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Wednesday, June 17, 2020

Loyalty Programs for Modern Customers

Contrary to the belief of a few people, loyalty programs have not outgrown their usefulness, well, ie if you know how to redesign the old model to keep the interest of modern consumers. Well designed loyalty programs use emotional marketing and have the potential to channel unqualified leads through the sales funnel, all the way to being evangelists, especially if these programs make the journey fun. 

Why Conventional Loyalty Programs Are Failing  
Conventional loyalty programs that offered points for purchases in exchange for price discount are based on the old transactional approach to customer relations. This old way of exchange can expect as much loyalty as someone who attracts a marital partner only with money. As soon as the competition offers bigger financial rewards or you falter on that offer, the marriage of convenience ends and it becomes clear that the partner's stay was never through loyalty after all. An 'earn and burn' loyalty program typically rewards customers after a specified number of visits or amount spent. For instance, after 9 health shakes, the program rewards the 10th free. Such program designs are sometimes financially counterproductive when customers receiving those rewards would have likely made the Nth purchase on their own, ie even without the costly incentive.

 How to run successful brand  loyalty programs
If companies considered their customer relationships as being similar to courtships and marriages, they will re-think their approach to loyalty in business. True loyalty occurs through emotional connection. Consequently, successful loyalty programs include strong elements of emotional marketing. Although emotional marketing driven loyalty programs still have some system of incentivizing for rewards, they encourage customers to engage more deeply with the brand. The types of incentives and rewards are very different. Here are 5 ways you can still run a successful loyalty program.

1. Give customers incentives to engage with the brand (not simply to spend money in order to get the reward of price discounts or free gifts). The ideal is to encourage an emotional investment whose cost rises, thereby making it unattractive to lose, as per the theory of loss aversion. Specifically, in cognitive psychology, decision theory and behavioral economics, 'loss aversion' refers to someone's tendency to prefer avoiding losses to acquiring (equivalent) gains. For instance, it was found that people will often act in a way to prevent losing $100 than to find $100. This theory is at play when people find it hard to leave relationships into which they have invested a lot of emotional energy, time and effort, even if that relationship is toxic and there are other similar or arguably better people available.
Example: If your currently overarching objective is to raise brand awareness, encourage customers to comment on your Facebook page about the aspect of your brand they like the most. You can request that they get a minimum of x persons to like their comments from their circles of influence.
Example: If your currently overarching objective is to raise brand awareness, get to the point and tell them that you invite customers to make referrals via social media. Actively encourage this as opposed to waiting and hoping someone will be kind enough to do it. Provide incentives, like even a percentage of sales to referrals. To avert bad reviews, make yourself available if there are any questions or problems.   
Example: Encourage customers to interact with your published content (like blog posts). Not only should they publicly support posts whose content appeals to them but customers should also share these posts on social media and receive at least x likes. 
Example: Encourage customers to create touch-points between the brand and their friends, simply by discussing the brand. Consider the friends' stage within the sales funnel to establish the objective of that promotion. Consequently, if the brand is new and needs to generate brand awareness, you may specifically encourage the customers to discuss matters related to the brand, like the brand's core values as  you should have already clearly described in the brand's social or other mission statements with which his circle of influence can most relate. If part of your unique value proposition relates to offering products that are healthier and more environmentally friendly because they do not have petroleum products, ask your customers to discuss their views on the dangers of petroleum products. Don't be shy to 'casually prompt' them with some helpful information in a blog post that includes the type of information you want them to say. Stand back and allow the customer to take the credit and admiration of his / her hopefully newly engaged friends. As usual for any form of customer communication / promotion, ensure the message to the third parties carries a Call to Action (CTA) that meets your overarching strategic objective (or current marketing mission statement).
Example: The company Predator Nutrition used '360-degree customer engagement' by rewarding points to its loyalty members not only for purchases but also for reviewing products, referring friends and following on multiple social media networks like Facebook, Twitter, Instagram and so on. 

