Less than half of consumers feel their loyalty program offers them ‘good benefits’. Businesses often focus too much on maximising returns and forget about the customer, writes James Forbes. He suggests three key pointers that could help gather critical data to maximise results without compromising customer engagement and still generating interest.

By now the value of a good loyalty program should be obvious to most observers. From the simple ‘buy ten coffees, get one free’ deal that cafés use to encourage repeat visitors to complex frequent flyer programs offered by virtually all airlines.

Loyalty programs are a sophisticated element of many, a marketing strategy collecting vast amounts of customer data. However, no matter the complexity of the program, the central simple premise remains, rewarding past purchases to increase customer spending.

A recent survey by Directivity and Citrus found that 88% of consumers over the age of 16 belong to at least one loyalty program, but only 11% belong to more than 10. Once you consider the supermarket and airline frequent flyer programs, that so many people make use of, there is stiff competition for all other businesses to get their program into the consideration set for consumers. There is certainly a strong case for retailers who don’t currently offer a loyalty system to develop one soon, but equally, it’s critical that it’s done right.

Not all loyalty systems are created equal. The same report highlights only 41 per cent of consumers feel like the loyalty programs are offering good benefits to members. Loyalty programs that fail are the ones that are more focused on returning value to the business, forgetting the card is meant to be all about the customer.

The programs collect large amounts of data, from the location of purchase through to frequency, demographics and so on. It’s easy to become wrapped up in the idea this data holds value to the marketing organization, yet some of the more valuable and best used programs are the simpler ones, such as the paper-and-stamp method popularise by so many cafés. That’s not to suggest that a café program shouldn’t consider switching to a method that supports the collection of data, but rather a good loyalty program provides clear value for the customer, rather than the other way around.

These programs are a key element of a retention strategy, and for most organisations it’s a lot cheaper to retain a customer than acquire a new one, says entrepreneur Alex Lawrence.

The goal of any business should be to learn as much about its customers as possible, and then offer them an experience that is tailored to their unique needs. Customers benefit the greatest when the loyalty program uses data collected to improve their experience with a brand in a meaningful way.

Fitness First discovered this with its own loyalty program, where the discounts and membership benefits that it was offering were rarely made use of, but benefits that were tied to the member’s use of the club were popular.

As a result, Fitness First shelved its loyalty program to develop something more data driven. The other benefit to approaching loyalty from a data point of view is that it opens up additional streams of revenue, once the data reaches a significant enough size. For example, Woolworths has been able to sell the de-identified data that it has collected through its loyalty program to third parties as well as using the data to assist with sales initiatives in other parts of the business group, such as its insurance company.

What Should A Good Loyalty Program Look Like?

Below are a couple of key pointers when thinking about loyalty programs to generate more interest and engagement amongst your customers, while at the same time gathering critical data to ensure the loyalty program is generating maximum returns to the business.

1. Link your loyalty database with other systems that collect and hold customer information

The ability to collect customer data is a core benefit of any loyalty program. Typical data could include what the customer purchased, as well as the location and frequency of purchase. Over time the data you hold will detail the preferences of individual customers, what kinds of promotions they are likely to respond to, even what days they prefer to shop. Building such a rich customer profile will support the tailoring marketing messages, both in-store and through other channels such as email.

Starbucks in the US is famous for doing just this, showing that even coffee houses can graduate beyond paper loyalty cards. There’s a lot of information you can obtain by properly linking the loyalty program with your POS system to track purchasing habits, which many retailers are not currently doing, and then wondering why the card is not being used.

2. Make the loyalty card meaningful

One of the reasons that the “buy ten get one free” card works for cafés is because people may well stop by daily, and so every two weeks they’ll get a free coffee. However it is unlikely that this approach would work for say a car dealership.

To get value from a loyalty program businesses need to drive frequent and habitual usage, which will benefit both the customer as well as the organisation. As obvious as that sounds, it’s a message that’s often lost, with rewards accruing too slowly or benefits being of limited value to be of interest to the customer (which is what happened to Fitness First).

Program benefits don’t have to be a monetary rewards or discounts, often membership perks are preferable. Airlines are perhaps the best example of this. International airlines like to reward their frequent flyers, not only with cheaper flights, but access to a deluxe lounge with showers, free food and coffee, and comfortable seats to relax in on stopovers or prior to a flight. For the regular traveller who has accrued enough points to access it, it’s the lounge access pass that is the strongest incentive to remain loyal to one airline.

3. Make use of the data

Too many organisations launch a loyalty program, and then fail to do anything with the data that they’ve collected. There are some great case studies about overseas supermarkets such as Tesco and Sainsbury’s in the UK using their loyalty program to determine everything from what products to stock, right through to using the data to be able to offer a free TV and movie service where customers view targeted ads in exchange for signing up.

In the end, it is that investment into analytics that determines the success of a loyalty card. A successful one is one the organisation has drawn meaningful insights from, and then used to offer customers compelling products and services.

Complex data analytics strategies are something that many small and medium businesses are still wary of investing in for fear of the expense and technical challenges they can pose. However, a good partner can help these businesses set themselves up for advanced analytics, and with loyalty programs becoming a major presence in consumer wallets across all kinds of retail, it’s going to be a significant competitive advantage against those that can’t offer compelling loyalty programs.

James Forbes is head of digital and marketing at information management consultancy InfoReady.