Loyalty Marketing has had its most notable successes in high frequency transaction environments. Think airlines, credit cards, gaming, hotels, and retail.

Where the sales cycles are extended or the opportunity for transactions less frequent, there have been fewer examples of success. Think insurance, subscription businesses like newspapers, cable, and wireless, and health care.

A revelation of Loyalty 201 is that data driven marketing will work in virtually any business model. Could it be that it was the self-limiting definitions of early Loyalty pioneers that created a self fulfilling prophecy that Loyalty only works in well defined settings and circumstances? To quote my Customer Strategy Network co-founder, Mike Atkin …. “Ballocks!”

To break free from these Loyalty cobwebs, the use of Customer Strategy as an umbrella term makes ever more sense to describe what this business is about. “Loyalty” whispers limitation, while “Customer Strategy” shouts innovation.

Today’s inspiring innovator is Safeway. The company has used incentives to reduce health care costs and its CEO, Steve Burd has become the leading visionary for health care reform from corporate America, having made nine or so trips to Capitol Hill just in 2009 to tell his story.  His rallying cry goes like this: “At Safeway we believe that well-designed health-care reform, utilizing market-based solutions, can ultimately reduce our nation’s health-care bill by 40%.”

The Safeway Healthy Measures program is voluntary and currently covers 74% of the insured nonunion work force. It gives employees a financial stake in the system and encourages healthy behaviors to achieve incentives.

As is common practice with many employers, Safeway requires employees to pay a portion of their own health care through premiums, co-pays and deductibles. Beyond that, the plan takes advantage of a provision in the 1996 Health Insurance Portability and Accountability Act (HIPAA), allowing it to differentiate premiums based on behaviors such as tobacco usage, healthy weight, blood pressure and cholesterol levels.

Ken Shachmut, Senior VP Strategic Initiatives, Health Initiatives, and Health Re-engineering at Safeway crafted Healthy Measures on the premise “that if people were given responsibility for their decisions, and there was transparency to the financial consequences to those decision, that they would choose to maximize both their health and their financial benefit.”

Safeway found motivation for its plan in the following health factoids which gave rise to the notion that encouraging behavior change could lead to healthier associates and big cost savings :

• 70% of all health-care costs are the direct result of behavior
• 74% of all costs are confined to four chronic conditions (cardiovascular disease, cancer, diabetes and obesity)
• 80% of cardiovascular disease and diabetes is preventable
• 60% of cancers are preventable
• More than 90% of obesity is preventable

The program is working by several measures:

• 78% of participants rate the plan as “good, very good or excellent”
• 76% of those surveyed asked for more financial incentives to reward healthy behaviors

While business struggles with soaring health care costs and the nation debates adoption of a nationalized health plan, Mr. Burd projects that if the US had adopted its approach in 2005, “the direct health care bill would be $550 billion less than it is today, almost 4 times the $150 billion that most experts estimate to be the cost of covering today’s 47 million uninsured”.

And what is the key incentive proven to be effective to help influence the positive behavior changes by the insured population? Mr. Shachmut explains it this way “we all know that just telling people to do the right thing is not effective … cash truly has been king in our program in the form of differential premiums. Our average difference under Healthy Measures is about $800 per year – for the employee and spouse, so almost $1,600 for a family.”

A measure of soft benefits are included, using “mutually-reinforcing programs available to all employees and spouses – access to the Fitness Center, discounted gym memberships, care management programs, health and wellness programs, information seminars to employees, and other related items.”

The success of Healthy Measures should be highly encouraging to US businesses and the citizenry at large. There is a path to managing our health care needs as a nation on a better basis. The program also lends insight into how the core elements of Loyalty 201 can be applied in the health care industry, breaking away some of the old cobwebs.

I feel better already!

Data driven marketing programs which unite tangible rewards and special benefits are meant to change behavior. And the outcome of the behavior change should render a business benefit for the company sponsoring the program and create feelings of affinity and goodwill from the people whose behavior changed towards the sponsoring outfit.

Practitioners call the resulting schema a Loyalty Program. if you prefer, you can call it a Rewards Program, Incentive Program, or Sales Performance Program. The name is less important than the definition. You could call it a “mileage give-away program” and I wouldn’t care (though that is a really awkward name that will not win you any awards).

I would care greatly if you commence the slide down the loyalty slippery slope by allowing “margin cannibalization” to sap confidence from your mission or think you can offer rewards to customers which you engineer to be unredeemable, whether through program rules or by the reward structure itself. These are characteristics of poorly designed programs, not the genre itself.

