How do you build a good loyalty programme? - Tomasz Makaruk

How do you build a good loyalty programme?

Determining the reasons for and goals of a loyalty programme aimed at end buyers, or an incentive programme aimed at sales intermediaries, are the first two and the most important elements in the process of creating a loyalty programme. It also includes the stage of defining the target group, selecting the nature (type) of programme to be created and defining the measurement tools, as well as setting specific result indicators.

How do you build a good loyalty programme?

Organising a loyalty programme is a process during which it is necessary to identify a number of variables that will determine the shape of the programme. These include determining:

  1. Reasons for organising the loyalty programme,
  2. Loyalty programme objectives,
  3. Target groups,
  4. Programme duration,
  5. Nature (type) of the loyalty programme,
  6. Outcome assessment tools and key performance indicators (KPIs).

How do you build a good loyalty programme? - Tomasz Makaruk

Identify the reasons for organising the loyalty programme. It may sound unbelievable, but the majority of loyalty programmes aimed at end buyers and incentive programmes aimed at sales intermediaries have been created without this point in mind. The organisers have gone through the rest of the process of organising the programme with due diligence but have failed to answer the question ‘why?’ they are organising the loyalty programme. As a consequence, there are many loyalty programmes on the market that are ‘better than the competitors’, ‘offer the most attractive rewards’, are ‘unique’ or ‘the best in their market segment’. They do not, however, have a properly defined reason for being established. As a consequence of this, the objectives and delivery of such programmes do not directly derive from the key values held within the organiser’s company. Simon Sinek, in his iconic book Start with why, explains in detail the reasons why the question ‘why?’ should be asked at the very beginning of the design process, not only of a loyalty programme, but of every action we take in our professional and personal lives. This is because such an action forces us to answer the question of whether the action we intend to take is in line with the values, mission, and vision of the organisation we represent. It is worth remembering: First the values (i.e. the answer to the question: why?), then the goals (i.e. the answer to the question: what?), then the plans (i.e. the answer to the question: how?).

Loyalty programme objectives. Determining the objectives for which the loyalty programme is organised is the second most important aspect of the process of organising a loyalty programme. Satisfaction with the action, both financially and in purely human terms, comes from achieving the set result. No one is able to achieve a goal that has not been defined and clearly positioned on a time horizon. With clearly defined goals, the way the loyalty programme is organised is well suited to the needs of the company. It is also important to be able to imagine – visualise – what the market situation will look like for the organiser of the loyalty programme once the intended outcome has been achieved.

It may simply be the value of market share, the size of the data set that will be created through the programme we organise, or the additional revenue and resulting margin realised on sales to loyal end-buyers and motivated sales intermediaries. This visualisation, like the objectives, will be different for each company. This makes it easier to find the intrinsic motivation for action. It must not be forgotten that a goal, without a specific date for its realisation, is just a dream. Each goal should have a deadline, because setting a deadline forces you to put together a plan to achieve the goal and answer the question of how you want to achieve it. Finally, it goes without saying that goals need to be written down. If we keep them ‘in our heads’, we will subconsciously modify them to fit current events and market circumstances. Goals, on the other hand, are specific tasks to be achieved, defined as SMART and written down on paper. The acronym SMART, which defines a set of characteristics that a correctly formulated objective should possess, is the first letters of the words: Specific, Measurable, Achievable, Relevant, Time-bound. According to the acronym forming the name of the concept, a formulated goal should be:

  • Specific – it should be easy to understand, the wording should be unambiguous and leave no room for loose interpretation.
  • Measurable – i.e. formulated in such a way that it is possible to quantify the degree to which the objective has been achieved, or at least to make its achievement unambiguously ‘verifiable’.
  • Achievable – a goal that is too ambitious undermines the confidence in achieving it, and therefore the motivation to achieve it.
  • Relevant – the goal should be an important step forward, while also representing a certain value to whoever will pursue it.
  • Time-bound – the goal should have a precisely defined time horizon in which it is intended to be achieved.

Once set, the targets should, of course, be subject to modification over time. However, with quantitative targets flowing from values, it is possible to define a specific method of achieving them.

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Target group. The main challenge facing loyalty programme organisers is the task of creating a loyalty programme that will be a tool for transforming previously disloyal participants into loyal ones. In other words, the challenge is not to create a loyalty programme targeted at a group of already loyal buyers who will be further rewarded for their loyalty. This is not the point. When you have a group of loyal customers for your products and services, you need to realise that they already have an intrinsic motivation to buy again and again, and are therefore loyal in their own right.

Additional rewards only lead to lower sales profitability. B2C (business to consumer) loyalty programmes, i.e. those aimed at end buyers, are usually addressed to persons over 16 (some organisers narrow the group down to persons over 18), who are obliged to purchase from the organiser of the programme in order to join and participate in the programme. B2B (business to business) incentive programmes are targeted at representatives of particular links in the distribution chain. These include sales representatives of the organiser or distributor, wholesalers, decision-makers in retail outlets or, last but not least, people who directly serve end buyers (e.g. salespeople in grocery stores, salespeople in electrical shops, etc.).

