Welcome to the Loyalty Program Builders podcast, where we collaborate with top loyalty professionals to tackle business and technical challenges while implementing and running loyalty programs with the support of a robust customer loyalty strategy. 👋
As this is our first episode post, allow me to introduce myself. I'm Irek, the Content & Community Lead at Open Loyalty. I spearhead content projects to help businesses understand and engage with their existing customers, fostering customer relationships, increasing customer satisfaction, and building customer loyalty.
As the host of the Loyalty Program Builders podcast, I plan the content, invite guests, record the show, and promote the contents related to customer loyalty strategy. However, my main goal is to build a community of loyalty professionals to discuss and share experiences in implementing and running loyalty programs.
If you have any questions, ideas, or customer feedback, write to me at podcast@openloyalty.io.
What You Will Learn About Customer Loyalty Programs
This episode is all about customer loyalty strategy. Our goal is to provide you with insights, guidance, and practical tips on how to design and implement a successful customer loyalty strategy, thereby increasing customer satisfaction, loyalty and customer retention.
Key takeaways
- Building customer loyalty about delivering meaningful value to your loyal customers, so you should listen to their needs instead of copying the competition.
- Differentiation should be the key aspect of retail loyalty program design.
- Three areas where loyalty programs can generate financial value are acquiring new customers, increasing spend, and customer retention.
- There are efficient rewards (where the value members receive exceeds the cost to the company) and inefficient rewards (where the value members receive equals the cost to the company) within loyalty programs.
Three actions to start today and boost your customer loyalty strategy
- Join several loyalty programs yourself – you will learn first-hand what works and what doesn’t, how to measure customer loyalty, and .
- Study consumer psychology – understanding why loyal customers do what they do will guide you on how to model your programs.
- Discuss and write about loyalty programs regularly – sharing information and connecting with fellow managers will help you mature your own customer loyalty programs.
Customer Loyalty Strategy Inspiration Corner
To increase customer loyalty, tailor the offer
“At first glance, loyalty programs might seem limited, with only a few frameworks to choose from. However, there's actually endless room for innovation. Tailoring these programs to specific customer behaviors, preferences, and business goals opens up new opportunities.”
Don’t be afraid to be creative with customer loyalty programs
“One common pitfall is companies rushing to copy their competitors' programs. Being creative and dynamic in program design is an excellent way to differentiate a brand in a crowded market. So, bring a punk attitude to the design process and think outside the box.”
It’s essential to measure customer loyalty
“Given the rise of walled garden data plays by tech giants, the importance of loyalty programs is paramount. Over the next decade, companies with well-implemented loyalty programs, strong member databases, advanced analytics, and omnichannel capabilities will be at an advantage.”
Philip Shelper, CEO & Founder of Loyalty & Reward Co
Who is the Customer Loyalty Expert?
We’re joined by Philip Shelper - the CEO & Founder of Loyalty & Reward Co to talk about customer loyalty strategy.
Philip has extensive experience within the loyalty industry as a designer, speaker, educator, and researcher. In addition to designing loyalty programs for over 100 brands globally, he previously held loyalty roles at Qantas Frequent Flyer and Vodafone.
Phil is a member of several hundred loyalty programs and an obsessive researcher of loyalty psychology and loyalty history, all of which he uses to understand the essential dynamics of what makes a successful loyalty program and how it can drive a loyal customer base.
He's also the author of the "Loyalty Programs: The Complete Guide," the definitive book on the subject.
Full Episode Transcript
The following transcript has been edited for clarity.
Introduction
Irek: Hi Philip, so great to have you on the podcast.
Philip Shelper: Hi Irek, how are you today?
Irek: Great, great. So today we have this, you know, great topic. Basically we are going to talk about preparing a good loyalty program strategy. So how do you feel about that?
Philip Shelper: I feel great about that. I can talk about that for days because it's what I do for a living.
Starting a customer loyalty program
Irek: Brilliant, so today we are going just to, you know, maybe tackle it a bit. So yeah, obviously we have prepared this outline, you know, but where do we start? If we think about strategy, where, you know, where should we start?
Philip Shelper: Yes, I think the important thing to understand is the loyalty programs are very, very complex things. A lot of people engage with loyalty programs and think that they understand them, but there's an enormous amount of strategy and experience that sits underneath them in order to deliver something that is best practice.
So in order to make sure that a company is delivering a best practice loyalty program, I am involved to provide that support. So that might be loyalty consultants such as loyalty and award code to design the program and then of course best practice technology in order to make sure that the program is running as efficiently and as optimized as possible with platforms like Open Loyalty.
Irek: Definitely, so it is a huge and complex project for sure. So, you know what? From your experience like, you know, where do we start? I'm thinking about let's say like a loyalty manager perspective. So where do we start?
