Can we still do customer loyalty like before?
While the decline in purchasing power has become the number one concern for consumers, loyalty programs from brands and retailers have seen little evolution. For Grégoire Michel, partner CRM & Marketing Automation at Converteo, this is a mistake. He explains why, and especially on what bases to evolve loyalty strategies.
Key Takeaways:
- In response to market evolution, economic, technological, and regulatory contexts, as well as changing consumer expectations, it is imperative to evolve loyalty programs to remain relevant and effective.
- It is crucial to adopt advanced measurement methods based on data science, such as survivor analysis, to accurately determine the true impact of loyalty programs on customer value.
- Conducting a comprehensive audit of loyalty programs is essential to realign them with the company’s strategic objectives, ensuring they meet the current needs and expectations of consumers.
In just a few years, the context for brands and retailers has radically changed: inflation, declining household purchasing power, rising costs… all within a technological and regulatory environment also disrupted by the gradual end of third-party cookies and the cessation of non-addressed advertising leaflet distribution.
All distribution players now face the same challenges: bringing customers back to their stores or e-commerce sites (for retailers) and ensuring that their products remain in consumers’ shopping carts (for brands). This must be done while capturing as much first-party data as possible. These are all areas where loyalty programs can be more valuable than ever.
However, with a few rare exceptions, CRM programs have not taken these various developments into account. The consequence is that their content, tone, and modalities are often no longer aligned with the strategic challenges of brands and retailers, as well as the expectations of consumers. In short, the market has changed, company orientations have changed, client priorities have changed, but loyalty programs have not!
The Measurement Issue
This stagnation is all the more regrettable as other tensions arise or intensify internally, particularly as financial departments conduct cost-cutting measures. But who can truly demonstrate the return generated by their loyalty program?
Yes, the lifetime value of a member of a loyalty program is up to six times higher than that of a non-member… But is it because they are a member of the program that they consume more, or are they members because they are already among the most loyal customers? This question of measuring the incremental impact of CRM is as old as loyalty programs themselves.
Fortunately, new methods for measuring ROI, which are more robust than previous ones (notably the use of “control groups,” whose effectiveness is questionable), are beginning to establish themselves in practice. One such method is survivor analysis, a technique already proven in medical research.
However, to answer the question of a loyalty program’s profitability, it is crucial to clearly define the program’s objective: is it to reduce churn? To promote cross-selling? To increase average basket sizes? To turn customers into ambassadors? Depending on the criteria established in alignment with the company’s strategic objectives, the measurement of its effectiveness will vary, as will the means required to optimize it.
This lack of evolution is particularly problematic as companies face increased financial constraints. The question remains: what is the actual return on investment of a loyalty program? If a loyal member is more profitable, is that a direct result of their participation in the program? New evaluation methods for ROI, such as survivor analysis, provide more precise answers.
It is essential to clearly define the objectives of a loyalty program. Whether the aim is to reduce attrition, stimulate cross-selling, or transform customers into ambassadors, the measurement and optimization strategy will differ based on the chosen objective.
Several Analysis Axes
To advance this reflection, it is useful to audit existing loyalty programs across several axes to gain a comprehensive view of their strengths and weaknesses.
These axes are particularly related to:
- Alignment of the program with the company’s strategic objectives
- Perception by both member and non-member consumers
- Relevance to current and future customer expectations
- Profitability, measured against the identified strategic objective
- Ability to serve as a data collection tool
- Consistency of the deployed tools, technologies, and processes
- Competitive environment
In the most extreme cases, this analysis grid may conclude that the loyalty program is not the solution to the company’s current challenges.
However, it generally proves to be quite relevant, provided it is redirected in the right direction. Sometimes, this can involve small changes, such as improving the program’s readability (making the benefits clearer and more explicit for customers, for example) or removing certain irritants (like the lack of digitization of cards in wallets). Yet, in many situations, redirecting the program requires a deep overhaul, especially to address omnichannel issues, revise the data architecture, or rethink the program’s very promise.
In all cases, listening to customers is crucial for making accurate diagnoses and setting priorities. In fact, we recently published a study on this topic with Synomia, where you can find the main insights. Such semantic analysis can also be conducted for a specific sector or player: it is a new tool available to CRM departments that would be unfortunate to overlook.
Listening to customers is essential for precise diagnostics and priority setting. Using our proprietary technologies, Synomia by Converteo, we analyzed the perceptions and opinions spontaneously expressed by French internet users regarding their expectations for loyalty programs. Our study highlights the importance of semantic analysis in understanding the specific needs of a sector or company, making it a valuable tool for CRM departments.