- Loyalty programs aren't what they used to be. The rise of social media has completely transformed how businesses foster customer loyalty.
- Implement customer data. Consensually using customer data helps business leaders understand what makes consumers tick.
- Divide consumers into groups. For a successful segmentation strategy, categorize customers based on their needs, behaviors and identities.
Buyer motivation is the underlying reason for everyday purchases — and understanding such motivations is crucial to success. Only by understanding customer motives can companies tailor their sales and marketing efforts to better appeal to their target audience and thereby increase conversions.
Such motivations are influenced by a variety of factors: practical needs, emotional desires, social pressures, status or prestige, or convenience and impulse. People’s reason for buying also changes over time, so it's essential for any business regardless of size or industry to recognize their target audience’s evolving needs and desires.
This is why customer loyalty programs remain a key marketing tool in gathering customer insights. Not only do they help businesses understand changing buyer motivations, but their use of an ongoing value exchange between program operator and consumer captures the associated customer consents required by law for these insights to be collected.
How Social Media Transformed Customer Loyalty
Historically, the value exchange between a loyalty program operator and consumer is predominantly transactional. A "points mean prizes" model of customer loyalty is most prevalent within the airline, financial services and grocery sectors. However, the social media boom fundamentally altered this customer dynamic. Now, the ongoing value exchange is far more subtle; it's based on providing "free" access to social media content in return for receiving targeted messages and ads.
The result has been a shift away from using incentives to influence purchase behavior. Companies now focus on customer profiling and the collection and use of empirical customer data to understand motivations that drive our outcomes — not only through buyer motivation, but across every aspect of our lives.
Thus far, social-media companies have had phenomenal success. Using economic models based on harvesting huge amounts of personal data to create detailed customer profiles — as well as predicting and re-targeting — has effectively removed the need for incentive or promotion to maintain ongoing user activity. Sophisticated algorithms based on access to all types of location, behavioral and purchase information have exponentially improved the targeting of (and our responses to) advertising content.
Related Article: Building a Next-Level Customer Loyalty Program
Using Customer Data Leads to Privacy Concerns
Such levels of consumer profiling — and the harvesting of data needed to deliver such accuracy — has not gone unnoticed by government legislators. Strict regulations focused on a need for explicit consumer consent in relation to the collection and use of personal data have been implemented as a result. However, rather than inhibiting the evolution of new types of customer loyalty programs, these data privacy regulations have inspired a new generation of loyalty marking activity that is once again centered around ongoing incentives and promotions between the program operator and consumers.
But this time there is a desire to move beyond the transactional constraints of previous loyalty programs. Instead, companies are creating those loyalty initiatives that combine exclusive member incentives or discounts, with detailed consumer insights to understand and ultimately predict buyer motivations.
Perhaps the best examples of the combined use of incentives and customer profiling is found in the UK grocery sector, where product offers are mapped against customer profiles and exclusive member discounts are used to incentivize ongoing customer consent. The success of these types of loyalty program directly relate to their ability to match relevant and timely buying incentives over time with their different customer segments.
To make loyalty program segmentation strategies effective, businesses must obtain necessary consents to understand the needs, demographics, behavior and psychographic characteristics of their customers.
Related Article: Customer Loyalty Programs: Delivering the Most Bang for the Buck
Creating Effective Segmentation Strategies
There are several ways to create an effective segmentation strategy using loyalty program insights. Consider the following practices for future success:
- Needs-based: Divide customers into groups based on what needs your company's product or service is fulfilling. For example, a business might segment customers based on their drive for convenience, value or quality.
- Demographic: Group consumers based on characteristics like age, gender, income, education level or geographic location.
- Behavioral: Customers can also be categorized by behaviors such as purchase history, commitment to a brand, frequency or recency of purchases.
- Psychographic: Finally, consumers can be divided based on more personal attributes like their opinions, values, lifestyles, dispositions and personality traits.
A loyalty program, and the ongoing value exchange it creates with customers, is still one of the most effective marketing tools businesses can use to understand customer motivations over an extended period of time. Without loyalty program insights, businesses would continue to struggle in tailoring their marketing efforts to consistently appeal to their different customer segments.
In today's rapidly evolving world, there has never been a better time to launch and operate a customer loyalty program, irrespective of business size or industry sector. Use a consent-driven insight to achieve the crucial understanding of what motivates your customers to buy over their entire lifecycle.
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