Philip Shelper: Yeah. So I think the first place to start is understanding what a loyalty program actually is. If people search for the definition of a loyalty program on the internet, there'll be lots and lots of different definitions that come up.
Our favorite definition that we use with our clients all the time is a desirable behavior stimulation program. So if a company knows across the customer journey the different types of behaviors that they want their customers and their members to exhibit, and then design the loyalty program in order to stimulate those behaviors.
So when we're working with a client one of the first things that we do is we become customers. We work our way through finding out about the company, researching the company, buying something from that company and just getting a sense of what it is to be a customer. We call the call center, we buy things online, we go into the stores and we get a sense of the different experience of that journey. And then we work with the client to say, at each stage of that journey, what is it that you want the customer to do?
And so we map out what all those behaviors are. And that gives us a really good blueprint for where the opportunities are for the loyalty program to play a role in helping the customer achieve their overall objectives.
Changes in the behavior of existing customers
Irek: Cool, thank you. Could you give us maybe about three examples of certain change of behavior in retail, for example?
Philip Shelper: Yeah, absolutely. So the first one is making the member base advocates of the brand. So if we provide the example of a retailer, they may have a big percentage of their customer base who are signed up as members. And so incentivizing those members to recommend that their family and friends join the program and get some sort of a benefit is a really great way to acquire new customers and new members to the program.
The second one is influencing the members to spend more and spend more often. So that might be providing them with some account credit or a voucher so that they come back and buy more from that particular brand and ideally less from competitors.
The third one is incentivizing people in gamification behavior. So loyalty equals data. Loyalty programs are a really great way to collect member data. And so it might be incentivizing people to fill in a survey talking about their fashion likes and needs. It might be incentivizing them to share a particular promotion or something that they've purchased on social media and other examples that way.
Irek: Okay, thank you. So you've mentioned rewards, just briefly. So if we could talk about that for the moment. And I know that there is a certain challenge that comes with that. So actually, you know, how to maybe calculate the so-called earn and burn. How much can you give in order to stay profitable?
Philip Shelper: Yeah, exactly right. So at Loyalty & Reward Co we have very detailed conversations with our clients about rewards and there's two aspects to it.
The first one is the delivery of value. So loyalty programs are good at driving engagement with members but they need to deliver value. So if you think about all of the loyalty programs that you are a member of, you joined because you perceive you are getting value. Otherwise you would have thrown the plastic card in the bin many years ago. So companies need to get obsessed about where they are going to deliver meaningful value to their customers in order to drive that long-term engagement with the loyalty program.
And in retail in particular a lot of companies really fail in this regard. So they'll launch a program that might have an attractive join bonus such as if you join today you'll get 20% off this transaction. But then they fail to follow up with any meaningful value after that event. And so there's a lot of retail programs out there that have very big customer bases. They've done a good job in acquiring customers, but very low activity rates with those customers because so many of them have just not seen that it's worthwhile engaging with that program at all.
And so the second part of that comes to where is that value going to come from? That might be an empty seat on a plane, an empty hotel room, a car that's not going to get rented. The cosmetics industry does this really well. They get free cosmetic samples from suppliers, which they box up and provide to the customers.
The movie industry does a great job as well. They've got free movie tickets and free popcorn and those sorts of things.
But unfortunately, particularly in retail, there's a lot of companies that really struggle. to access those efficient rewards. So those companies just need to try a lot harder to identify where that value is going to come. That might be through a tier structure where the higher value members get access to exclusive events, to early access to sales, free product, that type of thing.
Or it may be that the company actually needs to partner up with other companies who can provide that value. such as utilities, electricity and gas, insurance, telecommunications, where they build out a network of partnerships that can provide discount offers to their clients as well.
Modeling customer loyalty programs via design workshops
Irek: Cool. So the next aspect we were going to talk about was design. Could you tell us a bit about designing and exploring the possibilities here?
Philip Shelper: Absolutely. Once we understand the types of behaviors that a company wants to stimulate in their customer base, we can move on to designing the program. At Loyalty & Reward Co, we have a specific process. We conduct three three-hour workshops over three consecutive days.
On the first day, we present various models that could stimulate desirable behaviors and achieve the company's objectives. We collaborate with the client to refine these models based on their input and ideas. This collaborative approach results in a better outcome since the client's input often brings unique perspectives and innovative ideas. By the end of the three days, we arrive at a refined model for the loyalty program.
Irek: That sounds like an engaging and iterative approach. Who should take part in such workshops?
Philip Shelper: That's a great question. A loyalty program involves multiple aspects of a business, so involving key stakeholders from various divisions is crucial. Marketing, finance, legal, customer care, and sales are just a few areas that need to be represented. Their input is important as a loyalty program spans across different parts of the business.
