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Top Stories: Loyalty Programs and A/B Testing

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Loyalty Programs? We Don’t Need No Stinkin’ Loyalty Programs!

Without fear of (much) argument, it’s a fair statement to say that all companies want, and try to generate and achieve, optimum loyalty from their customer bases. They should want this, because study after study shows the financial rewards of having loyal customers. Some companies reach this goal through superior value delivery, built on quality products and services, and positive, consistent customer experiences. For the past several decades, many companies have relied on customer loyalty cards or programs, by which they can track purchase behavior and give rewards for repeat and volume buying activity.
Note from Pat Earlier in my career, I worked with a loyalty marketing firm and soon came to realize that [a] a great many businesses do a poor job showing their customers that they matter, [b] loyalty programs are expensive because of the points liability that has to be carried on the books, and [c] when dealing with your ‘best customers’, you goal is to maximize lifetime value but too many businesses don’t go beyond offering more discounts which is counter-productive.

Let me expand on the last point for a second. If a business typically discounts 25%, the goal of the loyalty program is create a unique, valuable experience that [a] retains the customer, [b] increases lifetime value, and [c] reduces the discount rate for this group (or at least keeps it flat). The way to achieve that last point is to find rewards of lower cost and higher perceived value – for example, early boarding on flights or late check-out at hotels. This motivates the customer to spend more (average order size and frequency) while receiving rewards/benefits that keep them loyal.

And those not receiving the rewards are motivated to buy more in order to meet the criteria – so they are not focused on the price paid today, but they are focused on the rewards of tomorrow.

Obviously, this means targeting people that are not price sensitive and/or bargain shoppers.

The problem with most rewards programs is that they just offer more and more discounts. And why sacrifice revenue when you are dealing with a loyal customer?

Maintaining a Scientific Approach to Direct Marketing

The problem is that the sophisticated systems and models do help camouflage poor marketing basics; they can improve campaign results even when the basic scientific and sound direct marketing principles aren’t followed. If that’s the case, just think of the benefits that companies can attain if they combine the two: leveraging a solid scientific approach with good direct marketing practices (which may not be scientific, per se) and sophisticated technology.
Note from Pat ‘Getting out the campaign’ is the short term problem – we’re all overworked and understaffed. But then in about 3 or 6 or 12 months, senior management is going to start asking you about what is working, why it is working and how you plan to do more of that because your budget is being reduced.

So learn how to test.

Most think about it. And then there are those that say they are but really aren’t because they lack a premise to test or the test is set up incorrectly. Yes, testing is something that is done over time – not in a second or two like some think. (Let me clarify that. Proper testing that increases your ability to make well informed decisions takes time. The trouble with a great deal of the decisions made in the digital world is that it is reactive and doesn’t teach you why so you can scale it. For example, I have seen too many run an A/B test and within 2 days they declare A to be the winner…ignoring the importance of statistical significance. )

Check out this article – 7 A/B Testing Blunders That Even Experts Make – I think it really does a great job addressing the common mistakes being made then let me know your thoughts.

Do you agree that testing is important? Do you think that testing needs to be on-going, methodical taking the small wins that lead to greater gains in the long-term? Or is testing a waste of time?

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