2. Reward customers to meet their needs. Maslow's 'Hierarchy of Needs' suggests that a human needs motivate his or her behavior. However, if you recognize that modern consumers are complex with ever higher expectations of businesses, price discounts alone will not stoke the type of emotional connection you need in order to get the customer's loyalty. In Maslow's hierarchy, the higher human needs to which you ought to target include: level 3 needs of love and belonging, level 4 needs of esteem and level 5 needs of self actualization. (Lower level needs 1 and 2 relate to physiological needs (like food and shelter) and then safety. This is not to say that the lower needs are completely irrelevant. After all, Herzberg's 'Hygiene Factors Theory' posits that some factors are true motivators of behavior and therefore rightly named 'motivation factors' while other factors may be likened to hygiene as it relates to physical health, ie it is nice to have but will not make any significant difference in health. In other words, factors that provide your customer with physiological needs like price discounts are likely to be only nice-to-have but will not motivate their true loyalty. Conversely, other rewards that target higher needs will actually motivate true and lasting loyalty.
Example: Give customers an exclusive add-on product on service to your main product that adds the customer's overall value perception like free shipping, personalization options at a reduced rate. Your customer already has an intrinsic interest in your product. So keep his interest by exceeding his / her expectations with something extra!
Example: Give customers an exclusive invitation to an enjoyable tour of your workplace for a behind-the-scenes tour and maybe a souvenir that is also scarce (somehow through being relative difficulty to get). (See how scarcity and exclusivity and urgency marketing are powerful emotional marketing motivators) An exclusive invitation, which is essentially offering membership (albeit short-lived) to a special group, satisfies the 3rd level need for belonging. Such meetings might occur only once or twice yearly for a limited number of customers. Stoke that emotional connection! If you can get the most out of the situation by taking photos that the customer can share on social media, all the better.

3. Encourage customers to showcase your stated core values. Your core values consist of beliefs that are fundamental to your brand's and or customer's identity. They are the ethos and essence of your brand and or your customer to the extent that they dictate your behavior and determine how you decide on what is right or wrong. They should NOT be aspirational, lofty or single ambiguous words. Instead, they are sufficiently clear to be measurable. Examples of well written core values include: To promote sustainability, promote social responsibility, do more with less, minimize our impact on the environment, respect local cultures. As mentioned previously when discussing how to build a brand for modern consumers, you must be willing and able to walk the talk. That way, your core values make great yardstick against which you can determine whether your company's actual behavior or other choices are compliant with its desired brand identity. In short, core values are the essence, heart and mind of who your brand is.

Encourage customers to behave in ways that reflect the brand's values. See them as ambassadors of sort. Encouraging these behaviors may be integrated into challenges and rewards within your loyalty program. Notice that your company's product need not even be the focus of your challenges, rewards or advertising. A case in point is how Coca Cola's Christmas advertising barely discusses the drink. Rather, they focus on the value of sharing and togetherness. This Coca Cola example illustrates a very useful opportunity if your product is arguably boring, like a commodity or very similar to that of your competition and needs some means of differentiation. 
Example: If one of your brand's core values is to respect all other life, a challenge might involve them discussing animal rights. 
Example: If one of your brand's core values is to respect all life, a challenge might involve trivia over why 'All Lives Matter' and the trend to favor animals over minorities is offensive. 
Example: If one of your brand's core values is to minimize your impact on the environment, a reward might be a branded reusable shopping bag. In fact, that reward can then be transformed into the challenge in which customers must use those bags when shopping at your establishment ... to qualify for some other reward(s). 
Example: Reward customers for meeting personal goals that correlate with your brand. See how AARP (ie the American Association of Retired Persons is an interest group that focuses on issues affecting the elderly) rewarded customers for taking steps towards promoting their health. A more commercial approach is if your brand involves makeup remover, not only encourage customers to use the remover every day but also reward achievements of a clear complexion that may have resulted from using the remover.
The AARP encourages members to exercise to increase physical fitness and prevent falls, which by the way, is something that might reduce the rate of claims covered by the association's insurance program. In other words, the beauty of this is that it is mutually beneficial to the member and AARP. Members get rewarded $1 per day that they complete exercises within each month. 

