Marketers are under constant pressure to deliver a meaningful return on investment on every initiative. At the same time, they are operating in a competitive landscape where brand loyalty means little to today’s consumer. Customer reward schemes are key but the challenge is for brands to generate greater value from their loyalty rewards without breaking the bank.
One report valued the UK promotional marketing industry in excess of £50 billion, yet much of this activity remains focused on discounting1. The Institute of Promotional Marketing commented: “That this was dominated in money terms by price discounting and couponing surprised none of us. More than £14 billion was spent on price discounting in one form or another in FMCG alone. This terrifying large figure being spent delivering almost no brand value or long-term loyalty.” By contrast, eight in 10 shoppers swapped brand because of a promotion. Here are five cost-effective steps to creating customers who will become brand advocates:
1. Collect robust data that will allow you to assess customer lifetime value and segment the audience accordingly. Traditionally customer lifetime value is assigned based on average spend, but there are other equally valuable metrics. These include the number of purchases or the number of recommendations or referrals the customer has made. The goal is to offer tiered rewards that drive incremental step changes in consumer behaviour. Before this is possible, it is key to understand in detail how much each individual customer spends and what they spend it on. This information can then underpin regular, personalised reward communications that migrate customers up the reward tiers to more and bigger purchases.
2. Put in place tiered rewards with a high perceived value but relatively low actual cost. It is key to make these rewards appropriate to the individual, by perhaps relating them closely to previous purchases or to customer demographics. Multi-retailer gift cards are a good option here. Businesses can focus on the retailer that is likely to interest each individual customer. Gift cards have clear perceived cash value but in fact, there is an opportunity for brands to maximise non-redemption opportunities, subject to sufficient spend and the right supplier agreement.
3. Focus on the presentation or the ‘wow factor’ of rewards. This might be as simple as making a telephone call advising of a reward. A reward that is perceived as high value can pay dividends for brand advocacy. This works particularly well, and may be most cost-effective, when the reward is related to the core business. Telecoms and media companies have tapped into this, offering free tablets or televisions to new and returning customers, especially to soften the blow of price rises.
4. Consider ‘gamifying’ rewards. Some customers may enjoy being challenged and rewarded for reaching the next level of points. If there is an element of this, so much the better. Build on the ‘local ladder effect’ – the human desire to increase social standing relative to others – by showcasing an individual progressing through to an elite club for the privileged few via a few simple actions. The gamification approach drives regular contact with customers but it is important to ensure that it does not create a barrier to purchasing (advertising rewards that many customers cannot access, for example).
5. Encourage referrals by rewarding loyal brand advocates. Recommendations from friends remain the most credible form of advertising. Eighty-three percent of online respondents in 60 countries say they trust the recommendations of friends and family2. Yet, few businesses actively reward people for recommending their products and services. In addition, sixty-six percent of survey respondents indicated that they trust consumer opinions posted online – so it is vital to incentivise customers to post online reviews.
Businesses such as retailers, that have both an online and real-world presence, can counter low levels of brand advocacy by using effective rewards to drive additional footfall to stores whilst also consolidating the online relationship.
Businesses selling high-value products and associated services can look to extend their low-cost rewards activities to incentivise cross selling. In the automotive sector, customers who have purchased a car from a dealership might receive additional rewards for choosing a particular finance option at the point of sale. Sectors where customer relationships have become primarily digital, such as insurance, have struggled with brand advocacy in the world of comparison websites. Insurers who are successfully using customer rewards to drive loyalty are using every communication – from providing access to policy documents to cross-selling products – as an opportunity to engage customers with their reward schemes.
There are various options available to marketers seeking to achieve a healthy balance between bottom line returns and spending on rewards schemes. These include rewards that actually cost nothing at all, such as serving high-value customers first. Getting this balance just right is key to driving customer engagement to a point where loyal customers become active brand advocates.
By Adam Whatling, head of engagement & development at Love2shop Business Services
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