Forrester: Loyalty Programs Are About Retaining Customers and Engaging Them

4 minute read
Barry Levine avatar

Loyalty programs, more popular than ever, are a top-three strategic priority for most businesses, and about 45 percent of customers enroll in them. Those are some of the findings in a new Forrester report about loyalty programs in North America. 

The report, The State of Loyalty Programs 2013, is the latest by Forrester on this subject, and it surveyed 50 loyalty program marketers in a variety of industries. With the importance of loyalty programs growing, so are their budgets, with over half of the surveyed marketers saying their loyalty program budgets have increased in the last three years. But the role of loyalty programs is expanding beyond profits and customer retention, becoming a key part of the growing need to maintain relationships with customers.

Customer Engagement

As a result, customer engagement has become a critical objective for more than two thirds of the survey respondents, as has customer acquisition. Other business objectives for customer loyalty programs include data collection, customer satisfaction, customer experience and providing customer service.

But just enrolling customers in a loyalty program does not mean they will use it. Survey respondents indicated that, while just under half of their customers enroll, only 35 percent redeemed their rewards -- meaning that only about 16 percent of the total customer base is actually using loyalty programs.

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As with any marketing campaign, loyalty programs need accurate, regular and useful measurement, and about a third of the respondents said that measuring program results is their top challenge. Other key challenges include ensuring loyalty program members know about the program's benefits, getting budget support from executives, aligning the loyalty strategy with the overall business and enterprise strategy, and delivering a high perceived value.

Customer Intelligence

The needed data is not just used for measurement, but for customer intelligence. Just over half of respondents said that the programs they are offering are based on customer intelligence, but only 37 percent thought they had the technology and analysis to deliver customized offers and only 34 percent thought their internal systems are integrated enough so they could utilize customer insights and responses.

Learning Opportunities

But there are a lot of loyalty programs out there, and making yours stand out is an ongoing challenge. The report said that its conversations with loyalty marketers indicate that many want to shift from transactional loyalty to emotional loyalty, where there is a "deeper, lasting relationship" with customers that has both emotional and financial attachments.

The question is how to invest loyalty rewards with emotional content.Forrester said that its research indicates experiential rewards like concert tickets and cooking lessons "are a key driver for point redemption," although there are far fewer such experiential or personalized rewards than there are the more transactional kind, like points, discounts and generalized reward certificates.

Email, Websites

Loyalty marketers also need to better utilize two-way interactions across such channels as social and mobile, the report said, instead of continuing to emphasize one-way digital channels like email, web and call centers.The most popular channel used to communicate with members about loyalty programs is email, used by 92 percent of respondents. Websites are in second place at 82 percent, followed in order by call centers/IVR, social media, direct mail, mobile Websites, point-of-sale systems, mobile apps, online chat, kiosks and mobile messaging.

To make the most of their loyalty programs, Forrester recommends that marketers self-assess their programs, looking at their ability to understand what customers want and how they are reacting to current rewards, and that they design a plan to turn insights into action.

The report provides useful perspectives on how loyalty marketers are faring, but specifics and case examples of what kinds of rewards actually work for which kinds of customers would have been a welcomed addition. Teenagers have very different reward motivations than, say, grandmothers, and it’s not intuitively clear, at least not to this reader, what kind of experiential rewards could build long-term relationships with either group.