Channel Loyalty: Don’t Jump to the Most Expensive Solution

Max Kenkel

Woman making an online purchase on her laptop computer with a credit card

More than 3.8 billion customer loyalty program memberships exist in the US according to a 2017 loyalty census. That’s 11.6 programs for every man, woman and child in America. But not every individual actually has a subscription.

And, it appears the average household is a member of between 12 and 29 programs, but only uses about 5 to 12 of them on any sort of regular basis according to a variety of studies by multiple researchers.

In other words, consumers join a lot of loyalty programs—programs that, it turns out, don’t actually matter to them and that they don’t ultimately use.

Before we dive into what type(s) of solutions are most valuable (depending on your situation), let’s switch gears to quickly level-set on potential audiences and models you may encounter. Most distribution channel models look like one of the following:  

Manufacturer > Distributor > Store > Customer

Manufacturer > Distributor > Store > Contractor/Service > Customer

High-tech and insurance each have a few nuances in their respective spaces, but their models are essentially the same as the two above.

In most instances, the further down the funnel you get, the bigger the audience.

Think of tires. Among all manufacturers, about 15-20 big boys dominate the market. Move down to the distributor level, of which there are 1,000+ locations. At an individual store level, there may be well over 100,000 stores, including dealerships, large mechanic shops and national chains, auto parts stores and little corner mechanic shops. And when you go online, at least five legitimately solid web-based retailers now (and probably dozens, if not hundreds, of smaller online shops) exist as well. Then when you look at the customer base, well, it’s anyone who’s old enough to drive and still alive. That’s millions of people.

Here’s a snapshot that illustrates those numbers, based on the model above.

Manufacturer Distributor Store Customer
20 1,000 100,000 50,000,000

 

Manufacturer Distributor Store Contractor/Service Customer
20 1,000 100,000 3,000,000 50,000,000

Ask Yourself Why You Need a Customer Loyalty Program in the First Place

Looking at these models and numbers, and considering the loyalty program statistics above, I have a few thoughts and points for you to consider.

Unfortunately, lots of companies rush to a consumer play because their competition is doing it, or worse, because they’re dealing with customer attrition. But rushing to market with a consumer program leads to poor programming and wasted funds.

If customer attrition is your challenge, start by asking yourself why you’re losing customers. If you can’t figure that out and address whatever these issues are first, a loyalty program Band-Aid won’t stop the bleeding.

Related: 3 Steps for Customer Engagement

If you do know why you’re losing customers, there’s likely a much more cost-effective strategy than implementing a full-scale loyalty program because, as we all know, it’s a lot cheaper to influence 1,000 people to change their behavior than it is to jump to influencing hundreds of thousands, or even millions.

More Cost Effective Solutions as Stepping Stones

As you consider solutions, determine whether you have at least a minimum viable product or service that people want. If your products or services lack quality, a loyalty program isn’t the place to start—but the following considerations and strategies are your first step in the right direction.

If your product is minimally sufficient, look at your channel. What’s the first place you can influence that will have the most impact? Each of the following feature potentially lesser investments than consumer loyalty and feature positive effects that cascade through your channel.

  • Training your field sales
  • Transforming the culture of a call center
  • Getting your independent sales reps to pay a little more attention to your products versus those of the competition

Moreover, if your services hold room for improvement, there are multiple strategies to implement, including:

  • Recognition
  • Training
  • Service-level programs

When done well, these initiatives contribute to a positive brand experience and can be combined with short-term retention strategies that limit customer attrition while protecting significant budget. Then, once the house is in order, you can open the doors of a customer loyalty program.

In a Full-Scale Loyalty Program, Value-Adds Are Where You Can Win

Why? Because you don’t have to give away the thing your customers are willing to pay for. The best part about a customer loyalty program is that you can use things other than points and free burritos to drive people back to your locations. Customers are already coming to your store for burritos. Why do you want to give away 1/6 of your best product? Instead, work with a research company to identify the most valuable soft benefits that drive engagement in your program. This is a critical step. If you haven’t identified what these value-adds are, then you probably shouldn’t rush to market with a customer solution.

But Data Is Where You Really Win

Your customer loyalty program doesn’t need to be an overly complicated point system. It could be short-term promotions like a rebate or a coupon. It could be one-time offers. It could be a sweepstakes. It doesn’t really matter, because those won’t be the things that save the business and maintain market share (in most cases).

What will help you sustain growth and take market share is the data you collect in these programs, and how you utilize it to retarget and continually drive people back to your locations and products. If you aren’t ready to consume and utilize enormous amounts of end-user data, then I’d wait until you are ready.

This data, when utilized appropriately, turns a program from a marketing expense to a profit center and revenue generator. If you’re not set up for this, then you aren’t ready for consumer loyalty.

Don’t Waste Millions of Dollars on Apathy

Customer loyalty certainly has a place and is definitely not going away, but that doesn’t mean you have to jump to a full-blown solution when there are other, more cost-effective ways of maximizing your channel and stealing market share from competition.