1. Customer Centric Loyalty
Programs as Key to High
Performance Retailing

2. 5-points summary of the article
1. Intensifying competition and 4. Accenture research identified three
growing customer expectations archetype loyalty program concepts
have made companies doubt appealing to unique customer
whether customer loyalty programs segments. Selected customer
are actually effective and create a characteristics determine the value
sustainable competitive advantage. of each loyalty program design
element to the customers.
2. Most of the retailers employ
limited customer segmentation 5. By following the guidelines of
and value analysis therefore fail Accenture research, organizations
to identify customer-centric are able to consciously develop
strategies for loyalty program customer-centric loyalty programs
design and communication. for the existing and new customer
segments.
3. Accenture research has proven
that there is no one-size fits-all
loyalty program concept and that
customers are heterogeneous in
their preferences for loyalty
program designs.
Introduction Current business environment is
characterized by slim margins,
uncertain economic times and ever
Survey details
1. An empirical study of the Dutch
For retailers a loyalty program is a retail market
critical relationship instrument aimed more demanding and knowledgeable
2. Sample of 1,207 loyalty program
at capturing and growing customer customers. To achieve a consistent
members, representative for the
loyalty. Despite the widespread preva- growth pattern, High Performance
Dutch population
lence of loyalty programs in the retail retailers have to deliver on their
3. Loyalty program design elements
industry, the risk of customer churn loyalty promise by creating and
are identified by means of case
remains high. Accenture research preserving value for their customers.
studies of different retail categories
shows that 85 percent of the “loyal” In this paper we provide more
4. We use ‘fractional factorial’ design
customers are willing to shop else- background on customer-centric
to test existing and hypothetical
where if properly enticed. In response, approaches to customer loyalty
combinations of loyalty program
some retailers have adjusted their loy- program concepts.
elements. Design fulfills the requi-
alty programs to align them better rements of efficiency and robustness.
with what they believe matters most 5. We perform choice-based conjoint
to their target customers. analysis to measure customer pre-
ferences toward loyalty program
Popularity of loyalty programs has elements. Choice-based conjoint
surged among both customers and tasks directly represent market
retailers in the last years, with as behavior, because customers
much as 90 percent of customers choose the best alternative out
having at least 1 loyalty card and of successive choice sets.
50 percent of customers being a 6. We use latent class choice mode-
member of 4 or more loyalty pro- ling that accounts for customer
grams. In some retail categories, e.g. heterogeneity in preferences to
petrol stations, the adoption rates of derive three customer loyalty
loyalty programs have reached 100%. programs with their distinctive
customer segments.
2

3. The Relevance of being Customer Centric
Getting closer to customers and customers. Insufficient segmentation no one-size fits-all loyalty program.
responding to their preferences, wish- conveys poorly targeted marketing Instead, retailers have to adapt the
es and needs is key for enhancing campaigns. In the end customers value proposition for different seg-
loyalty, encouraging deeper business do not respond to the campaigns, ments of clients.
relationships and indirectly boosting might withdraw from mailings or
1 Jain, Dipak and Siddhartha S. Singh (2002),
profitability. Retailers had loudly wor- even ignore all promotions which
“Customer Lifetime Value Research in Marketing: A
shipped this opinion for a long time increases the risk of customer churn. Review and Future Directions,” Journal of Interactive
forgetting to apply the customer- By failing to understand and manage Marketing, 16(2), 34-46.
centric approach to their loyalty the effectiveness of their loyalty
program design and communication. program, retailers ended up asking
Stuck with a tendency to overreact to questions “Are loyalty programs
competitor’s marketing actions and profitable?” or “Do loyalty programs
copying the retail-category-specific work?” Instead, those retailers should
loyalty program concepts, retailers face the fact they might be aiming at
ended up with loyalty programs that the wrong customers or even not
are not tailored to their customers. aiming at any of their customers.
The majority of retailers employ limit- As proposed by Jain and Singh
ed customer segmentation and value (2002)1 , it is important to under-
analysis which results in a failure to stand how customers perceive the
identify key value segments and design elements of loyalty programs
makes it difficult to adjust the loyalty simultaneously as well as to account
program concepts to the wishes, for potential heterogeneity in their
needs and preferences of their preferences. In other words, there is
“Businesses should
face the fact they
might be aiming at
the wrong customers
or even not aiming
at any of their
customers.”
3

