The popularity of customer loyalty programs has spread to such an extent that they seem almost ubiquitous now in many business verticals and across the world. The hotel, airline, BFSI and retail industries, particularly, have recognized the immense value of having a repeat purchaser of their products or services.
While the first customer loyalty program cannot be clearly identified, it is believed that one of the early formats was the trading stamp concept that began in the 1890s in the US. A few decades later, in the 1930s, the S&H Green Stamps program got customers to collect small stamps based on their purchases and paste them on the pages of a booklet. When the number of stamps reached a sizeable quantity, they were redeemed for products. Joseph C Nunes, professor of marketing at the University of Southern California’s Marshall School of Business, considered these trading stamps to be the first ‘alternative currency’ to promote repeat purchases.
The loyalty program has evolved greatly since that era, taking on different shapes and magnitudes. The complexity of the framework and the need for dedicated staff and resources is leading several companies to consider outsourcing this requirement to specialist companies as the most viable option for its success.
The Mechanics of Loyalty Programs
A loyalty program is any initiative by a company to increase and retain its base of existing customers. While its origins go back more than a century, American Airlines’ Advantage frequent flyers program, launched in 1981, is credited with giving a big impetus to the popularity of customer loyalty programs in the airline industry, as well as outside it. Since the 1990s, the customer loyalty program has come to be seen as an important vehicle for marketing activities. According to a recent survey, the membership in loyalty programs in the US stood at 2.647 billion in 2013.
Traditionally, loyalty programs rewarded customers for their purchases, either through discounts, cash back or points. According to Forbes, with the high rate of mobile and social network adoption, consumers are now also being rewarded for other actions, such as online interactions, in what is being seen as a convergence of loyalty programs, gamification and engagement.
The Advantages of Customer Loyalty Programs are:
- Customer retention
- Enhancing the satisfaction level of customers
- Garnering insights through their repeat purchase behavior
- Increased revenue and profitability
The Critical Questions that make a Successful Customer Loyalty Program
Customer loyalty programs can greatly benefit businesses of all sizes across a range of industries. Yet, a few key questions should be answered for an effective design and its implementation:
- Does the product or service have a competitive advantage?
- Does this advantage make it worth the investment of a loyalty program?
- What does the loyalty program hope to achieve?
- Who will it target?
- What are the benefits or value the customer wants?
- What are the benefits or value the customer can be offered?
- What kind of loyalty program is the competition deploying?
- What is the ideal customer loyalty program for the target group and the business?
- What will be the reward mechanics of the program?
- What is the overall cost that can be incurred to implement the loyalty program?
- What resources are required to implement the program, including personnel and technology?
- What is the cost (tangible and intangible) that will be incurred for these resources or their reallocation?
- How will the program be communicated to customers and employees?
- How will the program be managed?
- Where will the data collected from customers be stored and how will it be analyzed?
- How will the success of the program be measured?
- How and when will the program be reviewed?
Outsourcing as a Solution for Managing Loyalty Programs
As business and marketing managers think through the above questions, they might find that the answers to some of them could be outsourcing the management of the loyalty program to a specialist company that has the required expertise to make it a success. Various facets of the program that can be outsourced are:
- Database Creation and Management: The information shared by customers can be collated, extracted, validated, indexed and archived in a database for easy retrieval at a later stage.
- Analytics: Data analytics by trained professionals at a specialist outsourcing company can reveal valuable insights about customer behavior and preferences and help companies to deliver personalized experiences.
- Promotion of the Program: An oustanding company with multi-channel customer card capability can spread the word about the loyalty program using different media, and resolve queries that may come up.
- Information About Rewards: A specialist outsourcing company with experience of managing customer care can also inform customers about the reward points they have earned. Multiple channels, such as voice calls, emails, SMS and social media, can be used for this activity.
10 Benefits of Outsourcing Customer Loyalty Programs
The cost of setting up and managing a customer loyalty program can be considerable. Training costs of existing employees or for new intakes for customer care and database management will also push up the budget for the program. An outsourcing company, which already has the technology and employees for customer care in place, can look after the loyalty program with ease.
2) Focus on Core Competency:
Outsourcing the loyalty program implies that no existing personnel or technology will have to be reallocated within the business. This allows employees to focus on their core competency and build other key pillars of the business.
3) Leverage Expertise:
As in any business vertical, experience builds expertise. An outsourcing company that has handled customer care for a number of years will be in the know of best practices in the domain, challenges that could come up and how to circumvent them.
4) Save Time:
Customer loyalty programs can generate immense physical copies of data, that hold valuable information about consumer behavior and other details. Through document process automation tools, a technology-savvy solutions provider can help bring about increased accuracy of data entry within reduced time.
Experienced outsourcing companies have the capability to customize the loyalty program as per the requirement of the client. For instance, if a special incentive program is initiated for a new target group, it will be challenging for a business to retrain or realign its in-house employees for that requirement quickly. By outsourcing the requirement to an expert, the approach can be tailored for the desired objectives as and when required.
6) Create Convenience:
A loyalty program has to be mutually beneficial for the business and the customer. The convenience of the entire process plays a big role in how the customer feels about the brand in the long-term, and in share of wallet. Outsourcing could help to ensure a smooth experience for the customer.
7) Secure Data:
In his book ‘Customer Loyalty Programmes and Clubs’, Stephan A Butscher states that a well-maintained, up-to-date database is one of the most powerful marketing tools a company can have and it can be used as a strategic weapon. Clearly, expertise is required to build and maintain this database, as well as to ensure that the information remains confidential. An outsourcing company that gives importance to data security should be preferred as a partner.
8) 360-Degree Customer Service:
Building customer loyalty is one part of the gamut of activities that make for good customer care. A specialist outsourcing company that is proficient in managing customer care in its entirety for clients across multiple channels, will help to enhance customer satisfaction on all fronts.
An outsourcing partner with the right skill-set can deliver analytics for the customer loyalty program, which will help keep the program on track to success.
10) Increased Customer Lifetime Value:
An outsourcing company that is accomplished in data management and analytics can mine insights from the customer database. Marketing managers can then identify the most profitable customers and develop them over a long period through personalized offers.
While consumer fatigue and market saturation could have an effect on the success of a loyalty program, ultimately, its impact will come down to the value it generates and the ease of the experience. With the help of outsourcing, businesses can make the program simple for their valuable customers and reap the benefits of earning their loyalty.