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Commentary: When driving customer loyalty, less is more

by Fred Thompson, retail consultant, LoyaltyOne

Let's play a game. Ask your fellow executives to name (without looking) the top five benefits your customers value in your loyalty program. Next, have them list the rest of the benefits your program offers. Could they recite the entire list? If they're like typical senior team members I speak to, they probably nailed the top handful, but faltered further down.

Now I ask you, if they can't remember them all, how many do you think your customers will remember? The answer is even fewer. In fact, customers tend to remember the top three to five benefits that programs offer, and that's about it. It's time to realize that sometimes less is more.

Take a typical hotel program, for example, which usually offers more than 20 benefits. But, customers simply want three key offerings: free rooms, amenities that improve the guest experience, and upgraded rooms. Members may be aware they also have gift shop discounts or that they can donate points to charity, but nothing is as important as the top three. The more effectively hotels meet these key needs, the more loyalty they will earn.

We recently tested this with a major fashion retailer. Loyalty members were asked if they could describe the benefits of their program and were able to name a few. But when we asked, for example, "Did you know you get free valet parking?" they had no idea. We got the same response about other specific benefits (and these were not cheap perks for the retailer to be offering). The results were so intriguing that we are rolling out a larger study of this issue.

The top-line finding: There's a propensity to load programs with benefits and features, assuming that customers will remember and value a broader offering. But this is not the most effective approach.

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If you're going to limit the number of benefits, choosing the right ones is obviously critical. Begin by pinpointing and understanding the needs of all members. Then you can look for across-the-board issues that affect everyone and set a baseline for program benefits.

For example, let's look at the typical quick-service restaurant, where most if not all orders are taken and delivered at the counter. Points and discounts are great, but the most obvious customer pain point is waiting in line, especially during peak times. So it's not surprising that this industry's hottest perk is the ability for customers to use their phones to place an order, charge it to their account, and then bypass the line to pick up the order and go. That single benefit is a game-changer for all customers.

Next, channel resources toward high-potential/high-value customers. For example, Phil is a high-value clothing customer, but he's true to size and doesn't need any tailoring. If Phil's retailer offers free tailoring to all customers, that's a benefit loaded into the program that the store is paying for but that Phil will never use or even care about.

In determining what new benefits would be most appropriate for your priority members, uncover their primary pain points and determine if your loyalty program is properly addressing them. If not, then you have an opportunity to close the gap and increase customer loyalty.

Five tips for setting limits

Consider these guidelines for establishing benefit limits when streamlining your program:

1. Focus on addressing your members' pain points. Satisfy the pain points that relate to the entire group first, and then look at your high-potential/high-value customer needs.

2. Strive for quality, not quantity (and cost) of benefits. Sometimes all it takes is one — if it's the right benefit — to substantially improve member satisfaction.

3. Offer a mix of both hard and soft benefits. These appeal to two equally important customer needs: economic reward and recognition. Hard benefits are usually are offered in the form of such currency as points, and are the most important part of the value equation.

4. Announce all new features and benefits at one time, and take your praise and criticism quickly. Just remember to have a strong explanation in your messaging for why you are making changes or additions.

5. Your loyalty program should always be an amplifier of your corporate strategy and brand. When crafting any new program benefits, ensure that they align with the overall mission of the firm.

When it comes to benefits, less is more—those rewards can have bigger impact, and even cost less money. And that boils down to the streamlined list of benefits that marketers seek: margin, lift and profits.

Read more about loyalty programs.

(Photo by Oxfordian World.)

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