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LOYALTY MANAGERS AT WORK

Designing a successful loyalty program strategy

An interview with Phil Hussey, an experienced loyalty practitioners with over 20 years of industry experience across multiple verticals and global brands.

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Phil Hussey
Principal Consultant
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About Phil Hussey and LoyaltyLevers

Phil Hussey has been a loyalty practitioner for nearly 30 years, having worked both as a loyalty program manager and an agency supporting clients in their loyalty efforts across many verticals. Some of the biggest brands Phil has worked for include IKEA, Jeep, 800 Flowers, Hulu, Sanofi, Marriott, Disney, JCPenney, Staples, and many others.

Currently, Phil is the Prinicipal Consultant at LoyaltyLevers, where he works with brands and loyalty marketing companies who want to build true loyalty, offer customers genuine value, and maximize their ROI. Subscribing to a data-driven approach to loyalty, Phil has created a highly successful methodology, which he uses in helping his clients design and launch their loyalty programs.

Below, you can learn more about the processes employed at LoyaltyLevers, and gain some insights to apply when designing your own strategy.

What are the most important components of a loyalty strategy?

From my experience, the process of designing a loyalty program strategy should always start with outlining some key objectives, especially ones that go beyond simply increasing revenue and customer acquisition. It’s important to think a bit more granularly about the subject. Some key ones that I like to recommend to clients are:

Getting to know your customers is huge. A lot of the time, clients don’t know who their customers are, which can make trying to deliver value and retain customers tricky. Identifying who your customers are and gaining permission to communicate with them will be huge. It’ll enable you to learn about the patterns of their visits and purchases, thus allowing you to deliver the right value proposition.

Another key objective would be delivering targeted incentives, which is precisely what a lot of loyalty programs are about. It helps keep the business top of mind, motivate repeat purchases and engage customers. Also, growing the average ticket and offering customers new or different products - ones they may not have tied before. This is potentially a huge opportunity, a good example of which would be if you’re a big cable TV company with a bunch of subscribes, and your goal is to grow revenue.

Another one might be to recognize your best customers.This is something that airlines do successfully - offering VIP treatment to their biggest, most frequent spenders.

I like to encourage clients to think about four or five different objectives, and get a little bit clearer on what’s most important to them. At the same time, it’s crucial to keep an open mind in terms of the solutions. A lot of the time, clients will come asking for rewards programs, but that may not be what they need based on their objectives. Maybe a points-based program doesn’t even make sense for them; maybe they should do what grocery stores do and offer special offers on certain products and secure customer loyalty that way.

Starting with the solution before outlining the objectives is putting the cart before the horse, especially since different stakeholders within the organization will also want different things. E.g. the CEO might be a fan of loyalty points programs because they travel around the world a lot and reap their benefits. Meanwhile, the CFO might be terrified of all the discounts that go along with points and they may be more interested in targeted discounts; whereas, the marketing VP might be more keen on the idea of social media campaigns that support the overall brand messaging. Deciding on the objectives will help to reconcile al of these different perspectives and help you keep sight of what’s important.

How to design the perfect loyalty program strategy?

As seen within LoyaltyLevers, every loyalty program is made up of three levers, i.e. a balanced combination of three things, which are:

  • Behaviour motivators - all the things that drive purchases;
  • Sentiment builders - which make for all those intangibles and relationship builders that make up loyalty emotion or attitudes;
  • Engagement activators - that get people engaging with the brand, because if your customers aren’t engaging with the brand, you’re not really able to change their behaviour and build a loyalty customer base.

It’s important to maintain a balance of those three things. It can’t just be about driving transactions but not improving loyalty sentiment. On the other hand, it also can’t be all about building up the warm and fuzzies with the customers, because you obviously want to be driving purchase behaviour first and foremost. In the same vein, a loyalty strategy can’t be all about communication alone, because you still need to be encouraging the right set of actions.

The perfect loyalty strategy is one that combines the right amount of behaviour motivators, and loyalty builders while also getting people to engage with the brand. So, that’s one thing.