4. Make it fun, like a game. Making the experience fun elevates the customer experience. The gaming industry made many otherwise productive men addicted to playing games for numerous hours on end each day. After having been one such man, Yu-kai Chou, the founder of 'gamification' did an analysis he called the 'octalysis' on the 8 core motivators for this type of behavior.  

  

"Gamification is the craft of deriving all the fun and engaging elements found in games and applying them to real-world or productive activities.” Yu-kai Chou

Imagine, if your loyalty program can transcend its boring past to resemble a board game, it is likely to far better engage the interest of your customers. Here is a quick summary of the 8 main core "drivers" Chou highlighted.

The letters after each motivator 'R' for right brain and 'L' for left brain relate to Chou's non-scientific, "symbolic" classification of the 8 to help in program rewards design. Right brain motivators are more emotional and relate to creativity, self-expression and social aspects. Conversely, left brain motivators are more logical and relate more to logic, calculation and ownership.

Right brain (emotional and "intrinsic"). These forms of motivation derive from within the customer. Rewarding through these means is essentially letting your customers be themselves. The reward is the way you honor who they are; their creativity, self expression and social life, as one would in a lasting and loving marriage.

Conversely, left brain (logical and "extrinsic") rewards like goals and gifts are closer to the old paradigm. These rewards are extrinsic to the emotional essence of your customers and do not allow customers to be truly present.

Chou highlighted that "many studies" have shown a danger of focusing on external rewards as a means of motivation. Specifically, when you stop, customers' motivation drops markedly, even to its original level at the introduction. Consequently, you can better motivate continuous motivation with greater focus on right brain motivators.    
i. Epic Meaning & Calling - 'L & R'This motivator relates to arguably the highest human need of self-actualization. It posits that people become driven to do some action that is greater than them and gives reason to their lives, and for which they believe they had been chosen and therefore received a calling. He highlights examples of people freely donating their time to maintain forums and communities like Wikipedia and other Open source projects simply because they want to see the advancement of mankind. 
Example: Reward your customers' successful challenge with a symbol of the way in which he or she feels chosen. Symbols may be a microphone so (s)he can select one of your several topics (about your core value) from which to speak.
ii. Development & Accomplishment - 'L'This is the inner human drive to progress, develop skills and eventually overcome challenges. He stresses the need for rewards (badges, trophies, points, etc) to be given only after a challenge in order for the reward to be worthwhile.
iii. Empowerment of Creativity & Feedback - 'R'
This motivator occurs when a creative process forces customers to repeatedly figure things out and try different combinations and, at the same time, allows them to see the emerging results of their creativity, receive feedback, and respond in turn. He gave the example of how Legos become 'Evergreen Mechanics', because the game's designer no longer needs to continuously add more content to maintain the process.
Example: If one of your brand's core values is concerned with health and safety, the aim of your loyalty program may be to re-arrange the elements of a given situation in order to make it safe and healthy.   