The days are gone when any customer will be tricked, bribed, or tempted into any behavior change that will benefit your business long enough to reach annual targets. Short term promotions meant to trigger impulse purchases or to shift share from a competitor will have effect until the promotion expires.

If you are content to string together multiple promotions, discounts, rebates, and give-aways and call it a marketing strategy, then you will find yourself running on a treadmill without a pause button. Stop the promos & you risk losing revenues and market share.

Successful loyalty programs are being more tightly integrated into Customer Experience than ever. If you can establish an in-store relationship worth preserving in the eyes of your customer, you can reinforce it with the loyalty program and leverage it to achieve multiple business objectives including acquisition, cross-sell, and retention. Without this integration, you risk the loyalty program being evaluated as a subset of price and more easily tossed aside as the result of a poor service interaction.

Some customers want to talk to you, others don’t. A well structured and executed Loyalty program provides the platform for the boisterous to become advocates and the shy to at least voice an opinion. Why pay money for a research panel when you can solicit candid opinions from those who are interacting with you and a have a factual basis for their praise or criticism? Surveying those whose level of interaction can’t be documented quantitatively is a gauge of brand awareness but not much more.

Put on your consumer hat. You will come to understand that Loyalty Programs should not recklessly collect data and let it sit idle or be used to support invasive marketing. Loyalty done right encourages behaviors which are profitable for the business and positive for the consumer. If any behaviors encouraged are harmful or have negative impact on the customer, throw it out of your offer matrix.

As we redefine Loyalty, we should take the high road. Agreement on business objectives is the right starting point, and filtering behavior change with your customer hat on will lead to value proposition creation that will stand the test of time.

You’ll notice that I have said nothing here of points or financial liability. That’s because Loyalty 201 can be executed using tangible benefits beyond points, and new avenues of cost-sharing are being explored every day to keep ROI in the conversation.

Walk yourself through the tenets of Loyalty 201 above and, if your program varies in one or more areas, consider it time for some tweaking if not a redesign.

It’s so simple. As the Good Book says, “wide is the road that leads to destruction, but small is the gate and narrow the road that leads to life (for this metaphor, success with your customers). Scripture also says of the narrow gate that “only a few find it” – that doesn’t have to be the case in Loyalty Marketing.

I was dining with my wife at Carrabba’s recently and she asked me the BIG question, though it’s probably not one that you have in mind:  “So, do a lot of businesses still do this loyalty stuff“?

I had just written a post about new execution formats that Loyalty Marketing programs were taking in the Big L and the Little L and I paused before answering her question.

That morning I had received a call at home from the Fort Lauderdale Sun Sentinel informing me of “Subscriber Rewards“. An insider’s club that offers “reader benefits and special privileges”, it was an intriguing pitch from a newspaper and I asked for more information. I haven’t received anything yet and can’t find anything concrete about the program on the paper’s website, but it seems to consist of merchant discounts offered on some exclusive basis to home delivery subscribers.

Just before dinner, we had strolled through Steinmart (did I say it was date night?) and, as I noticed the quality merchandise from well known brands offered at prices that should make mainline retailers shiver, I realized that Steinmart’s business model was its loyalty program. I have written about this before and believe that a points based program is not always mandatory to secure my return visit and longer term brand loyalty.

Steinmart punctuated its customer shopping experience with a personal note from the Chairman thanking customers for their business. Stacked by the check out station, it was a nice touch and something I had not seen at other retailers.

With these two examples in mind, I started to answer my wife’s question with an emphatic “yes” when I was interrupted by our server, cheerily asking if we wanted to join the “Amici Club“. Carrabba’s had apparently launched a customer club and had trained the server thoroughly in how to properly present it table-side and explain the benefits. I have a habit of testing the proficiency of front line staff in these areas and our server passed with flying colors.

My wife’s question had clearly been answered: Loyalty is alive and well and in favor with CMO’s who recognize the power of data-driven measurable marketing.

Indicative of today’s market is that I had seen three examples of brands in different industries launching distinct models. Here are some implications to consider:

• The Sun Sentinel might be seeking to increase renewal rates among home subscribers and to sustain advertising rates for merchants with its discount oriented scheme. Will they take a second step to query subscriber preferences and tailor the offers to make them more appealing and relevant?

• Steinmart’s merchandising and service model can create repeat visits but aren’t they leaving something on the table by allowing their customers to remain “invisible”? Sure they have a cobranded credit card, but shouldn’t there be something more fundamental in place and with a lower enrollment hurdle?