4. Customer Centric Loyalty Program defined
In times of economic uncertainty, A customer-centric organization In the current business environment
changing customer behavior, increas- focuses on creating, communicating, being customer-centric has many
ing customer expectations and and delivering value to customers and challenges (such as pressure to reduce
eroding loyalty, mastering customer- managing customer relationships in costs, hard to predict customer
centricity, i.e. putting the customer ways that benefit both the customer behavior, channel fragmentation and
at the center of the organization, and the organization with its share- proliferation). Only by staying focused
has become a critical capability holders. Customer centric organiza- on customer-centric essentials (see
for staying relevant, competitive tions focus on the needs and behav- Fig.1), high performance businesses
and profitable. In order to manage a iors of its customers, rather than can remain profitable and drive
customer-centric approach and use internal drivers. Being customer growth2. Developing and maintaining
customer-centricity to differentiate centric means balancing an inside- profitable customer relationships is a
from the competition one needs to out perspective (the perspective of crucial step for enhancing customer
have a clear understanding of what the organization) with an outside-in satisfaction and growing loyalty. It
a customer-centric organization is. perspective (the perspective from the can be achieved by creating differen-
customer). By aligning organizational tiated customer experiences. A cus-
Customer-centricity starts by under- resources and goals, to effectively tomer-centric loyalty program is a
standing individual customer needs respond to ever-changing needs and tool that answers both to the needs
then improves the customer experi- preferences of customers, organiza- of organizations and customers.
ence thereby creating sustainable tions can build mutually beneficial
2 Creating Customer Loyalty: A Customer-Centric
profitable customer relationships relationships at all stages of customer
Approach, customer acquisition and retention
impermeable by competitors. life cycle. research, Accenture, 2008.
1/ Know the customer 2/ Reach the customer 3/ Deliver the experience
Understand changing needs and Address channel proliferation e.g. dig- Define segment-based differentiated
behaviors ital & social networking channels and experiences and propositions
rising customer control
Stay close to valued customers View the entire value chain to be
Create ongoing two-way dialogue via consistent, e.g. third party
Know how to measure loyalty, it’s direct & indirect channels
more than just satisfaction Consider and measure all factors:
Develop loyalty even before the features, price, service channels
Invest in loyalty analytics to customer becomes your customer
understand main drivers Manage complexity of differentiated
Use analytics to measure effective- experience cost-effectively
Recognize different loyalty types: ness of initiatives
conditional, emotional and passive Empower front-lines to build trust-
based relationships
Key Capability
Actionable segmentation and Customer-Centric Marketing & Customer Experience design
insight Sales channel management and management
Figure 1. Customer-centric essentials
4

5. Customer-Centric Loyalty Programs –
Research Findings
Accenture conducted research3
aimed at determining the structure
concepts. The archetype loyalty
programs concepts were found at the
“Prevailing belief of
and key dimensions of a customer- cross-retail category level. Each a one-size fits-all
centric loyalty program design for
retailers. The research showed that
concept reflects preferences for the
loyalty program design of a homoge-
loyalty program
the prevailing belief of a one-size nous consumer segment. The research misleads organiza-
fits-all loyalty program misleads
retailers and makes them suffer
identified the most prevalent and
desired loyalty program dimensions
tions and makes
from a performance gap, i.e. lower being: economic rewards, privileges, them suffer from a
customer retention due to ineffective card types and redemption options.
targeting. While focusing on the Accenture found that each segment is performance gap.”
market as being one entity, retailers characterized by a strong preference
fail to distinguish unique customer for one of the design dimensions.
voices and fail to deliver on cus- Different customers reveal distinctive
tomer-centric value propositions. preferences for loyalty program con-
cept elements. Based on these cus-
Accenture identified three customer tomer preferences, 3 segment-specific
segments of different sizes: 45%, loyalty program concepts can be
33% and 22% with unique prefer- identified (see Fig. 2).
ences for loyalty program design ele-
3 Customer Loyalty Programs: How to design a cus-
ments, which were further translated
tomer-centric loyalty program?, Accenture, 2009.
into three archetype loyalty program
Redemption
option
Segment 1:
Frequent Loyalty
13% Card Users
Customers being represented by
Economic
reward segment 1 identified the type
34% of card as being very important,
especially the basic, free of charge
Card type
version of the loyalty card. In addition
45%
customers prefer the discount they
receive on repeat purchases, the
Privileges combined currency redemption and
8% special services made available only
to members. This segment is being
Economic reward: dominated by female customers
Discount on repeat purchase (62%), with a high percentage of
Privileges: variety-seeking shoppers and who are
Special services available only to looking for personalized treatments.
members 65% of customers indicated to use
their loyalty cards at least once a
Card type: week and 35% of customers in this
Normal card segment possess 5 and more loyalty
Redemption option: cards.
Combined-currency redemption
Figure 2. Customer-centric loyalty program
concepts
5

6. Segment 2:
Card type High Income Families
23%
Customers being represented by the
Economic
reward 2nd segment put high importance
Redemption
option
18% on the single-currency redemption
option, where customers can only
54% redeem accumulated poins in
exchange for a loyalty reward. In
Privileges
addition, this segment favors the
5% Gold card, products from a catalogue
Economic reward: and priority treatments over non-
Product from a catalogue members. This segment has the high-
Privileges: est percentage of variety-seeking
Priority over non-members shoppers and the lowest percentage
of economic shoppers. Customers
Card type: in this segment typically are below
Gold card 55 years old. More than 45% of
Redemption option: customers belonging to this segment
Single-currency redemption indicated to live with child(ren) and
only 15% compose single-person
households. Customers falling into
this segment have the highest dispos-
able income per month. 50% of seg-
ment members has a net income of
more than 2,500 Euro.
Segment 3:
Card type The Economic Shopper
10% of the Aging Population
Economic Privileges Economic rewards, especially
reward 16% rebates, are of very high importance
66% to customers in the 3rd segment.
Further, customers in this segment
prefer a combination of priority over
Redemption non-members and special services
option
made available only to members, Gold
8% card and single-currency redemption.
Economic reward:
This segment is characterized by male
Rebate
customers, who typically use their
Privileges: loyalty cards once in 2 weeks or even
Priority over non-members and less and possess up to 4 loyalty cards.
special services available only to This segment has the highest per-
members centage of customers older than 55
years (37%) who shop economical
Card type:
(65%). Majority of the customers
Gold card
belonging to this segment are part of
Redemption option: a two-person household (50%) with
Single-currency redemption a disposable income falling between
1,000 and 2,500 Euro.
6

