Way of the future: An integrated approach to customer loyalty strategies
Developing a customer loyalty strategy in the modern consumer landscape presents a number of complex challenges for marketers—the marketplace is increasingly competitive, change happens at a blinding pace, and consumers have less time and mindshare to be won by the host of brands competing for their attention. This environment would seemingly demand increased levels of investment in loyalty marketing, and yet doubt remains over the effectiveness of traditional loyalty marketing tactics—will customer behavior be changed? Are loyalty programs truly ROI positive? Are these investments driving growth, or are we just spending more to keep existing customers? More than ever, the implication for marketers is that dollars must be spent on strategies of highest, proven impact, something that can only be achieved through a comprehensive understanding of customers’ behavioral drivers, and an integrated approach to building behavioral loyalty.
An integrated approach to customer loyalty strategy begins with looking across the customer experience end-to-end in order to estimate the success of potential loyalty marketing tactics, focusing deeply on the core product or service experience itself. As a general rule, a basic 80/20 formula can be used to bring boundaries to the marketer’s evaluation process: If a customer can reach 100% loyalty to a brand, 80% of that loyalty is driven via the experience of the core product or service offering, and only 20% of the potential loyalty can be achieved through traditional marketing tactics (programs, communications, messaging, etc). This weighting reflects a customer’s hierarchy of needs, and illustrates the principle that the core product or service experience is the primary driver of customer satisfaction—and therefore, ultimately the foundation for driving genuine customer loyalty. The actual 80/20 split will vary by business model and customer base, but companies who innovate to improve the core customer experience stand a better chance of driving behavioral loyalty in today’s hypercompetitive market of savvy consumers.
This concept of developing a customer loyalty strategy through the lens of end-to-end customer experience, a concept we’ve dubbed Integrated Loyalty Strategy, provides a blueprint for “right-sizing” investments made to strengthen customer relationships. Examples of successful executions of Integrated Loyalty exist across industries, where companies have significantly improved customer engagement and patronage through innovation of the product or service in addition to their traditional loyalty tactics.
An example of a successful Integrated Loyalty Strategy is T-Mobile, once an afterthought in the United States cellular market as the #4 carrier. In the past two years, T-Mobile has aggressively attacked the archaic pillars of the telecommunications industry, seeking to disrupt by way of addressing known customer frustrations and desires. They did away with 2-year contracts, offered simple and affordable rate plans, allowed customers to upgrade their devices more frequently, and provided free international data roaming—all enhancements to how customers engaged with the core cellular service. They invested in marketing tactics to reinforce these value propositions and get credit with customers for their bold moves, and have been rewarded by seeing significant improvements in satisfaction and retention. Less than a year after T-Mobile’s “Uncarrier” launch in March 2013, they saw more than a 27% decline in customers planning to leave T-Mobile versus the previous quarter (42.9% in Q3 vs. 15.4% in Q4; Cowen & Company’s Q4 2013 Wireless Survey).
Integrated Loyalty Strategies do, however, represent a sizable shift in how loyalty marketers have traditionally operated. Rather than limiting the business levers used for loyalty to marketing programs and messaging, an integrated approach means seeking to leverage all available brand touch-points with the customer to improve experience and satisfaction. Loyalty marketing organizations will often find themselves optimally positioned to play this role due to their familiarity with the customer base and associated insights such as satisfaction and dissatisfaction drivers.
For companies considering what Integrated Loyalty could mean for their business, below are key questions to help guide the process:
What are your customers’ “loyalty drivers”?
Many companies find that upon digging into the details of the insights already available, there are gaps to having a complete understanding of underlying loyalty drivers across the customer journey. What impacts customer decision making at each step in the journey of engaging with your brand? Detailed understanding of the answer to this question is key to designing tactics that effectively drive desired behavior.
What known opportunities exist to improve your core product experience?
Start at the beginning with the known customer pain points or opportunities that will address an unmet need. These are often the issues that sit on a spreadsheet filed away for months without action being taken, as they can be daunting to address—and yet, this is where the greatest opportunity lies. Consider which of these opportunities are highest impact and would provide the greatest improvement in customer experience.
How can you utilize technology?
Technology is a powerful tool that can transform the way customers interact with your core product or service. Given the proliferation of mobile technology and big data, consider what opportunities exist to ease, simplify, and generally improve the product via available technologies.
What are the “first layer” experiences that surround your core product?
Enhancing the core product offered is the greatest opportunity to drive loyalty as it directly enhances the core value proposition and primary reason for customers to engage with the brand. However, “first layer” experiences that impact how customers feel about the core product can be similarly powerful—both for good, and for bad. Consider what “first layer” experiences are impacting your customers and identify which may present opportunities for improved, deeper engagement.
How can you drive customer-centricity throughout your business?
Mobilizing an Integrated Loyalty strategy effectively is a process that requires cross-functional stakeholder support and buy-in. Who will you need as advocates? Who do you expect to be skeptical? What sponsorship is required to gain traction politically? What data and insights does the Loyalty Marketing team know of that will support your case for change? These questions will help drive alignment and a rationalized plan that can serve as a starting point for building a culture of customer-centricity. These considerations, along with defining what Integrated Loyalty will mean for your unique company offering, will ensure an approach to loyalty marketing that delivers long term benefits and lasting customer relationships. Reaching this point requires loyalty marketers to shift their thinking regarding the available levers at their disposal, but exposes much greater opportunity to directly influence customer emotions and behavior.
About the Author
Clay Walton-House serves as Managing Director of Integrated Loyalty Services at PK. He helps Fortune 500 companies create and implement new customer engagement strategies that accelerate growth and build loyalty. His expertise lies in understanding consumer behavior and translating it into actionable customer insights. Clay has a proven track record of successful program design and optimization, helping uncover ways to build retention and loyalty strategies into a company’s broader business model.Tags: Customer Experience, Customer Loyalty Strategy, customer-centricity