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Marketers are undervaluing and under-utilizing the loyalty programs in which they have often invested a great deal of money, $2 billion in the aggregate, according to a new report from the Chief Marketing Officer Council.

The bottom line secret to customer loyalty, according to the survey “The Leaders in Loyalty: Feeling the Love from the Loyalty Club,” is that deeper engagement and personalized contact drive loyalty, not mass blast communications and gimmicks.

Most Loyalty Programs Are Not a Success

According to the survey, most marketers (61%) believe that loyalty program participants are the best and most profitable customers with 65% of respondents viewing customer loyalty program investments as an essential, or quite valuable part of the marketing mix.

However, only 13% of respondents believe they have been highly effective in leveraging loyalty and brand preference among club members, and nearly 20% don’t even have a strategy for this. Another 25% admit they have not mobilized brand loyalists to become active
advocacy agents.

Cranky Customers

Marketers are mostly inducing loyalty with discounts or free products and premiums rather than quicker, better service or improved customer handling, the survey also found. Some 39% of respondents view discounts and savings as the key member benefits, 34% view free
products and premiums as essential incentives, while 33% are committed to offering points for merchandise redemption as a further motivator. Customer complaints also touch on a lack of individualized communication (23%) and issues with redeeming points and miles (18%).

Too much spam and junk email topped the list of negatives associated with loyalty and rewards program membership (44%), followed by too many conditions and restrictions (38%), and rewards that lacked real value (37%).

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Other beefs included members having a hard time redeeming points or rewards, program membership lacking value, as well as communications and service not being personalized or targeted specifically for members.

Still, 79% of consumers surveyed say they are very or pretty satisfied with their loyalty and rewards program experiences. However, 70% want to see more discounts and savings, and 52% more compelling personal deals and offers as reward for steering their business to loyalty program operators.

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In a definitive call for personalization, 58% of consumers say they want more compelling personal benefits and services, as well as more relevant offers or individualized deals.

Loyalty Programs Go Online for ROI

Overwhelmingly, marketers will continue to support loyalty programs, with 80% saying they are committed to maintaining or further funding loyalty programs. More than 34% report they are significantly increasing their commitments, and 45.9% are maintaining their current
commitments. Just 4% expect to discontinue their programs.

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At the same time, marketers have identified ways to enhance ROI from their programs. Nearly 60% of respondents said they planned to make better use of the web and new community and networking tools to grow and develop loyalty programs.

In addition to the reliance on websites, 47% of marketers rely on word-of-mouth, 46% on point-of-sale information, 42% on direct mail, and 39% on a sales or service representative.

Cost-efficient email is the preferred mechanism for member communication among 84% of marketers, followed by printed mailings and statements (51%), corporate web sites (45%), dedicated club sites (32%), SMS text messaging (24%), and social networks (16%).

Despite the buzz about social media, nearly 65% of marketers acquired information about the programs in retail environments compared to only 4% in social media networks, 3% in blogs and 11% in online advertising.

This finding is not surprising, considering that consumers engaged in loyalty programs demand high-touch direct engagements as opposed to mass messages, regardless of channel.

Other key actions for generating a greater ROI from club members include:

  • Personalizing interactions and target messages (51%)
  • Increasing frequency and relevance of communications (39%)
  • Gathering more insights and intelligence for better customer handling (38%)
  • Adding new benefits, incentives and inducements (36%)
  • Studying industry best practices and making adjustments accordingly (19%)

Challenges Remain
Despite marketers’ interest in stepping up the ROI of their loyalty programs, there are a number of areas that could stand improvement, the survey finds. Few marketers, for example, conduct in-depth profiles of their customers. Rather, the vast majority still only aggregate and analyze limited customer data sets: 73% collect basic demographics and 68% track the location of members.

However, critical insights, such as advocacy rates (14%), brand loyalty and attachment (27%), personal preferences (31%), satisfaction levels (33%), and product preferences (38%), are not being leveraged.

Indeed, acquiring and retaining motivated and engaged participants is the number one problem facing 46% of marketers. Other obstacles and issues include:

  • Measuring marketing value and effectiveness (42%)
  • Collecting, integrating and maintaining customer data (41%)
  • Deriving valuable insight and intelligence (38%)
  • Delivering more personalized offers and inducements (34%)
  • Creating more customized communications (33%)

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Bottom Line
For marketers, the big question is how much loyalty club membership influences purchasing decisions and customer affinity and attachment to brands. Club membership strongly motivates, or is a big factor, in influencing buying decisions, for 52% of survey respondents. When it comes to word-of-mouth, nearly 20% of club members say they are big
brand boosters and almost 50% say they sometimes talk up the product or service they support.

On the other hand, 54% of survey respondents stated they would give up their loyalty or rewards club membership if they had a poor product or service experience with a brand.

Despite spam and junk email concerns and irritations, over 64% of loyalty club members want to receive information, notifications or updates electronically. Nearly 16% say they are comfortable visiting web sites to source their loyalty information and about 14% prefer a
monthly printed statement.

About the survey: “The Leaders in Loyalty: Feeling the Love from the Loyalty Club,” was sponsored by InfoPrint Solutions Company, a joint venture between Ricoh and IBM. Online research of more than 600 marketers and an audit of more than 700 consumers was conducted in Q3 and Q4 2009. More than 50% of consumers audited had household incomes of over $100,000 and were fairly evenly split across gender and age groups.

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