Palo Alto, Calif. – As more marketers turn to loyalty and rewards programs to spark business growth, a new report from the Chief Marketing Officer (CMO) Council report indicates that marketers are under-valuing these often costly programs even as customers give the perks, discounts, deals and additional service opportunities high marks. Both customers and marketers agree: deeper engagement and personalized contact drives loyalty, not mass blast communications and gimmicks.

Loyalty Leaders: Feeling the Love from the Loyalty Club is the latest research from the CMO Council, tapping into the insights of over 600 marketers, and gaining first hand perspective from the recipients of these programs in an audit of over 700 consumers. Sponsored by InfoPrint Solutions Company, a joint venture between Ricoh and IBM, the study shows that loyal consumers expect marketers to understand them better and deliver more relevant and valued offers. Unfortunately, marketers are not giving themselves high marks in meeting the needs of their business, and question their ability to meet the needs of the customer. Given that over $2 billion is spent annually in growing and running loyalty and rewards programs, this raises questions about the value and return of investments in this area of customer relationship and insight building.

The Marketer's View
Most marketers (61 percent) believe that loyalty program participants are the best and most profitable customers. So it is not surprising that an almost equal number of respondents (65 percent) view customer loyalty program investments as a very essential, or a quite valuable part of the marketing mix. Unfortunately, only 13 percent of respondents believe they have been highly effective in leveraging loyalty and brand preference among club members, and nearly 20 percent don't even have a strategy for this. Another 25 percent admit they have not mobilized brand loyalists to become active advocacy agents, either.

The study also reveals that marketers are mostly inducing loyalty with discounts or free products and premiums rather than quicker, better service or improved customer handling. Some 39 percent of respondents view discounts and savings as the key member benefits, 34 percent view free products and premiums as essential incentives, while 33 percent are committed to offering points for merchandise redemption as a further motivator.

When asked to outline typical customer complaints about loyalty programs, nearly 30 percent of marketers report that some customers see little or no added value to becoming a loyalty member; 24 percent indicate rewards lack substance; a similar percentage feel they don't get enough personalized attention; and 21 percent have problems with receiving too much spam email and junk mail. Customer complaints also touch on a lack of individualized communication (23 percent) and issues with redeeming points and miles (18 percent).

Despite these challenges, investments in loyalty programs will continue as nearly 80 percent of marketers are committed to maintaining or further funding loyalty programs as customer retention and relationship building vehicles. Over 34 percent report they are significantly increasing their commitments, and 45.9 are maintaining their current commitments. Just 4 percent expect to discontinue their programs.

Online channels dominate expected investments as nearly 60 percent of respondents said they planned to make better use of the Web and new community and networking tools to grow and develop loyalty programs. Other key actions for generating a greater ROI from club members include:

- Personalizing interactions and target messages (51 percent)
- Increasing frequency and relevance of communications (39 percent)
- Gathering more insights and intelligence for better customer handling (38 percent)
- Adding new benefits, incentives and inducements (36 percent)
- Studying industry best practices and making adjustments accordingly (19 percent)

Marketers appear to be falling down on extracting greater value from customer loyalists. When it comes to in-depth profiling of customers, the vast majority of marketers still only aggregate and analyze limited customer data sets. 73 percent collect basic demographics and 68 percent track the location of members, but critical insights – such as advocacy rates (14 percent), brand loyalty and attachment (27 percent), personal preferences (31 percent), satisfaction levels (33 percent), and product preferences (38 percent) – are not being leveraged.

"Relevant profiling data continues to be a limiting factor in customer engagement," said Donovan Neale-May, executive director of the CMO Council, "Without a deeper customer insight, marketers will be limited in their ability to do meaningful predictive modeling, market segmentation and revenue forecasting. Better understanding of customer behaviors, predispositions, intentions and preferences enables more effective and relevant messaging.  It is also an essential part of customer revenue optimization and lifetime value building," Neale-May adds.

Loyalty program operations, however, are increasingly challenged. Acquiring and retaining motivated and engaged participants is the number one problem facing 46 percent of marketers. Other obstacles and issues include:

- Measuring marketing value and effectiveness (42 percent)
- Collecting, integrating and maintaining customer data (41 percent)
- Deriving valuable insight and intelligence (38 percent)
- Delivering more personalized offers and inducements (34 percent)
- Creating more customized communications (33 percent)

Digital marketing channels are definitely taking precedence in ways marketers promote their loyalty and rewards programs. Nearly 60 percent rely on web sites, nearly 60 percent on email, 47 percent on word-of-mouth, 46 percent on point-of-sale information, 42 percent on direct mail, and 39 percent on a sales or service representative. Most member communication is monthly (30 percent), while 20 percent interact with members on a daily, weekly or bi-weekly basis. Cost-efficient email is the preferred mechanism for member communication among 84 percent of marketers, followed by printed mailings and statements (51 percent), corporate web sites (45 percent), dedicated club sites (32 percent), SMS text messaging (24 percent), and social networks (16 percent).

