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Essential Factors of Customer Loyalty Success Cheat Sheet (DRAFT) by [deleted]

The 10 Essential Factors of Customer Loyalty Success

This is a draft cheat sheet. It is a work in progress and is not finished yet.


Source: TIBCO Software Inc.

#1: Define Success First

There’s little debate about the efficacy of customer loyalty programs — they simply work. Whether your goal is retention or brand affinity, customer loyalty programs have repeatedly shown a very strong return
on investment (ROI). Yet many sophis­ticated loyalty programs lack the clarity of purpose to answer the simple question: “When we look back in a year, what needed to happen for us to say we succee­ded?”

Without a clear definition of success, even the most effective program is at risk of being underv­alued, and as a conseq­uence, underf­unded. When goals aren’t clear, loyalty programs simply waste valuable time and scarce resources. Success needs to be clearly defined with achievable object­ives, and that takes planning. A good definition of success — whether it’s retaining customers, increasing shopper frequency, preventing customer erosion, increasing basket size, or any other target — is founda­tional to everything else you do. So know your targets, document the current situation clearly, and
choose a definition of success that directly addresses your issues or goals.

#2: Determine Desired Behaviors

Customer behavior should be your primary focus. Before you plan future customer intera­ctions, first try to narrow down the specific things that truly move the needle and directly contribute to customer loyalty success. across the wide spectrum of possible customer intera­ctions, identi­fying and defining the behaviors that matter most isn’t always obvious. In mobile, for example, these behaviors could include downlo­ading an app, opting-in to notifi­cat­ions, or opening the mobile app near a retail location.

Focusing on the most important behaviors will help you use your resources wisely and help you avoid wasting time chasing lower-­value outcomes that aren’t critical to achieving your goals. In fact, every marketer should write down a list of the five to ten of these important activities or behaviors and keep it constantly in view — even tacked to the wall. That way you’ll always know your desired customer behaviors and can put the most energy into making them happen more often.

#3: Invest Dispro­por­tio­nately

Don’t spend your customer loyalty budget evenly
across all channels or programs — simply spreading
funds evenly across channels may lead to missed
opport­uni­ties. Similar to other business initia­tives, better
ROI can be achieved by spending dispro­por­tio­nately
higher amounts in particular areas. When it comes to
high-value customers, we know that spending more to
develop relati­onships not only creates stronger brand
connec­tions but also provides much better knowledge
of prefer­ences, propen­sities, and other insights.
A better relati­onship with a high-value customer has
signif­icant benefits that can result in a higher lifetime
value. You can more easily identify important signals,
including an increase or decrease in visits, or even
life-c­hanging events like a new home or the birth of
a baby. If a high-value customer’s normally stable
signals change, there can be an opport­unity to solve
their problem to your mutual benefit. Quick response
to these signals can prevent the relati­onship from
devolving, preserving brand loyalty and stemming
attrition. So dispro­por­tionate spending is the only way
to be sensitive to the relative value of different channels
and programs.

#4: Never Undere­stimate the Power of Inertia

“People maintain habits until they don’t.” - American Economist Richard Thaler is the customer loyalty marketer’s credo and underpins one of the core tenets of resource alloca­tion: To stay on the winning side of customer habits, you need to nudge and encourage increm­ental growth and develop relati­onships whenever
possible. When it appears that customers have changed
their habits in ways that aren’t mutually benefi­cial, you
also need to sound the alarm and swarm.
Some marketers coined the term “satis­fic­ing,” which
perfectly explains this idea. “Satis­ficing” means making
decisions that are good enough given the constr­aints.
Studies consis­tently show that people tend to select the
first option that meets their needs rather than searching
around for the optimal solution. So by providing every
customer need with a solution that’s good enough,
you maintain customer relati­onship inertia. Keeping a
customer can sometimes hinge on simply making it easier
for them to stay your customer than to look elsewhere for
potent­ially better altern­atives. That’s the power of inertia
in customer loyalty success.

#5: Remember First Impres­sions Are Crucial

These days, a first impression can be made in as little as 50 millis­econds. Simply put, brands that focus on first impres­sions have a signif­icant advantage over compet­itors who don’t.