Moreover, involving representatives from different divisions ensures that the program is aligned with the overall strategy and vision of the company.
Irek: Got it. Now, in the context of retail, what are some of the most common possible designs for loyalty programs?
Philip Shelper: Retail loyalty programs come in various designs, and the possibilities are nearly limitless. In our book, "Loyalty Programs: The Complete Guide," we outline ten major categories of loyalty programs, each with several sub-frameworks. Companies can combine these frameworks in different ways, leading to a wide variety of designs.
The advances in loyalty program technology in recent years have made it possible to implement diverse program designs effectively. Whether it's points-based programs, credit-based programs, tier programs, subscription-based models, or others, the key is differentiation. Companies should focus on creating a program that sets them apart from competitors and resonates with their customers.
One common pitfall is companies rushing to copy their competitors' programs. Being creative and dynamic in program design is an excellent way to differentiate a brand in a crowded market. So, bring a punk attitude to the design process and think outside the box.
Irek: Many people might view loyalty programs as standard frameworks with limited options. Could you shed light on the innovation potential within these programs?
Philip Shelper: Absolutely. At first glance, loyalty programs might seem limited, with only a few frameworks to choose from. However, there's actually endless room for innovation. Tailoring these programs to specific customer behaviors, preferences, and business goals opens up new opportunities.
Validating the vision
Irek: That's a great perspective. Moving on, what follows after the design phase? Could you share insights about the next steps?
Philip Shelper: Certainly. Once the client approves one or two designs, we move on to an extended validation process. This involves market research, surveys, focus groups, and interviews to test the loyalty program's resonance and its ability to drive desired behaviors. We then refine the design and compile comprehensive documentation.
Irek: That sounds comprehensive. How long does the design validation process usually take, considering the focus on behavior change?
Philip Shelper: We have a refined process that typically takes around seven to eight weeks. This encompasses market research, documentation, commercial modeling, and crafting a presentation for senior management's review.
Irek: That's efficient. Speaking of commercial modeling, could you elaborate on factors to consider when predicting the profitability of a loyalty program?
Philip Shelper: Predicting profitability involves various assumptions. We estimate member growth, their spending patterns online and in-store, the return in the form of rewards, and its impact on behavior. We analyze how the program might encourage customer acquisition, increased spending, and retention. This involves recency, frequency, and monetary value, while also reducing churn.
Loyalty program implementation process
Irek: Thanks for clarifying that. Let's move on to the implementation phase. What can you tell us about this stage?
Philip Shelper: The implementation phase starts with working on a statement of work with platform vendors, focusing on system integration and technical details. Afterward, it's a combination of IT and marketing projects. The implementation process requires rigorous testing, solid project management, and preparing everything needed for the program launch, such as marketing strategies, training, and legal considerations.
Irek: That's quite an involved process. How much time should businesses allocate for the entire implementation?
Philip Shelper: Properly implementing a loyalty program usually takes around five to seven months. This time frame ensures thorough testing, strategic planning, and successful launch.
Recommendations when starting out a loyalty program
Irek: Welcome, Philip. Let's dive right in. Loyalty programs can appear complex. Could you simplify the key areas to focus on when developing a loyalty program strategy?
Philip Shelper: Certainly. For those delving into loyalty program strategy, I have a few recommendations. First, engage with as many loyalty programs as possible. This hands-on approach will provide insights into various strategies employed.
Next, delve into loyalty psychology—understanding consumer psychology underpinning loyalty program design is crucial. Finally, discuss and write about loyalty programs regularly to build knowledge and influence your own design.
Resources to learn more about customer loyalty
Irek: Practical tips indeed. Can you recommend sources to learn more about loyalty psychology beyond your book?
Philip Shelper: Beyond our book, one can explore original research papers, many of which are accessible online. Some foundational theories to explore include Tajfel's social identity theory and the effect of loss aversion. Familiarize yourself with these and branch out to other relevant studies.
Irek: Valuable suggestions. Now, as we conclude, do you have any final thoughts to add to our discussion?
Philip Shelper: Certainly. In today's market, while many companies offer loyalty programs, few truly excel. I urge businesses to critically assess their loyalty programs and question their effectiveness. Given the rise of walled garden data plays by tech giants, the importance of loyalty programs is paramount.
Over the next decade, companies with well-implemented loyalty programs, strong member databases, advanced analytics, and omnichannel capabilities will be at an advantage.
Closing remarks
Irek: Thank you for sharing your expertise, Philip. It's been an enlightening conversation that will undoubtedly guide businesses in building robust loyalty programs.
And with that, we conclude our interview with Philip Shelper, offering a comprehensive view of loyalty program design and implementation. His insights emphasize the significance of innovation, understanding consumer psychology, and staying ahead in an evolving market.
