AMERICAN EXPRESS LOYALTY PROGRAMS THAT TRANSFORM CUSTOMERS INTO

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1 AMERICAN EXPRESS LOYALTY PROGRAMS THAT TRANSFORM CUSTOMERS INTO YOUR SECRET WE APON

2 AMERICAN EXPRESS LOYALTY PROGRAMS THAT TRANSFORM CUSTOMERS INTO YOUR SECRET WEAPON Customer loyalty can be any company s best competitive weapon or its greatest weakness. Excellent products, services, and customer support are necessary to generate that loyalty. Further, research and interviews with program specialists also suggest companies must find a way to reward customer loyalty, as well, or watch their customers go somewhere that will. For example, the average U.S. household belongs to 29 different loyalty programs, but are active in only Moreover, 58 percent of loyalty program members are inactive (i.e., they haven t interacted with the program in a year) 1. CUSTOMER LOYALTY: an emotional feeling of support or allegiance gained through satisfaction with an ongoing relationship and enhanced by consistently rewarding preferred behaviors. Designing a program that succeeds against such odds doesn t have to be hard, but it does require forethought, careful planning, and 1 The 2015 Colloquy Loyalty Census, 2015 Colloquy 2

3 attention to detail. Effective programs share notable characteristics, starting with a clear understanding of desired outcomes and related behaviors to reward, and ending with the ability to use learning from customer-program interactions to make products and services even more relevant. You can tilt the odds in favor of your loyalty program by: Aligning program goals with the best drivers of desired behaviors; Choosing the right rewards; Designing clear program structure and parameters; Communicating regularly to build loyalty via ongoing engagements; Using interaction data to continuously improve the program. Aligning Program Goals and Behaviors You reward loyalty, of course, to increase revenue and profit through repeat sales. The goals of any particular program, however, must be more specific, and aligned with explicit behaviors. For instance, you might wish to move your competitor s loyalty program members to your program by redeeming their points in your program. Or perhaps your goal is to grow a database of contactable customers, so you offer bonus points to members who opt in to being contacted about future offers. Every loyalty program should have business-growth goals and ways to influence specific behaviors that help achieve those goals. You reward loyalty, of course, to increase revenue and profit through repeat sales. The goals of any particular program, however, must be more specific, and aligned with explicit behaviors. To do that, you ll need to understand the emotional drivers that connect customers to your brand and products, and design loyalty program experiences to enhance those emotions. The economic drivers (points for cash or other rewards) may get consumers to sign up, but keeping them engaged requires an emotional relationship. Ultimately, the emotional goal is trust. Feelings of exclusivity or status might contribute to ongoing emotional engagement, but the customer experience at every touchpoint in the program needs to reaffirm emotional responses so that, over time, trust grows into the key emotional driver. 3

4 When you re set on the goals and know the best levers to pull for achieving desired outcomes, take a look at your competition. Is your program differentiated? Will it outperform competing programs? Is the program aligned with your brand or will customers be confused about why it s part of your marketing mix? Your loyalty program could actually become a key differentiator, especially in absence of other differentiators. If your product is pretty similar to your competitors products, you can move people from their loyalty program to yours fairly easily, says John Ebann, Executive Vice President at Meridian Enterprises, a technologybased customer loyalty program services provider that specializes in distribution channels, media, and financial services. Determining Program Structure and Parameters Successful loyalty programs are typically tiered, with multiple reward levels. Tiered programs build engagement over time, with ongoing levels of achievement that feed into a customer s emotional feeling of loyalty to help make it last. Some programs add choice via modularity, allowing customers to mix and match program qualifications to their own preferences. Some offer alternative reward levels to different customer groups based on their value to the business. Lower-value customers could be encouraged to increase their value by upgrading to higher service levels, while higher-value customers might be offered additional redemption options or free perks. If your product is pretty similar to your competitors products, you can move people from their loyalty program to yours fairly easily. John Ebann Executive VP Meridian Enterprises Key to loyalty programs and deeper customer insights in today s digital world is engaging with program members beyond purchase transactions, according to a 2015 report from Capgemini Consulting, which interviewed 160 companies and analyzed more than 40,000 social media conversations to develop the report. Yet 75% of responding companies reward transactions alone, with only 25% rewarding further engagement, such as writing reviews, taking surveys, downloading mobile apps, engaging in social media, etc. 2 As the accompanying figure shows, adoption of this approach varies significantly by industry. 2 Fixing the Cracks: Reinventing Loyalty Programs for the Digital Age, Capgemini Consulting, 2015 Capgemini. 4

5 Whatever you offer, keep it simple. Make sure that the program is easily explained and understood, and how to achieve reward levels is clear. Make the registration process as painless as possible; you probably are inclined to collect rich customer information at the outset, but you re better off accumulating it incrementally, over time. Otherwise, you risk alienating customers who would have responded better to more gradual assimilation. Make it equally painless to claim and receive a reward. If you don t deliver reliably, you undermine trust in your brand. Programs fail when they become too complicated for customers to participate in and manage. Make the rewards hassle-free and attainable. In addition to a web site for promotion, status tracking and updates, include a mobile component making it easy for customers to engage on the device of their choice. Consider using social networks to drive program usage and collect valuable feedback. FIGURE 1: INDUSTRY-WISE ADOPTION OF ENGAGEMENT-BASED REWARD MECHANISMS % of companies that reward customers for at least one form of engagement Airlines 57% Hotel Chains 41% Consumer Products 35% Consumer Electronics 15% Retail 12% Telecom 7% Banking 3% Once your program s structure is in place, consider how it will be administered. Does your Source: Capgemini Consulting organization have the skills, resources and internal platform required, or should you enlist a service partner? Does the loyalty program need to be integrated with other facets of your CRM program or back-end systems? A trusted partner can take on parts or all of these activities. 5

