3 Common Mistakes Before Launching a Loyalty Program

Many companies fail to realize the potential of customer loyalty due to three common mistakes. Recognize them before making any decisions.

 

1. Focusing only on costs

The strength of a loyalty program or relationship strategy lies in its high return on investment (ROI). Simply calculating the costs does not reveal the true value and potential of this strategy. It is essential to consider the revenue generated by changes in customer behavior that result in increased sales.

• Visit frequency
• Average basket value
• Customer lifetime value

«We think of it in terms of a lifetime value of a customer, not transaction by transaction. When you think of it in those terms, we know a subscriber will consume six to 10 more times with Panera over their lifetime than one who is not a subscriber.» – Eduardo Luz, Panera’s chief brand and concept officer ¹

A loyalty strategy also has a tangible impact on the budgets you invest in your business. What you invest today in acquiring new customers (mass online or traditional advertising) will gradually be reallocated to retaining your customer base, especially those segments offering the best revenue potential. The latter have the potential to reduce or stop buying from your competitors, and concentrate their purchases with you (increasing the share-of-wallet).

In addition, loyalty optimizes your profit margins by reducing the use of (or your reliance on) promotions and discounts available to all customers. By analyzing customer data, you can identify which members are most sensitive to discounts.

Omitting these benefits from your analysis may lead to a biased result that is less favorable than the actual potential. In fact, in successful loyalty programs, ROI can exceed 150% after the second year. These programs can:

• Reactivate 2% to 5% of inactive or lost customers
• Increase retention rate of top customers from 3% to 8% annually
• 2% to 5% annual increase in Shift and Lift

Lift: increase in the level of expenditure 
Shift: migration of a customer to the next level by increasing the frequency of visits and/or the average transaction value

In summary, focusing solely on costs without considering potential changes in members’ behavior can lead to a misleading conclusion.

2. Think of it as a marketing project

A relationship strategy is a business vision. It’s not a quarterly project that sits on the marketing team’s desk. This is a digital shift towards collecting customer data, as well as establishing a dedicated team for its operation and evolution. The investment required is significant in terms of time, resources and money.

However enthusiastic the marketing team may be about relationship or loyalty marketing, it must first be shared by senior management. Without their involvement from the outset, the program is likely to fail. This is one of the most common mistakes in the loyalty field. Many relationship or loyalty programs have failed to launch due to a lack of vision, understanding or alignment on the part of management.

Ensure that senior management is aware of and supports the corporate vision, providing endorsement, budget, and additional resources as needed.

R3 Marketing can help you build a case study for senior management. Contact us for more information.

When developing a loyalty program, involve all departments in your organization: marketing, management, merchandising, finance, sales, technology (IT) and operations. Adopt an agile, collaborative and multidisciplinary approach.

Once your program is ready to launch, it is vital that the entire organization is trained and aware of the project’s objectives. This includes managers and field staff alike.

The program must become the cornerstone of your business strategy. Make sure you get all departments and managers on board. Invest in training and, if necessary, consider a change of culture.

3. Choosing a technological solution too quickly

Despite the ease of use of loyalty solutions or platforms, they should not be your gateway to loyalty. This is a costly mistake to correct!

Unsurprisingly, building a loyalty strategy around predefined parameters is not very effective. This can have two consequences. Firstly, the solution turns out to be too expensive for the needs. Our team has often witnessed the purchase of a solution two to four times too expensive for the company. Secondly, the solution simply doesn’t meet the program’s objectives. Define your needs in terms of:

• Personalization
• Automation of specific communication initiatives
• Enhanced consumer engagement initiatives
• Possibility of offering tiered levels
• Reporting functionalities

First and foremost, you need to define the objectives and parameters of your program. There are five steps to complete before you have a precise list of requirements and functionalities to look for in a technological solution. 

Determine your objectives, establish your loyalty strategy and then identify two or three solutions or platforms that meet your criteria.

 

R3 Marketing has been developing loyalty programs from A to Z for 30 years. Find out more about our approach.

 

---

¹ Forbes, The Perks Of Loyalty: Panera’s Unlimited Coffee Subscription Program Is Already A Big Success