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Loyalty marketing a strategy worth adopting

Organizations such as Visa USA, AARP, BellSouth and Royal Caribbean are moving away from straight rewards-based loyalty programs to experiential loyalty.

CHICAGO -- CRM may have taught that retaining an existing customer can be more cost effective than acquiring a new customer, but making that happen is no easy task.

And when it comes to loyalty marketing, even some of the most successful companies face challenges. At the Gartner CRM Summit being held here this week, marketers from Visa, Royal Caribbean, AARP and BellSouth shared their experiences in building loyalty.

"The days of points and prizes are long gone," said Luc Bondar, vice president of loyalty marketing with Carlson Marketing, a Minnesota-based consultancy, and leader of the discussion.

Rather, companies are now focused on improving loyalty through the customer experience. The process pays off. Knowing your customers can mean more effective pricing, a better targeted mix of products, smarter revenue management and better marketing spend.

"Loyalty for us is an overall approach, starting with great customer service," said Joey Schultz, vice president of marketing for Atlanta-based BellSouth Corp. "From there it extends around products and services. With strong analytical tools, we can understand what drives loyalty."

Firms in the telecommunications industry, notorious for its customer churn, generally have a wide range of products to offer. With insight into customers, BellSouth can put together the right mix of phone, Internet and video services and keep customers loyal.

"One of the fundamental elements is rewarding customers for doing things incrementally with us," Schultz said.

Credit the information

Visa is unique in that it serves not only consumers but merchants and financial institutions. It also has a wealth of customer information.

"There are 1.4 billion Visa devices out there and there is value with each," said Tim Attinger, senior vice president of product development and management at Visa USA. "In the U.S., we took a few segments in the credit area and identified customers uniquely. We've driven all systems to follow every single transaction and now create segments on the fly. It gives us insight into customers on core payment behavior."

As the largest lobbying organization in the country, and with 37 million members, AARP is focused not only on keeping its members but on keeping them involved, according to Lin MacMaster, director of membership development at AARP.

"We don't look at loyalty on a transactional-based system, we look at it on a needs-based system," she said. "We get renewal rates of about 75%. When we engage a member in programmatic or volunteer work, those rates go up to 90%."

Royal Caribbean International is in the midst of shifting from a tier-based reward system to one that focuses on retention. Cruise vacations are a closely considered, emotional purchase. Although Royal Caribbean offers rewards for return customers, many do not come back. The company is building new ships every year, however, and needs to fill them, according to director of relationship marketing Bill Hayden. @25770

"If we're constantly trying to create new customers, we're forced to compete on price," he said. "We're not looking at our Loyalty Program as a marketing tool. Bribes are expensive and fleeting. When our satisfaction scores are high, we need a way to convince you to come back again and maybe stay in an inside cabin or a suite that time."

All of these organizations gather customer information. AARP compiles reports every two weeks from a total of 90 call centers run by AARP and its service providers. Those reports are issued to the CEO and C-level staff. Royal Caribbean issues on-ship reports on its customer experience. Visa has its wealth of transactional data. BellSouth surveys customers after calls and transactions, and when a customer leaves the company. It has also established a panel of small business customers.

"We've tested product ideas, loyalty programs ideas with them -- to be able to have a robust, ongoing discussion is better than focus groups," Schultz said.

It's been a challenge getting programs started for these companies, however. AARP is also moving from a reward system -- for example, receiving points or a product when a member goes to a cholesterol screening -- to being able to use those rewards to put into savings, donate to charity, or receive the gift.

"As we began to build out the loyalty program, it was really about rewarding the behavior that impacted their own business with us," MacMaster said.

Getting buy-in for loyalty

Loyalty programs were generally considered "a hassle" throughout the organization at Royal Caribbean, Hayden said. Departments saw them as a drain on their budgets.

"We ran the economic models on acquiring repeat guests versus new guests," he said. "We had to move the thinking from expense to creating value."

Hayden was able to demonstrate, for example, that customers within the loyalty program spend $11 more per day when on-board than customers not on the program. That got buy-in.

At BellSouth, loyalty marketing creates some difficulties in recommending programs and plans. Research may show that a customer is better suited to a calling plan other than the one he is on now -- but that the current plan delivers more immediate revenue. Then it becomes a matter of long-term value.

"It's a real challenge," Schultz said. "I can clearly see some calling plans that drive more churn than others that drive more revenue. We're continually doing the analysis. Every minute I can tell you what products are stickier than others."

BellSouth has learned that engagement is vital to the success of loyalty marketing, both customer engagement and employee engagement.

"It wasn't until we understood that you don't really gain the benefits of a program unless they're engaged that we saw results," Schultz said. "We enlisted the front line."

For example, while on a call, agents would see that customers had amassed points that qualified them for a couple of months of high speed DSL and suggest they redeem them.

"That really drove the engagement of customers," Schultz said. "That's when we really started seeing the benefits of retention. You need to make sure there's alignment with the front-line employee and how they're incented with the whole company."

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