Secondly, I would say it’s always preferable to start with data analysis. The basis for the perfect loyalty program strategy is customer data. It has to begin with data, because that’s how you’re going to measure the program and its success. It should also include market research, so you can mix both to learn about the attitudes behind your various segments.

So, usually I’ll go in and do data analysis that generates the segmentation and then proceed with some market research among those key segments to find out what their needs are.

Lastly, I’d say a successful loyalty program strategy has to have a solid business case.

What are the most important milestones while developing loyalty marketing strategy?

I usually break it down and it’s kind of the traditional thing. The first one is the step-back, or the discovery phase, which could include things like research or a review of the research the client already has. It could also include data analysis and stakeholder interviews about the sort of opportunities that various people across the organization see for loyalty. Also, some benchmarking and competitive analysis to get a feel for what’s already being done will be key in the discovery phase.

Then, we move onto the design phase, which is focused on coming up with ideas and program designs based on the discovery phase inputs. Here, I would recommend doing two or three different designs, and making sure they’re quite different from each other. A lot of the time, people will just go for the one idea that can get the most consensus within the organization. It can be a good exercise to encourage people to think of three different options, and then doing market research to see which ones are resonating the most with consumers and how they can be tweaked for most benefit. With all of that done, you narrow it down and select the right strategy.

Going into the development phase are things such as actually designing out the specification of the agreed loyalty program and starting the evaluation of various technology providers - e.g. Open Loyalty - once the requirements have been defined. And finally, we progress onto the build and launching the program.

Who should be involved in designing a customer loyalty program?

This is a great question. I believe it should be a defined group of stakeholders from across the organization. In my experience, I’ve seen it work best when there’s 8 to 10 people involved. Certainly, any kind of field organization needs to be involved, because they never feel heard on the frontlines :)

Marketing needs to be involved from a brand perspective. Obviously, the loyalty group itself. Finance should be involved from the very beginning. An operations or merchandising group, depending on the type of organization. The merchandising people are crucial, as they’ll tell you what kind of products you should be promoting and pushing. So, I’d say you need a couple of people from those groups to get a team involved with reviewing the discovery from the beginning, which will allow them to have a shared understanding when progressing from the early stages onto the selection and development.

How to measure if the loyalty program strategy is successful?

I have developed a loyalty balance scorecard approach, so it takes into account going back to the objectives but also having measures on each of the three levers.

So, the key thing is to understand whether you’re creating the behaviour you’re wanting to create. While that can be tricky to measure, because you may need control groups and things like that in the case of customer loyalty programs, there are different ways of looking at it over time. Instead you could use metrics such as purchase frequency, ticket size, profit margin, customer retention, activation, and so on. You can get really granular here and there are several different measures of the behaviour aspect.

Similarly, sentiment. You need to ask yourself whether you’re building true loyalty, because if all you’re doing is driving transactions and not creating genuine loyalty, then that’s not as powerful. To find out whether you’re building up real affinity among your audience, you can utilize tools such as surveys and social media monitoring, which will help you understand levels of preference and if you’re really building those kind of pieces. Then, you have engagement, which is pretty easy to measure. It can be reflected in simple things like open rates, CTR, emails, website visits, conversions and other key metrics.

Having a balance score card that doesn’t just focus on profits is crucial here, seeing as it could take a year or two to generate the kind of profits that you or the CEO might expect to see. A lot of the time, certain factors can get in the way of generating that profit, so if you see a positive change in customer attitudes, but you don’t yet see the profit, then that tells you that you’ve got a great concept, which you need to monetize a bit more.

On the other hand, if you see a great change in profit, but you haven’t really changed any attitudes yet, then that might not last, because if another competitors comes in with a better points scheme or offers, then you might very easily lose all those customers that you have worked so hard to gain. That’s when you need to add in attitudinal elements to boost that engagement, which I see as a leading indicator of loyalty success. If you’re seeing nice increases in the level of engagement with the brand, then you’re ultimately going to see more profit and improved attitudes.

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To get some loyalty program inspiration, check out the Top 100 Loyalty Programs report, or peek into the future of the loyalty industry with our Loyalty Trends 2022 research.