Customers aren’t what they used to be. Today, they are notoriously fickle, armed with a world of information to challenge the price and quality of the goods and services they buy.
And it is getting harder to keep them.
Retail spending is struggling in Australia; people are saving more and spending less. Businesses are desperate for ways to keep customers coming back and are turning in droves to customer loyalty programs. Some of these programs have been incredibly successful; in fact, loyalty rewards system Priority One is due to go public later this week with a planned $300 million float. The question is how do you distinguish a bad system from a winner?
Eddie Malkoun knows everything there is to know about loyalty cards. “We’ve been in business for 14 years and we’ve seen a lot of rewards programs come and go,” he says. His company, Club Lifestyle, has helped create successful loyalty systems such as Myer One and Hoyts Gold Club.
He says that there are four things that customers look for in a reward program:
- Instant returns – people want to see that they’re getting something out of your system. “People don’t want to wait around to redeem their points or get rewarded,” he says.
- Value – your customers need to feel like what you’re giving them is worth their while. “They want genuine benefits that have clear and tangible value.”
- Diversity – you need to offer a range of rewards to appeal to broad array of customers. “Everyone’s got different interests and palettes… everyone needs to see something they want,” says Malkoun.
- Brands – people will be more willing to join your program if it has rewards from companies they know and are interested in.
Professor Steve Worthington from the Monash University Department of Marketing had another suggestion. “The best loyalty programs are simple for the customer, easy to redeem and continuously kept alive.” By “alive” Worthington means updating the rewards, promoting the program and refreshing the brand.
Worthington gave the example of Coles Flybys as a program which failed to evolve and got left behind. “The jury’s still out on the new Flybys,” he added. Although Worthington doesn’t elaborate, consumers have reportedly complained that they could never get enough points to earn a reward.
Malkoun says most retail businesses don’t do loyalty programs very well. “The biggest problem with some of these reward programs is they don’t evolve to keep up with technology,” he says.
They are not making enough use of SMS and phone apps, and not taking into account options for their customers to shop online (called onmi-channel marketing).
Yet these are the businesses that most need customers to be engaged. “Small businesses have to create more loyalty in a very competitive market.”
One method that Club Lifestyle has used to take advantage of new communication technologies is crafting apps to help sell businesses. “Retailers can go on [the app] anytime and send out great offers to people, such as ‘30% off for the next three hours’,” Malkoun says.
So which ones are successful?
Worthington says: “One would be Qantas Frequent Flyer, because it has expanded beyond its frequent flights to a whole range of other products you can access with the card.” He also points to their competition, Virgin’s Velocity, as a positive example. “They have 2.5-3 million members and have come from nowhere to be reasonably successful. It’s been part of a drive to place Virgin as a more professional airline.”
Malkoun thinks Myer’s loyalty program is incredibly strong (although he admits his company’s involvement makes him a bit biased). “Myer One does an exceptional job and the rest are just trying to make up ground,” he says. Two thirds of their sales are made through the loyalty card system, providing with vital information about their customers’ buying habits.
Another example of success is Woolworth’s Everyday Rewards card – which has 5.1 million card holders nationwide and is linked with Qantas’ Frequent Flyer program. This is an example of the Malkoun’s original points (#4) about branding providing wider reach and recognition.
Worthington thinks that loyalty is not quite the right term for such program, and companies should not rely on them too much. “It’s a misnomer to call them ‘loyalty programs’ because it doesn’t tie you to one business. They should be called information and reward programs.”
And there’s no substitute for service. Malkoun says: “There’s a little bit of loyalty in it. I go to certain stores because I know they provide good service and they make my life easier.”