 iv. Ownership & Possession - 'L'People are motivated not only to accumulate things but then to take care of and further develop those possessions. Possessions include rewards participants actually keep as their own. This personal ownership provides some level of emotional connection that contrasts with the conventional 'earn & burn' loyalty programs in which nothing is ever owned. Rather, earnings quickly were used up or became expired before there was a chance to use them. Other examples of game possessions include exclusive branded souvenir, avatar and virtual objects. I am reminded of the Monopoly board game in which players try to accumulate real estate that needed to be taken care of. Furthermore, one's level of investment of time and other resources deepens players' sense of ownership, even for extrinsically related possessions like the making of one's avatar.
v. Social Influence & Relatedness - 'R'Research has shown that social motivators are are also significant. Examples include competition, envy, belonging and so on. By understanding your customer's social drivers, you can motivate him accordingly. For instance, I previously mentioned how the airline industry uses exclusivity marketing techniques to intentionally stirs emotions of jealousy and possibly aspiration among economy class passengers who are forced to observe the more privileged treatment of first class passengers. The intention is to inspire economy passengers to want to get the same privileged treatment. Social relatedness is a matter of using props with which customers can relate emotionally as a means of motivating their action. An example Chou offered was a product that reminds people of a happy childhood and is more likely to motivate a purchase than products unable to have this type of effect. Local cultures are therefore noteworthy. For instance, if you are targeting vegans, it is counterproductive to offer hamburger rewards. 
vi. Scarcity & Impatience - 'L'As per my earlier, more detailed discussion of scarcity marketing, scarcity relates to something that your customers cannot have or at least not without great effort. Making customers wait for something they look forward to intensifies their impatience and desire for it.
Example: Robinhood used gamification in their referral program to encourage over 1 million members during the pre-launch of new beta version of software that only a few souls would qualify to use. Advocates referring the most new leads were pushed forward on the scoreboard and closer to being among the few able to try the software..
vii. Unpredictability & Curiosity - 'R'People become emotionally engaged by curiosity when an outcome is not yet known. Otherwise, engagement over a known outcome is due because of #1, ie needing to achieve something, to finish the current process.
viii. Loss & Avoidance - 'L&R'This powerful motivation is responsible for people doing anything possible to avoid the pain of losing something. The sunk cost fallacy illustrates the power of this emotional motivator. Specifically, the sunk cost fallacy occurs when people remain committed to something that has already proven itself lacking in its desired potential, only to avoid the pain of loss of investment in time and other resources.
Example: If customers do not complete a certain task, they can lose their status entirely and need to start over again.

5. Use data science. Data mining from each touch point helps to inform how to improve the loyalty program. Customer relationship management (CRM) is a great way to start.
Example: Analysis might show that giving external rewards like price discounts at certain stages might be more harmful than good for your bottom line because certain more valuable customers would proceed without that type of reward. They might prefer experience over financial rewards. 

CONTENT RELATED TO LOYALTY PROGRAMS FOR MODERN CONSUMERS
  • Tiered loyalty programs and paid subscriptions
  • Brand awareness strategies
  • Onboarding new customers for best customer lifetime value (CLV)
  • A loyalty / rewards  program explainer page is ideal for attracting customers. If your customers do not understand a great program, it is very unlikely to attract and keep customers.
  • Benefits of repeat customers, especially as they relate to loyalty programs.
    • Keeping existing customers is roughly 5 to 25 times cheaper than acquiring new ones.
    • Loyalty programs can help to raise a customer's average order value / AOV by as much as 33% (often 20%)
    • Loyal customers spend roughly 67% more than new ones.
    • Loyalty programs should ideally have an inbuilt referral program in which customers gain rewards for referring their circle of influence. This is ideal because leads are 7 times more likely to buy when referred by a friend, thereby increasing new customer acquisition by roughly 25%. (Conversion of referrals to buying customers can be 25%). 
    • Stats: Loyalty programs can help to increase the repeat purchase rate by as much as 80% (often 70%).
    • 360 degree engagement is often included in the design of a successful modern loyalty program. It refers to the use of every possible contact point to have greater reach for new and existing customers. The single most effective contact point is social media mostly because customers remain constantly connected with their mobile devices and easily share content. Other contact points include email, physical meetups, YouTube videos, blogs with lead magnets and birthday surprise rewards. Rewarding customers for as many contact points as possible also encourage engagement like for signing up to email list, for signing up, etc. See the case below of how Jelly Belly awards points in 6 main ways and allows customers to use the points as currency for 3 packages.

CONTENT RELATED TO LOYALTY REWARD PROGRAMS FOR MODERN CUSTOMERS

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