6 Choosing the Right Rewards To be successful, the value of your rewards have to be attractive enough to influence people toward desired behaviors. Some people will pick one loyalty program over the other strictly based on available redemption items, says John Hornbogen, Director of Business Development with RPG Card Services, a global provider of prepaid card reward solutions to retail organizations. Let s just say I like restaurant A and not restaurant B. If Airline X has restaurant A as part of their program, I ll switch over to Airline X. Of note, this may be why more than half 53 percent of 500 business decision makers surveyed in recent American Express research chose prepaid business reward cards as a great gift idea to give customers or clients. 3 Open loop cards offer customers ultimate flexibility, and are therefore a safer bet for loyalty rewards (see sidebar, Using Prepaid Reward Cards For Customer Loyalty Programs). Communication: The Critical Success Factor OPEN LOOP CARD: a prepaid card or payment device that may be used to purchase goods or services at multiple unaffiliated merchants. Open loop cards may come initially in fixed amounts or may be available in variable load amounts. They may or may not have an expiration date. In the words of Brian Phillipy: A good loyalty or rewards program is really a good communications program in disguise. Phillipy is President of Afligo, a promotional marketing services provider business unit of Systemax Inc., and his words powerfully summed up the importance of communications that we heard from every interviewee. Of course that means doing a great job marketing the program to create excitement and get customers to join but registration is just the start and even reward fulfillment is not the end. Since the goal is lasting loyalty, Phillipy insists your program really only starts when a member claims a reward. Phillipy describes a kind of loyalty program circle of life, where you launch, educate, reward, and learn and then do it all again but better, always providing customers with additional reasons to keep coming back. He recommends a continual diet of additional offers and promotions to keep members engaged, and a website that Ebiquity Survey Results, Sponsored by American Express: The Business of Incentive Programs 6

7 maintains excitement so they keep coming back to review new ways to earn points toward future rewards. Ultimately, your best, most educated members become brand ambassadors who bring others into the fold. Further, customer communications alone are not enough. Internally, you must ensure that employees feel excitement for the program, support it, and know how to execute so they can delight every program member. If you fall flat on execution or delivering, you just ruined the positive PR or any warm feeling the customers had about your organization, says Phillipy. It s paramount to get the internal teams working and get the communication done, so that you can educate on what the front-end marketing piece is doing. Continuously Improving the Program Carefully tracking your success metrics enables you to see trends emerging from customer interaction data, and to customize your program accordingly. To accomplish this, set and track achievable milestones and build integrated reporting into your platform (or with a third-party provider). Then, continually collect feedback from your members and test program variations inspired by that feedback. Further, says Phillipy, A good program should ask about a customer s likes, so that you can follow up and say Hey! We understand that you live in the Northeast and fishing is one of your hobbies. Here s something that could be of interest to you. Again, your loyalty program is also a communication mechanism. Use the data generated from your customers ongoing interactions to reach out to them with additional offers based on their behaviors and the profiles you ve been building. Remember, loyalty is an emotion, susceptible USING PREPAID REWARD CARDS FOR CUSTOMER LOYALTY PROGRAMS Interviewees tell us that open loop prepaid reward cards, like those offered by American Express, are increasing in popularity for use in customer loyalty programs because they are a safer bet flexible, and more universally accepted. Such cards are the simple and safe way to fulfill your rewards because from the customer s standpoint they provide instant spending power with ultimate flexibility and choice. You want to make sure that you motivate the highest percentage of your audience, says John Ebann, Executive Vice President at Meridian Enterprises. With open-loop cards you will motivate pretty much 100 percent because they can get what they want, when they want, where they want. Of note, 82 percent of business decision makers surveyed this year by American Express agreed that giving a gift card is a great way to keep your business competitive ; 74 percent noted they are a trusted vehicle to give a monetary gift ; and 64 percent noted their flexibility Ebiquity Survey Results, Sponsored by American Express: The Business of Incentive Programs Incentives-2015-Amex-Survey 7

8 to constant change and most influenced by a customer s last interaction with your brand. If you re not constantly taking customers pulse, you could miss opportunities or fail to correct missteps in time. Conclusion: Loyal Customers Your Best Competitive Weapon With forethought, careful planning, and attention to detail, any organization can follow the outline in this paper to design a winning loyalty program. By rewarding loyalty, your program will reinforce behaviors that increase the value of customers. Along the way, you ll learn more about how to increase customer engagement and satisfaction. Customers will return again and again. Their purchase levels will increase. They will refer others to your business. They will become your best competitive weapon. Five Attributes of an Effective Customer Loyalty Program: Well defined goals and a process to measure success. Rewards with strong perceived value given for clearly identified customer behaviors. Differentiated and brand aligned. Simple rules and requirements that are broadly communicated. Hassel-free redemption. 8