We hear repeatedly in surveys that CMOs' No. 1 goal is to increase loyalty among existing customers. The most typical strategy is a "rewards program" offering benefits, points and prizes. But, depending on your type of business, loyalty rewards are not always the best way to grow customer loyalty.
In sectors such as travel or financial services, where increased frequency and value of transactions heighten the rewards, the programs have worked. But in other cases rewards have had the effect of diluting profitability. This is because they are targeted at profitable customers, who are already loyal and less price-sensitive.
Consumers are bombarded with programs, benefits, points and prizes. According to recent surveys, 1.8 billion loyalty-program memberships exist in the United States, with the average household participating in 14.1 programs. Yet more than half of those memberships are inactive, meaning the customer has stopped paying attention to the program and possibly even the brand itself.
Our firm's research suggest that CMOs should avoid the race to rewards and think in terms of a wide array of options. A successful loyalty strategy is underpinned by the consumer's emotional affinity with the brand, so the goal of should be to create sustained demand. Here are leading factors to consider in determining how best to achieve this.