#6: Choose Defaults Wisely

When offered a number of choices, humans often choose the “default” option. This uncons­cious tendency points to the importance of very intent­ionally setting your default offering, because there’s just no easier way to influence behavior. While the importance of choosing defaults is well known in retail, it applies everywhere responses can be influe­nced. So if you haven’t arranged your customer options with the power of default settings in mind, you’re missing out — the results from restru­cturing customer choices can be signif­icant.

#7: Be Aware How You Set Expect­ations

When people evaluate your business propos­ition, an expect­ation is set in their minds. This “ancho­ring” is a very powerful concept that affects your brand’s value in the mind of your customer. For example, airlines are currently shifting from distan­ce-­based rewards to spendi­ng-­based rewards. Their goal is to make their program more fair by rewarding those customers who spend the most money, not just those who fly the
furthest. This shift will align them with nearly every other loyalty standard and is ultimately good for business, but airlines are facing steep resistance because they’ve firmly anchored distan­ce-­based rewards in their customers’ minds over the past several decades.

This “ancho­ring” effect reaches well beyond loyalty programs. It applies to any promise you make to your customers, from free shipping to carrying upscale mercha­ndise, to friendly service. Anything promised sets
an expect­ation that will become a problem when not met. To avoid this problem, begin with commit­ments that are somewhat lower than your capability or cost ceiling and add increm­ental value over time.

#8: Become An Expert in Framing

The best retailers are very experi­enced in a practice known as “framing.” That is, guiding customers through purchasing options such as Good, Better, and Best pricing to steer them to the most profitable item. But it’s not as simple as it sounds, because a lot of factors come into play. The influence of framing depends on whether the customer is in a rational or experi­ential mode. It also varies with age, experi­ence, and cognitive ability. Likewise, different ways of framing can elicit very different responses. Results often depend on the way options are presented as much as the objective features of the choices being offered.

When and how you frame also affects earning and keeping your customers’ trust. Few people are going to think favorably of your brand if you attempt to frame in ways that aren’t coherent and believ­able. As we said, airlines are currently trying to shift their loyalty programs from miles flown to dollars spent, effect­ively reducing passenger benefits by approx­imately 20 percent. To reduce customer backlash, they’re carefully
framing the shift as a positive change. But framing something positively when it’s really only favorable to your brand is a recipe for distrust and customer attrition. So think carefully about how you set up decisi­on-­making for your customers.

#9: Avoid Accide­ntally Invoking Loss Aversion

According to behavioral studies, people hate losing much more than
they like winning. This idea has been repeatedly proven in the stock
market where investors react more strongly to losing $100 than they
do to gaining that same amount. It’s known as “loss aversion” because
the negative effect of losing can be two to three times stronger than
achieving gains. Loss aversion is also well accepted as the prevailing
consumer sentiment.

If a consumer thinks they’ve earned something of value, like points in a
loyalty program or progress toward a status level, the loss of that value
will cause dispro­por­tionate disple­asure. In many cases, a consumer’s
ultimate perception of someth­ing’s value depends on how it’s framed.
That’s why you should test various ways of framing negative news to
avoid accide­ntally invoking loss aversion from something as simple as
points expira­tion. Testing messages such as “Buy now and keep all of
your points!” against “Buy now and get bonus points!” can have very
different results. Loss aversion is a key tenet of program design, and
is a big part of unders­tanding how a program will progress over time.
Consumers need to perceive a program as improving value for them
over time rather than decreasing it.

#10: Learn from the Gaming Industry

Study after study shows that human brains love small, predic­table rewards more than occasi­onal, large rewards. Gaming companies know that frequent, small, predic­table rewards with unpred­ictable timing are
precisely what our brains crave. Known as a variable ratio schedule of reinfo­rce­ments, this is partly the allure of Facebook and other social media sites. With a critical mass of active people providing frequent, yet
unpred­ictable bits of content, users feel rewarded for contin­ually checking in. These sites delight consumers when rewards are provided n times on average and not always on the nth time.

This “predi­ctable unpred­ict­abi­lity” is equally successful in marketing. By contin­ually varying the level or frequency of a promotion or benefit so that it still averages out over time, you appeal to your customer’s love of small, predic­table, yet unpred­ictable rewards. In an increa­singly noisy world, this practice very effect­ively draws attention and encourages repeat visits
to stores or kiosks, as well as web and mobile sites.