• Carrabba’s was taking the first step with highest potential in my opinion, seeking to create a platform for learning about customer desires and preferences. I’ve just received my first email from Amici and they offered me a free appetizer on a return visit in exchange for registration online. Simple, but a good start to create engagement. I wonder if they tested different incentives?

My free lesson in Loyalty at dinner reminded me that every organization can benefit from a sound Customer Strategy and that program designs will be more tightly integrated into the customer experience and shaped to meet unique industry needs. Tremendous opportunity remains in helping business leaders get the model right and design strategy that is complementary to their core brand.

I was also reminded that it pays to keep date night with your spouse on the calendar. You never know what you might learn!

One of the blogs I enjoy reading is written by Chris Brogan. He’s got some interesting takes on social media and a huge following.

Today he stepped in the Loyalty Marketing sandbox with his post The Myth of Brand Loyalty. I won’t recount the story here and encourage you to read it as well as take in the comment stream which follows. There are a few good ones and you can read my take as well in which I reference how Airlines Take Flight Without Data.

To be fair, the airlines and Apple (Chris’ example) aren’t alone. We see it all the time….companies that have accumulated tremendous stores of data and are not using it to market efficiently and effectively. Or, as I witnessed this week in client meetings, there are banks with reams of customer satisfaction research, customer profile information, and transaction history that have studied it all, developed recommendations, but inexplicably have not put into action a measurable marketing campaign based on this information.

It’s not about capacity, it’s all about willpower. Corporate commitment to Customer Loyalty from the top down is needed for success and, where I can identify that commitment, I would personally invest in the related equity issues. These will be the winners in the market over the next 10 years.

After more than 100 posts I can say that Loyalty Truth has achieved a degree of permanency.

Founded on my own conviction and commitment, it is a welcome relief to have help. I express my gratitude to guest contributors Tom Rapsas, Jim Kuschill, Brian Kryzanski, and Mike Capizzi. They have each written about aspects of Loyalty Marketing where they have particular expertise and collectively they represent a growing foundation of support for this blog.

With so much to write about in the evolving Loyalty Marketing industry, the opportunity is here to establish some themes to follow for the future. Keep your eye out for articles categorized as “Loyalty 201“, “Loyalty in Any Language“, and “Loyalty Futures“. In addition, we’ll continue to document instances of the “Loyalty Asterisk“, to address the gotchas and tripwires of Loyalty Marketing.

• Loyalty 201 will address how essential elements of the business are evolving to meet the needs of increasingly empowered and knowledgeable customer groups. Here you will read about new directions in rewards, communications, and marketing technology which drive higher ROI for loyalty program sponsors. I’m assuming that my readers understand the basics and are ready to move on to consume solid food!
• Loyalty in Any Language will share learning from international markets. The influence of culture, custom, and unique business environments on the execution of effective marketing strategy is undeniable. These posts will provide a vital resource for any company with cross border interests. I will not only share my own first hand experiences working outside of our borders, but will showcase loyalty leaders from key markets around the world.
• Loyalty Futures will take inventory of just about anything that can be found in the crystal ball of Customer-centric strategic marketing. Where innovation in building brand loyalty and changing customer behavior is observed, we’ll share it here. Lots of big companies are trying to connect the dots of social media, millennials, digital CRM, and profitability and Loyalty Truth will makes its contribution to the cause.

According to what I read in the blogosphere, my approach to Loyalty Truth is somewhat non-conforming.

• I am driven by substance, not frequency of posting. Though I manage to get a dozen or so posts up each month, I have yet to publish a “throw away” article and hope I never do. There is so much change underway in Loyalty marketing that my inventory of “posts-to-do” is outpacing my time to properly research and post. This approach should translate into high quality posts that are almost mini case studies by themselves. You can be the judge.
• Balancing quality and readability is the next challenge. Beyond a certain length, you won’t spend time to read what’s posted, so I am saving some bigger topics for white papers to be published on the Hanifin Loyalty website.
• Lastly, I have to admit that while writing is an enjoyable pursuit, I publish Loyalty Truth with a purpose. The perspective, opinion, and experience that is baked into each post is meant to offer a teasing glimmer of insight into the value that Hanifin Loyalty brings to its clients. We confidently offer the highest level of strategic advice as well as exacting project management and tactical execution services to make sure clients reach their profitability targets. Give us a chance to serve as your portal for top-tier decision making. You’ll find there is still quite a value to be found in the dollar these days.

I hope you will enjoy these new features and spread the word about Loyalty Truth.

Enjoy the journey….