7. Based on the specific customer seg- Key determinant of customer- Importance
ment preferences for loyalty program centric loyalty program index
concept elements Accenture identi-
fied a list of essential customer 1 Retail category 24.65
characteristics that when properly
utilized ensure the loyalty program 2 Age 18.25
is designed in a way to achieve 3 Gender 16.47
maximum effectiveness in marketing
operations. The archetype loyalty 4 Shopping behavior 16.06
programs are targeted at homoge- 5 Household income 10.22
nous customer segments with key
6 Household size 6.23
customer characteristics determining
relevance and perceived value of the 7 Household composition 5.76
loyalty program elements.
8 Number of loyalty cards owned 1.34
Besides customer characteristics, firm 9 Frequency of loyalty program usage 1.03
characteristics represented by a retail
category were found to pertain to Figure 3. Key determinants of a customer-centric loyalty program design by importance index.
the key determinants of customer-
centric loyalty programs (see Fig. 3).
Recommendations
One of the characteristics of high- Accenture research provided guide- marketing effectiveness and increas-
performing retailers is their ability to lines, which retailers should apply to ing profits. Pursuing a loyalty strategy,
provide customers with a compelling consciously develop customer-centric which is based on learning from cus-
value proposition tailored to the pref- loyalty programs for the existing and tomer preferences, leads to strength-
erences, expectations, and intentions new customers. Companies could gain ened value and brand proposition,
of the specific segments. Being able an advantage over their competitors and increased long-term profits.
to capitalize on the knowledge of by differentiating loyalty program All loyalty programs are not equally
customer preferences, high perform- design. A unique, customer-oriented effective. Retailers that ensure that
ing retailers can create sustainable loyalty program should cause cus- their loyalty strategy is truly cus-
value for customers through cus- tomers to specifically prefer a partic- tomer-centric and use this strategy
tomization of loyalty program design ular loyalty program, thus increase to both retain and acquire loyal
and communication. Effective design the usage of this program. We customers will be the high performers
and delivery of an efficient loyalty propose 2 paths for loyalty program in today’s competitive market.
program allows high performing improvement. One direction is to
retailers to differentiate from the
competition. Only by undertaking
match the preferences of the target
market with one of the archetype
“Tailoring loyalty
actions pertaining to a loyalty pro- loyalty concepts. Secondly, companies program design
gram strategy different than others that do not offer a loyalty program
a retailer can gain a sustainable but are interested in introducing one,
to the unique
competitive advantage. However a should determine which customer customer prefer-
one-size fits-all loyalty program is not segment they want to attract with a
a compelling solution to stand out loyalty program and tailor-make the ences ascertained
from the competition in the cus- loyalty program to meet customer by customer and
tomer’s mind. preferences. Adapting loyalty program
design to the unique customer pref- firm characteristics
Instead, the loyalty program design erences ascertained by customer and drives the effective-
should address the crucial issue of firm characteristics drives the effec-
optimizing the customer value propo- tiveness of a loyalty program. The ness of a loyalty
sition for different segments of cus-
tomers.
benefits to retailers of mastering
loyalty program concepts can be
program.”
considerable, including building true
loyalty, positive word-of-mouth,
7

8. About the authors
Marc Hoogenberg is a Senior Manager Sylwia Juchnowicz is a Junior
at Accenture with 10 years experience Researcher with 2 years experience in
in marketing consultancy. He helps applying various research techniques
organizations to improve the effec- and model building in the field of
tiveness of their marketing spend marketing. Her competencies include
with topics like branding, pricing, customer loyalty programs, customer
customer insights and loyalty. Marc segmentation, product testing, data-
has a Master’s degree in econometrics base marketing, brand management
and a MBA with crossmedia special- and sales forecasting models. Sylwia
ization. Please contact Marc on has studied Business Administration
marc.hoogenberg@accenture.com. at the University of Groningen.
For more information please refer to
Folkert Ruiter is a Manager at www.sylwiajuchnowicz.nl
Accenture with 12 years experience
in strategic marketing consultancy.
Folkert is specialized in developing
tactical and strategic marketing
strategies with a clear focus on cus-
tomer experience, customer satisfac-
tion, loyalty and CRM. Folkert has a
Master’s degree in Business Adminis-
tration and an MBA in Strategic
Marketing.
Please contact Folkert on
folkert.ruiter@accenture.com
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