Wednesday, February 8, 2012

4 Ways to Enhance Loyalty Programs with CRM Software

Loyalty – a noun defined by the Merriam-Webster dictionary as a strong feeling of support or allegiance. But what makes a customer loyal to one store or brand and not to another? What turns a price shopper into a brand loyal customer? These questions, as well as others, can be answered using data from CRM solutions.

History of loyalty programs
Loyalty programs have been around since the 1950s when S&H Green Stamps began rewarding grocery store customers with small books that could be filled with stamps and then redeemed for appliances or other merchandise. The modern day loyalty program is attributed to American Airlines, who in 1981 began offering frequent traveler miles. This program was quickly duplicated by other airlines, hotels, car rental companies and credit cards. The hospitality industry has been in the forefront of loyalty programs since its inception in 1981.

Retail loyalty programs came into existence when retailers began to realize they did not have a tool that allowed them to identify their best customers. They did not have a tool which would allow them to reward and encourage preferred behavior. In other words, they did not have the customer data bases they needed. The Center for Retail Management at Northwestern University sites that only 12 to 15% of customers are loyal to a single retailer, however, that small percentage of customers may generate between 55 and 70% of that retailer’s sales.

In truth, many loyalty programs are developed with great intentions but with unclear objectives. While loyalty programs may have multiple purposes, the underlying objective must be the measurement of individual customers and their unique behavior. This behavioral information exceeds even the importance of having the customer shop at one particular retail outlet. The most basic benefit of a loyalty program is obtaining customer information. With this information a retail operation can acquire new customers with similar profiles, increase the lifetime value of a customer by increasing their spending patterns, retain current and high value customers plus shift customer spending to items with higher margins. In other words, by understanding the customer the profit mix can be improved and the churn rate lowered.

Modern day loyalty programs
The influx of loyalty programs, from reward points to cash back to even gold coins, now forces retailers and all other marketers to engage in loyalty marketing best practices. They must be able to recognize and react to changing lifestyles and changes in customer attitudes. In many markets loyalty programs are perceived not as a benefit but as an entitlement, which also means that the consumer is looking more for meaningful rewards. By understanding the consumer and their demographic and psychographic makeup the retailer can begin to develop those meaningful rewards. With CRM solutions this definition becomes less based on perception and more based on fact.

In today’s markets, tangible or not, customers have more added choices than ever before. In today’s economy customers are more penny-wise than ever before. The combination of multiple choices and stringent spending increase the value of customer loyalty programs tenfold. Smart loyalty programs will understand their customers’ expectations and act upon not only tangent expectations but unmet expectations as well. So, how can a smart CRM solution help? CRM puts the customer in the center of the business. CRM provides a universal view of the customer – what they buy, when they buy, how they buy. By using a effective CRM solution, data the retailer can begin to recognize each customer and move them from being a transactional customer to a loyal customer.

CRM solutions for effective loyalty management
When using CRM solution for loyalty management, it must be considered to be not just a technology but a strategy for doing business. 

Customer analysis
The goal of any business is the acquisition, growth and retention of profitable customers. Through the analysis of data from the CRM solution the “profitable relationship” can be defined. It will enable the identification of what makes a repeat customer – what is the one distinguishing characteristic that repeat customers have and how can this be encouraged in other transactional customers? It is not just through the analysis of the repeat customers that CRM can be useful in developing the loyalty strategy, it is also through the analysis of transactional customers and analysis of loyal customers who leave. This analysis will enable the definition of what the customer wants and how they want it.

Accurate data collection
CRM solutions will also expedite the identification of life stages within the customer base. For example, according to the United States Census Bureau there are approximately 75 million baby boomers, CRM will hasten the identification of the unique and wealth generating population within the customer base and identify if this is the right base for the business.

Intelligent customer segmentation
CRM solutions will facilitate the definition of the customer experience. By defining what interactions are important to the customer, the experience can then be replicated for those customers the organization wishes to retain or grow. CRM enables the on-going evaluation of this experience and allows for the focus to shift to those areas most profitable for the organization and to reduce or revitalize those areas which are drawing down the profitability.

Effective loyalty campaigns
CRM also supports the marketing function – how customer communication is handled. With support of CRM solutions the customer can be spoken to at multiple levels and at all contact points with a standardise and consistent information. CRM empowers the staff to take responsibility for the retention and growth of customers through the personalization of interactions.

To summarize, CRM allows the monitoring of the customer’s experience. It is through the understanding of this experience that companies will be able to grow their loyal customer base. The time has passed when “mystery shopping” and customer complaints drive changes. CRM solutions allow a customer centric environment which in turn leads to customer loyalty.


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