The types of loyalty programmes listed above do not represent a closed list. There are also programmes targeting, for example, corporate executives, rewarding board members for achieving the results set for the companies they manage. Another group not mentioned above is loyalty programmes targeted at shareholders (co-owners) of companies.

Duration. The most general division of loyalty programmes can be made into three groups. These are actions that are organised:

– indefinitely,

– in consecutively renewable editions (e.g. quarterly or annually),

– at a predetermined time, after which the programme ends.

The duration of the programme is derived from its objectives. If it is a scheme to increase consumer loyalty over time, the first case applies, and the scheme runs without an end date. The rules merely state that the organiser has the right to decide to terminate the programme once certain conditions have been met. If, on the other hand, the programme is a tool designed to lead to a temporary increase in sales or if the organiser is not sure that they have created the right tool, then the programme runs for a specific timeframe. Most of the more than 120 B2C programmes in Poland are run indefinitely, but with a time limit on the validity of the points awarded – they are usually cancelled and ‘expire’ after 2 years from the date of issue. At the same time, almost all the B2B incentive programmes I am aware of are for a predetermined period of time. It is impossible to objectively determine which approach is more reasonable. It is an arbitrary decision to be made by the organiser based on the goals of the programme.

Irrespective of this – if the loyalty programme organised is a success, the organiser may wish to continue it. If the ongoing scheme does not live up to expectations, it is obvious that it will be closed down sooner or later. With such a decision, the organiser has a number of obligations. These are the necessity to fulfil all the rights acquired by the participants, including the right to the prize that was promised to them according to the rules of the programme, the obligation to announce the termination of the programme with an appropriate period of notice, again resulting from the rules. The expiry of the programme also triggers the need to close the balance reserves held for points issued and not burned to date.

Nature (type) of loyalty programme. Loyalty programme organisers have at least a few different techniques to choose from to build loyalty and motivate participants. The first of these is point-based programmes. Their origins date back (on the Polish market) to the late 1990s, when the first loyalty programmes for petrol stations were created. At that time, issuing points and bulky catalogues of material prizes reigned supreme on the market.

Once all programmes started offering drills and juicers, the market saw a second technique. These were programmes of a discount nature. In return for the mere fact of participation or, alternatively, for purchasing activity, one could receive discounts and rebates expressed in amounts or percentages. Another way of enforcing the rules was to award a product free of charge for a purchase. To this day, points and discount programmes still account for the quantitative majority of all programmes. Over the years, points and discount programmes have taken on a hybrid form, combining both modes of motivation to form the points and discount programme group.

The third generic group is multipartner programmes, represented by the German Payback, which, supported by a high level of investment. Multipartner programmes are characterised by the fact that they are run by an independent operator and enable the accumulation of points and/or discounts with multiple partners who, in exchange for joining the venture, have agreed to place the fate of their loyalty programme in the hands of third parties, benefiting from the fact that they are part of a larger whole, the promotion of which is financed from the budgets of all participants. The main advantage of this group is that all partners issue the same points. Consumers are thus given a quicker opportunity to choose their rewards.

The relatively newest group on the market is money-back loyalty programmes. These involve receiving a portion of the money spent back in return for purchases. This is done either to the programme participant’s account, payment card, bank account or in the form of an ATM code. This group of programmes, although quantitatively the smallest, is the fastest growing category.

Results assessment tools and key performance indicators (KPIs). To assess whether a loyalty programme is delivering the expected results, it is necessary to choose the right measurement tools and establish key performance indicators – more commonly known as KPIs. Tools for evaluating results may include quantitative and qualitative marketing research conducted to assess the level of satisfaction of loyalty programme participants, sales reports from within the organiser’s company (volume and value of sales, average basket value, number of transactions, frequency of transactions by unique buyers, etc.), and studies showing the market share of the chain or brand covered by the programme. A separate group includes the data of the programme itself, analysed in terms of the number of participants, their activity, level of departures from the programme, frequency of transactions, percentage of transactions and percentage of turnover ‘passing through’ the loyalty programme, frequency of the participants logging onto websites and into the mobile application, and a number of other tools.

Regardless of the choice of tools for assessing results, the most important thing is to measure continuously at appropriate intervals using the same tools. Then, in addition to the picture of reality (which is a kind of snapshot of the effects of the programme for a given moment), we will also be able to monitor trends of change and their dynamics. This is equally important.

Of course, tools alone will not be sufficient if we do not set the key performance indicators, or KPIs, appropriately at the beginning of the programme and update them on an ongoing basis. Assigning specific values to selected parameters is a signpost that shows what we are aiming for over the course of the programme.



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