- Data collection. A primary goal of many loyalty programs is to gather valuable customer data for long-term success.
- Competitive advantage. Hannaford Supermarkets launched its first loyalty program in response to local competition and a desire for increased customer personalization.
- Customer involvement. Involving customers in determining loyalty program incentives and rewards is crucial to a program's success.
A significant number of organizations have developed and expanded customer loyalty programs in order to reward customers with products, services or special prices in exchange for their business. The real goal of many programs is to collect data on those customers, but it can be challenging to see how that data collection may immediately impact the bottom line.
Leading organizations understand that the full payoff of loyalty programs may come over time. Success may not be measured in a sudden spike in retail sales, for example, but in building trust with a customer that keeps them coming back over the long haul.
Still, there are definite ways to assess how a program is doing along the way and to measure whether a loyalty program has the right incentives and reward elements built into it.
Facing Competition, Hannaford Launches Its Loyalty Program
The customer loyalty program at Scarborough, Maine-based Hannaford Supermarkets illustrates well how, and why, many organizations start such programs, and what they fully hope to gain from the effort. As is often the case with customer loyalty programs, what drives an organization to start one is competition in the local market. That was the case with Hannaford.
“We launched our first program to only Hannaford associates in August of 2017,” explained John Giaquinto, senior director of customer loyalty and digital marketing at the food store chain. “Two months later we launched to a test market in Burlington, VT. Then our full launch was January of 2018. This was Hannaford’s first loyalty program at scale.”
The decision to launch a formal program was made to remain competitive, to be able to treat customers in a more personalized way, and to have better data on customers and the overall business, Giaquinto said. The New England region has several rival food chains vying for shoppers, and customer engagement is a key differentiator.
“We have My Hannaford Rewards. It is a purely digital program,” Giaquinto said. “Customers enroll, identify themselves at point-of-sale or shopping online, and they earn Rewards equal to 2% of their private brand sales. Earning in one quarter becomes a Reward that can be activated in the next quarter. In addition, there are regular, personalized campaigns and offers. Customers are alerted to offers and Rewards via mobile app, web, email, and text messages.”
Related Article: Customer Loyalty Programs: Delivering the Most Bang for the Buck
The Power of Data Can Make a Loyalty Program an Easy Sell
Designing a robust loyalty program requires a strong understanding of the role of technology and the importance of collecting customer behavioral data.
“I had always leveraged data, even when I was a marketing generalist. But my first exposure to a loyalty program was at Shaw’s Supermarkets,” Giaquinto said. “Once I saw how much data was available, how one could use that data to map customer behavior and to segment customers into groups, and how sophisticated the testing and experimentation could be, I was hooked.”
Giaquinto later became a VP of customer relationship marketing at Symphony EYC (now Symphony Retail AI), which was a consultancy for retailers with loyalty programs and loyalty data, based in metro London.
“I was there for several years and helped set up the Ahold, USA and Rite Aid accounts. Seven years ago I joined Hannaford Supermarkets, then part of Delhaize and now, after the merger, Ahold Delhaize,” Giaquinto explained. “Hannaford had plans to launch their first-ever loyalty program. They needed someone to come in, lead the build, recruit a team, launch the program, and run it. It was an incredible experience. I had the benefit of seeing how most loyalty programs never realize their full potential, and I was able to help Hannaford learn from all that experience.”
Related Article: Building a Next-Level Customer Loyalty Program
Truly Understanding What Customers Want in a Loyalty Program
One of the first lessons that Giaquinto and Hannaford learned, not surprisingly, is that customers want simple savings.
“It doesn’t have to be mathematically obvious — so simple they can calculate the worth of every transaction,” Giaquinto said. “But it has to be simple to articulate and to understand. And they want to see at least occasional values that seem worth the effort, or at least somewhat proportionate to how much shopping they do.”
But customers typically want much more than just a cut-rate, said Howard Schneider, a consultant specializing in customer loyalty and engagement.
Customers very broadly want two things from any brand they do business with — economic reward and emotional reward, Schneider explained. The loyalty program is a tactical way to deliver both.
Customers want what Schneider calls the basic value proposition: What do I get for doing business with you? How do I feel about doing business with you? Do I feel respected? Do I feel like you're listening? Do I feel a sense of status and belonging? And am I getting good value?
“There's a combination of material and emotional reward that builds transactional and behavioral loyalty respectively,” Schneider said.
Related Article: Customer Retention Strategies for Driving Loyalty in Uncertain Times
Giving Customers a Voice in Determining the Elements of Reward
If an organization is going to be successful at offering the right incentives and rewards, it is important to involve customers in determining what those perks are, Giaquinto stressed. Hannaford did extensive research prior to finalizing the structure and requirements of its program.
“We also continue to measure customer attitudes and preferences related to the program, through large, market-wide customer surveys and smaller panels,” Giaquinto said. “But we also firmly believe that people ‘vote with their feet,’ and we rank behavioral data above everything. We watch for changes in engagement with different parts of our program, test values and structures of offers, and adjust based on customer reactions.”
Otherwise, Giaquinto said, somewhat jokingly, “The short answer is we measure in every way we can. We leverage a robust test and control methodology to measure our campaigns, which are short-term programs. We leverage a match-panel methodology or ‘synthetic control’ for our Rewards, because we can’t hold out a true control group.”
Both of those methodologies enable Hannaford to estimate incremental visits and sales generated by the different elements of the program. This, in turn, enables the company to calculate the efficiency of the program. Success is defined as, essentially, for every dollar invested in discounts, offers, or Rewards, how many are generated in additional sales?
“Finally we also look at customer migration,” Giaquinto continued. “Migration means, how people are moving from one level of engagement with Hannaford to higher levels of engagement.”
Tips for Designing and Measuring a Successful Loyalty Program
As organizations look to develop or refine a loyalty program, Schneider stressed that a program “needs to be dynamic. It needs to have the ability to change. You're not going to immediately devise the perfect program, and then set it and forget it.”
Organizations need to watch what customers do, both from a data perspective, and from a customer feedback perspective, Schneider said. From a competitive perspective, organizations need to be able to react to events and trends. They must anticipate what comes next. They may need to add new partners and new features, and respond to the competition, Schneider said.
Finally, Giaquinto offered what he terms “three main buckets of advice.”
Focus on Behavior that Matters
“We need to monitor different metrics when we test and optimize, but they are not all equal. Some metrics are ‘intermediary’ observations,” Giaquinto pointed out. “For example, if you are able to get more people redeeming personalized offers that’s likely a good thing, because it might indicate you created more customer engagement, which created more sales. But if the result doesn’t translate into some higher-order metric like incremental sales or retention, then it’s not as much of an accomplishment.”
Differing Effects at Different Time Intervals
“Retention is a long-term proposition. By definition, it is an effect that is observed over time,” Giaquinto said. “Campaigns are usually short-term, transactional programs, and effects can be observed on a much shorter time scale. If you look for effects on one-time scale, or in only one way, you may miss the most important effects. In my experience long-term effects of multiple campaigns, leveraging a universal control, are usually three to four times the sum of the short-term campaign effects. I’ve seen that a few times at different retailers and have talked to industry peers who have seen it at others. I’m not ready to say it’s a universal law … but my recommendation is to design your program, do your projections, and create measurements that capture this.”
“Always earn your keep,” Giaquinto advised. “If you create a sophisticated program that gets left-handed customers to buy one more can of soup when the humidity is low, you’ve technically created incremental sales. But you have also squandered corporate resources for something that has no chance to drive sales observable at the top line, or to create market share to any measurable degree. You should be designing your program to be at a scale proportionate to your company and its market.”