"Targeting has taken on a very different meaning in today's marketing mix," stated Sandra Zoratti, VP of Global Solutions Marketing for InfoPrint Solutions Company. "Before, targeted messages relied on basic data to engage in rudimentary segmentation and single channel communication delivery.  Today's loyalty leaders are better leveraging customer insights to deliver highly personalized, multi-channel communications that are more relevant to the individual customer and provide for ongoing interaction and attachment."

The Consumer View
Marketers can take a deep breath as consumers report they see value in loyalty program membership. A surprising 79 percent of consumers surveyed say they are very, or pretty, satisfied with their loyalty and rewards program experiences. But 70 percent want to see more discounts and savings, and 52 percent more compelling personal deals and offers as reward for steering their business to loyalty program operators. In a definitive call for personalization, 58 percent say they want more compelling personal benefits and services, as well as more relevant offers or individualized deals.

And while social media also tops the list of investments for marketers, consumers report that point-of-sale information, service representative interactions, company web sites and word-of-mouth are the primary sources for learning about loyalty clubs. Nearly 65 percent acquired information about the programs in retail environments compared to only 4 percent in social media networks, 3 percent in blogs and 11 percent in online advertising. This finding is not surprising when you consider that consumers engaged in loyalty programs demand high-touch direct engagements, versus mass messages, regardless of channel.

Too much spam and junk email topped the list of negatives associated with loyalty and rewards program membership (44 percent), followed by too many conditions and restrictions (38 percent), and rewards that lacked real value (37 percent). Other prevalent beefs included members having a hard time redeeming points or rewards, program membership lacking value, as well as communications and service not being personalized or targeted specifically for members.

More than 700 respondents participated in the online research initiative conducted in Q3 and Q4 of 2009. Over 50 percent had household incomes of over $100,000 and were fairly evenly split across gender and age groups. Nearly 75 percent reported enrollment in supermarket loyalty programs, 69 percent in airline frequent flier clubs, and 58 percent in credit card incentive programs. Hotels and motels, drug stores, warehouse price clubs, specialty retailers, rental cars, and restaurants are other leading beneficiaries of loyalty and rewards enrollment.

Surprisingly, soft economic conditions are not necessarily inducing consumers to sign up for loyalty and rewards programs. Only 22 percent said the economic climate had raised their interest in these programs compared to 41 percent who indicated it had no impact at all.

"It is notable that the economy is not a big driver of program participation, indicating that as marketers look to recovery, fully leveraging these programs must be a strategic priority," notes Neale-May. "Figuring out ways to deliver added value to those willing to repeatedly purchase your products and services, advocate your brand on a viral level, or more actively respond to offers and incentives, is critical to marketing effectiveness."

For marketers, the big question is how much loyalty club membership influences purchasing decisions and customer affinity and attachment to brands. Club membership strongly motivates, or is a big factor, in influencing buying decisions, for 52 percent of survey respondents. When it comes to word-of-mouth, nearly 20 percent of club members say they are big brand boosters and almost 50 percent say they sometimes talk up the product or service they support. On the other hand, 54 percent of survey respondents stated they would give up their loyalty or rewards club membership if they had a poor product or service experience with a brand.

Despite spam and junk email concerns and irritations, over 64 percent of loyalty club members want to receive information, notifications or updates electronically. That's good news for the environment and a significant contributor to cost reduction. Nearly 16 percent say they are comfortable visiting web sites to source their loyalty information and about 14 percent prefer a monthly printed statement.

"Today's consumer loyalist wants essential information delivered through multiple channels in the most relevant, personal and customized way possible," said Zoratti. "Customers are issuing a very clear warning to marketers. Give me relevant communications that reflect my history and connections to you, or we will go elsewhere with our business. Smart marketers will respond by taking what they know about customer wants, preferences and behaviors to be more targeted, efficient and relevant in their messaging to improve response rates and increase customer gratification and purchase intent."

Relevant Facts and Figures
- It is estimated that there are some different loyalty programs with 1.8 billion members in the U.S. (COLLOQUY 2009 Loyalty Census).
- Marketers spend about $2 billion annually on operating these programs, reports PROMO Magazine.
- The average U.S. household is enrolled in 14.1 loyalty and rewards programs, but is only active in 6.2 of them, notes COLLOQUY.
- Top U.S. loyalty program memberships ranked by industry include Financial Services 422 million; Airline 277.4 million; Specialty Retail 191.3 million; Hotel 161.8 million; Grocery 153.3 million; Mass Merchants 124.8 million; Casino/Gaming 106 million; Department Stores 92.8 million; Drug Stores 73.9 million; Fuel/Convenience 51.2 million; Restaurant 13.7 million; Car Rental and Cruise Lines 10.7 million; and all other types are put at 127.9 million, reports COLLOQUY.