The missing ingredient to loyalty marketing

It’s been 29 years since American Airlines launched the modern era of loyalty marketing with introduction of the AAdvantage frequent flyer program.  With so much experience in loyalty marketing across industries, you would think that practitioners would have it down pat.  Unfortunately, that’s not the case.  In many loyalty programs, there is one key ingredient that is missing…….emotion.

What I mean by that is loyalty marketers, more often than not, focus on the transactional element to a loyalty program.  In other words, they focus squarely on the exchange of loyalty currency (points, miles, etc.) for customer sales.  Similarly, communications and promotions center around incentives like bonus point offers in order to drive transactions.  In this manner, loyalty programs are merely sophisticated – and expensive – forms of discounting.

The real value of a loyalty program lies in the ability to gain customer data and build a relationship based on customer intimacy.  That is, to know each customer so well that you can anticipate his or her needs and offer the right solution to at the right time.  A solution may be a product or service for which they pay, but it can also be new financing options, new payment terms, expedited shipping, informational content or any number of non-product solutions that meet a need.

Where does emotion come into the equation?  Companies that truly understand their customers know how to build an emotional connection through targeted communications.  For example, a newsletter from a theme park to a retired couple can highlight the wonderful family memories that can be created at the park when family comes to visit.  It can also take the form of a congratulations letter from a mortgage lender that compliments a first-time homebuyer on achieving the American Dream.  Even cross-sell contacts can leverage the power of emotion to create loyalty.  A bank may send an e-mail to young parents reminding them to protect their child’s future by starting a 529 college savings plan.  Done well, the creative will have the customer think “they’re looking out for me and my family” rather than thinking “they’re trying to sell me something”.  The key, though, it to have customer data on their needs, lifestage, and attitudes in order to hit the right emotional triggers for each consumer.

Loyalty currency is not unimportant.  It plays a central role in encouraging program enrollment and ongoing engagement.  And using loyalty currency for promotions to drive short-term behavior is warranted in many cases.  However, customer rewards should not be the only aspect of a loyalty program.  Recognition and relevancy are more important in build sustainable loyalty.  In other words, win – don’t buy – your customers loyalty.

The take-away:  analyze your existing loyalty efforts to determine if  a) you have enough customer data to identify emotional triggers for each segment or individual and b) you are incorporating compelling, relevant, emotional messages into your loyalty communications.

Segmentation in 3D

While there are many different attributes on which to base customer segmentation, I like to think of segmentation based on 3 major dimensions:

   1. transactional data:  indicates category purchases,  frequency and basket size of purchase, seasonal patterns and most importantly, overall customer value

   2. demographic data:  lifestage characteristics like age, marital status, age of children (if any), income, and education

   3. attitudinal data:  activities and interests, technological bias, political leanings, et al.

All three of these dimensions can be useful in defining customer segments and the corresponding marketing programs that will be effective.  Transactional data will help determine when to contact customers and what product category to promote.  Demographic data can give insight into likely consumer needs and possible cross-selling activities.  Attitudinal data will help define the creative style and tone to employ and possibly which media channel is optimal (e.g. direct mail, email, SMS, social media).  Additionally, customer value (a subset of transactional data) can also help determine resource allocation decisions.  In general, you want to allocate more resources towards your highest value customers.

A simple example can illustrate how all three dimensions can affect marketing plans.

Suppose a wireless company looks at their customer base and defines three distinct segments: Road Warriors, Safe & Sounds, and Social Techies. 

Road Warriors tend to be middle-aged . They are highly educated and earn high salaries.  Because they use their handheld device to maximize work productivity, data services and internet access are imperative.  Also, calling plans with high minutes during business hours is important.  Lastly, they tend to be comfortable with technology but use it as a productivity tool and have no emotional connection to their phone.

Marketing application:  Since these are high value customers who focus on productivity, ensure that customer service calls are routed to the best CSRs and issues are resolved within the first call.  Communications should stress efficiency and speed of the carrier’s network.  Communications should also promote data services and other high margin features and should focus emotional appeals on how productivity frees up time to be spent with friends and family.

Safe & Sounds tend to be older customers with lower incomes and very little comfort with technology.  Their mobile phone is a safety blanket of sorts, so they only need basic services.  Correspondingly, their value tends to be low.  Essentially, this group has a low level of engagement with the product.

Marketing application:  Do not overinvest in this group; marketing communications, rewards and service levels should be minimized.  The focus of communications should be on the core features of mobile service and the security it provides.  Likewise, creative should skew towards an older audience in terms of media placement, imagery and tone.

Social Techies are young consumers who view their phone as a lifeline to friends and an active social life.  Text, photo and video sharing, games and other applications are important to this group.  Their value tends to be mid-tier but they are open to incremental upsells like ring tones wireless plans, and unlimited text plans.  Attitudinally, they are extremely comfortable with technology and are looking for ways in which to use their handheld to connect with others.  For them, it’s not a cell phone – it’s their connection to the world at large.

Marketing application:  Creative for this group should correspond to their lifestage and lifestyle.  It should be edgy and delivered through new media (SMS, social).  Product offers can highlight incremental upsell opportunities.  As this segment ages and moves into marriage and family lifestages, the marketing approach should adapt as well.

This example is a simplified version of using 3D segmentation in one industry.  The principles, however, hold across many industries and can useful in defining product offers, creative approach, media placement, and budgets for each of your company’s customer groups.