28 Jun Personalization is Essential for Improving Customer Loyalty
By Walter Lamb, Loyalty Methods
Personalization is one of the most essential elements of a successful customer loyalty program for several reasons. The primary goal of most loyalty programs is to incentivize customer behavior in ways that benefit both the company and the customer.
Not all customers will value various incentives in the same way, so treating all customers the same way will diminish the impact of a loyalty program. A 2017 Wall Street Journal illustrates how customers become more frustrated with retailers who don’t speak to them.
As a simple example, not every customer who drinks coffee also eats donuts and vice versa. Using free or discounted coffee as an incentive for customers who don’t drink coffee will not only be ineffective but will make those customers feel less loyal to the brand. This is true not only of the offer itself but of the marketing promoting the offer. If a customer connects a particular brand to donuts, and not to coffee, then pictures of donuts and references to donuts are more likely to get that customer’s attention than pictures of coffee and references to coffee.
Incentivize your Customers to do more
Another benefit of personalization is that it helps loyalty marketers to encourage customer behaviors that aren’t already occurring within specific customer segments. For instance, if a company wants to increase afternoon traffic, it may decide to create a bonus promotion for afternoon coffee purchases. However, offering that promotion to customers who are already regular afternoon coffee purchasers has the effect of unnecessarily discounting those purchases. A better promotion to those customers would be one that might increase their overall order amount during those afternoon visits.
Additionally, the same tools that are required to create personalized offers, namely robust customer data and the means to segment customers using that data, are also necessary to test and measure the effectiveness of new marketing ideas. For instance, rather than merely measuring the overall effectiveness of a control promotion against a test promotion, marketers can break those results into finer demographic categories. For example, a savings-based promotion may outperform a convenience-based promotion overall, but the convenience-based promotion may perform better among older and more affluent customers. As marketers seek to understand trends across smaller sample sizes, it is crucial to stay within the bounds of statistical significance.
Customer Privacy and Capturing Relevant Data
While personalization can provide a significant boost to customer loyalty programs, it also comes with challenges, limitations, and potential pitfalls. Perhaps the most critical concern with personalization is protecting the privacy and data security of customers. Some specific laws and regulations deal with the use of data, which vary by industry and by country or even state or region. In addition to adhering to all laws and regulations, companies should also be respectful of the personal preferences of their customers concerning the use of specific data. This can be accomplished with various personalization choices in the customer’s profile.
Of course, providing more data is one of the behaviors a loyalty program can encourage, both with specific incentives for data sharing, but also by building the customer’s trust that the data they share will be used to enhance their customer experience, not to expose them to unwanted marketing or invasion of privacy. There is a fine line between knowing your customer and stalking your customer, and it is important for companies not to cross that line in the eyes of each customer.
Trying to over-personalize a customer loyalty program can be counter-productive, so loyalty marketers should always consider the objective of personalized promotions, consider whether the data driving those promotions is accurate, and also consider the reaction of the customer base to differentiated treatment. How quickly will word of a promotion spread, and will customers who weren’t chosen to receive a personalized promotion feel spurned? Personalized promotions should augment, not replace, well understood and clearly communicated base programs (such as 1 point for each dollar spent). Typically, promotional offers are personalized at the segment level, with individual personalization limited to message and timing (i.e., using a customer’s name in the greeting or sending a birthday offer on that customer’s birthday).
Another challenge posed by personalized loyalty promotions is ensuring that the personalization remains consistent across channels and throughout the customer experience. If the POS can’t recognize a personalized promotion, or if customer service is unable to help a customer understand why they did or did not get a particular reward, then the promotion may cause more frustration than loyalty.
Loyalty Methods has a strong record of helping companies achieve the right balance of personalization in their loyalty programs. Two core strengths are our ability to seamlessly integrate data from numerous sources, and the flexibility of our Reactor CX (RCX) loyalty platform. Good loyalty marketers can find customer trends in different sources of data, whether transactional data (average transaction amount, favorite products), customer profile data (enrollment source, preferred channel), demographic (age, marital status) and other data. Having that data integrated into an actionable format, and having a platform that allows marketers to reference those customer and transactional attributes, is critical for creating personalized promotions that achieve the desired outcome.