and who would argue with him? However, there’s a post on the LinkedIn group Dr Brians Marketing Network this morning about this very topic (although it leads with a question of “customer trust”, but it’s much the same thing) so maybe not everyone is clear about what drives loyalty nor what loyalty brings to an organisation?

Firstly, we need to get one thing straight. A loyalty programme isn’t a discount club. Sure, there will always be an element of discount among the benefits of a loyalty programme, but in these competitive times, what business can afford to commit to reducing their margins? So, if you want a loyalty programme that contributes to rather than reduces your bottom line, you have to think a little broader than most people seem to.

There are two kinds of loyalty club member – mercenaries and genuine loyalists. The former are there just for the discounts. If they can get a lower price from your competitor, be sure they’ll be shopping there, so you might as well do away with the overhead of running a loyalty programme and just reduce your prices. All the research I have seen points to these kinds of schemes delivering no long term sales advantage anyway. The latter are the customers you want. Committed customers not only buy more, they’ll pay more and recommend you to their friends, but if you want these guys on your side you’ll need to put the effort in. Think of your loyalty programme as another channel, like on-line or physical stores. Yes, loyalty programmes can delver customers to both of these other channels too. To pick up their purchases for example and there are opportunities for additional sales in that for sure, but there are incremental direct sales to be had once you leverage all of the tools available to a modern loyalty programme, otherwise there no point.

Like everything else in any organisation, it all comes back to brand. In particular your “brand promise”, that undertaking, implicit or explicit undertaking you make to prospects and customers that makes them want to move in to your community and put down roots. In my Brand Discovery programmes we devote a good deal of time to discussing this, because its probably the most important aspect of a brand. I make my clients present me with, what Julie Meyer suggested to me last week was “proof of promise”, a list of four to six facts about their business that will convince me, their prospects and their customers, that they will deliver on that promise.

I can’t stress the importance of this promise and its delivery strongly enough. Delivering the promise prompts the feeling of satisfaction that Richard Branson referred to and its the key to establishing the relationships that will separate your loyalty programme from the discount schemes of your competitors. They say it costs ten times as much to attract a new customer as it does to sell to an existing one. However, if you attract a customer with a promise that you fail to deliver it can cost you a hundred times more to bring that disappointed customer back again. With new customers in every developed market as rare as hen’s teeth, every customer you alienate is a slice off your bottom line. So, I urge you, don’t screw this up.

Get it right and your loyalty programme will significantly add to your profit. Research a few years ago by Bain and Co suggested that a customer is fifty times more profitable in their tenth year than they are in their first. With each contact they have with your brand they gain a deeper emotional attachment to your brand, they trust you better and because of this and will be more ready to experiment with new products that you bring to market and your loyalty programme is your opportunity to make those contacts more frequent and more satisfying. Genuinely loyal customers will also recommend you to their friends, which all adds up to lower advertising costs and that all-important, higher gearing to your product lifecycle, which enables you to capture a new category before the competition arrives to put pressure on your margin. As I said. Don’t mess it up!

The rules of engagement when you are putting your loyalty strategy together don’t differ from those that apply to every other aspect of you marketing – stay consistent. In particular, stay consistent to your brand promise by making those proofs of promise the sole subjects of your communications with your loyalty members.

I’ve just completed a two-and-a-half year project that involved, among other things, creating a loyalty programme from scratch. These days, loyalty programmes aren’t just a case of issuing customers with discount cards and waiting for them to start spending. Its all about the data and the targeted communications this enables. Once your customers are signed up its your job to entertain them with information, editorial and offers that will improve their love for you. We signed up 450,000 members in a very short time span and because social media is now beyond question customers’ preferred channel of communication with vendors, social media was fully-integrated and utilised alongside e-mail marketing and telemarketing. We didn’t forget the usual in-store and e-commerce drivers though and when it was all put together we generated between a third and sixty per cent of sales of selected lines and found that over 80% of ongoing sales through both physical and on-line channels involved the loyalty programme in some way. Your loyalty programme can generate spin-offs too, including a great customer panel and the wealth of customer insights you will get from analysing the wealth of data you collect along the way. All of which helps you streamline your business generally.

Phil Darby
July 5, 2014

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