february 9, 2012 benchmarking customer loyalty program efforts · 2011 global loyalty benchmark...

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February 9, 2012

Benchmarking Customer Loyalty Program Effortsby Suresh Vittal and Emily Murphyfor Customer Intelligence Professionals

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For Customer Intelligence Professionals

ExECutIVE SuMMaryForrester recently surveyed 81 loyalty program marketers about their loyalty programs and strategies in an effort to understand the size, structure, and performance of customer loyalty programs. Companies continue to look to loyalty programs to drive customer retention, profitability, and customer engagement in an uncertain economy. But they face challenges when it comes to creating and supporting differentiated programs that leverage intelligent offer management.

taBLE oF ContEntSLoyalty Programs Face Innovation Challenges

Loyalty Program Progress Is Hindered By Customer Intelligence Immaturity

Satisfaction With Strategy And Execution Reveals Overconfidence

rECoMMEndatIonS

Invest In Customer Intelligence For Smarter Loyalty

Supplemental Material

notES & rESourCESthis report utilizes research from Forrester’s Q3 2011 Global Loyalty Benchmark online Survey.

Related Research Documents“Consumer attitudes toward Loyalty Programs deteriorate”February 8, 2012

“the Customer Loyalty Program review ”February 8, 2012

“Making Sense of Loyalty Program Measurement” September 14, 2011

February 9, 2012

Benchmarking Customer Loyalty Program EffortsFindings From Forrester’s Q3 2011 Survey of Loyalty Program Marketersby Suresh Vittal and Emily Murphywith dave Frankland and allison Smith

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http://www.forrester.com/go?docid=61148&src=61032pdf




© 2012, Forrester research, Inc. reproduction ProhibitedFebruary 9, 2012

Benchmarking Customer Loyalty Program Efforts For Customer Intelligence Professionals

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LOyALty PROgRAMS FACE InnOVAtIOn ChALLEngES

Forrester recently surveyed 81 loyalty program marketers about their loyalty program size, performance, strategies, challenges, and organization. The majority of respondents are from North America and represent a variety of industries, including retail (35%), media and entertainment (21%), professional services (15%), and travel and hospitality (12%). More than 80% of respondents hold a title of manager or higher, and 58% work at enterprise-size companies. In relation to their company’s loyalty programs, we found that:

· Program size, scope, and redemption rates vary. The mean loyalty program in our survey includes 4.7 million members who account, on average, for 35% of firms’ total customer bases (see Figure 1). On average, their loyalty programs have been in existence for about five years, and of the 4.7 million members enrolled, 32% redeem rewards. Averages aside, our sample covered both ends of the spectrum — more than one-third of respondents told us they have fewer than 100,000 members in their programs, and 20% of respondents reported more than 10 million members.

· Support for loyalty programs holds steady. Reflecting the differences in scale of programs, current loyalty budgets vary widely from none to more than $100 million (see Figure 2). And, while the average current budget among respondents came to $14 million, more than half of those surveyed reported they have less than $1 million for their loyalty program initiatives. But, regardless of the size of their existing budgets, respondents overwhelmingly told us they expect their loyalty funds to stay the same or increase in 2012. With the high costs of new customer acquisition, companies recognize the strategic and financial value of identifying and rewarding their best customers and prioritizing their investments in loyalty programs.

· Loyalty is primarily a marketing function. For 68% of respondents, marketing owns most of the responsibility for their loyalty programs (see Figure 3). Next in line? Loyalty as a standalone business function (10%). Loyalty program management experience ranged from manager through C-level, but for two-thirds of respondents, the head of loyalty has a director, VP, or senior VP title. While we recognize that most loyalty program interactions with consumers occur within marketing messaging, firms should beware of siloing the function entirely and should work to share data and insight across other customer touchpoints. Best-practice customer loyalty programs interface and collaborate with a multitude of departments across the enterprise — from finance to the call center.

© 2012, Forrester research, Inc. reproduction Prohibited February 9, 2012


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Figure 1 Loyalty Programs Come In all Shapes and Sizes

Source: Forrester Research, Inc.61032

11%

9%

12%

12%

5%

6%

20%

22%

2%

Less than 6 months

6 months to less than 1 year

1 to less than 2 years





10 or more years

Don’t know

Source: Q3 2011 Global Loyalty Benchmark Online Survey

20%

12%

10%10%6%

9%

6%

4%2%5%

16%

“What percentage of your customer base is enrolled in your customer loyalty program?”

“How large is your current loyalty program?”

Less than 10% 60% to 69%70% to 79%

90% to 100%Don’t know

10% to 19%20% to 29%30% to 39%40% to 49%50% to 59%

80% to 89%

=100,000 =100,000 thatredeem rewards

35%

11%

9%

3%7%

7%

1% 11%16%

Fewer than 100,000100,000 to 499,999500,000 to 999,9991 million to 4.9 million5 million to 9.9 million10 million to 14.9 million15 million to 19.9 million20 million members or moreDon’t know

The average loyaltyprogram has 4.7million members.

32% of enrolled membersredeem rewards.

On average, 35% percentof respondents’ totalcustomers are enrolledin their loyalty programs.

“How long has your loyalty program been in existence?”

Base: 81 loyalty program marketers

Respondent’s loyaltyprograms have beenin existence for anaverage of �ve years.



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Figure 2 Funding For Loyalty Programs Will Stay the Same or Increase In 2012



“What is the current budget for your customer loyalty program/initiatives (FY 2011)?”

3%

13%11%

5%

13%

6%8% 8% 8%

3% 3% 3%

10%

0%

5%

“How do you expect the budget for your customer loyalty program to change in 2012?”

None

Less th

an $25,000

$25,000 to $49,999

$50,000 to $99,999

$100,000 to $249,999

$250,000 to $499,999

$500,000 to $999,999

$1 milli

on to $2.4 m

illion

$2.5 milli

on to $4.9 m

illion

$5 milli

on to $9.9 m

illion

$10 milli

on to $24.9 m

illion

$25 milli

on to $49.9 m

illion

$50 milli

on to $74.9 m

illion

$75 milli

on to $99.9 m

illion

$100 milli

on or more

Increase48%

Stay the same35%

Decrease10%

Don’t know7%

Did you know?On average, respondents shelledout $14.5 million to pay for theirloyalty programs in 2011.




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Figure 3 Marketing owns Loyalty



2%

0%

0%

1%

4%

4%

5%

6%

10%

68%

Other

Finance

IT

Research

eCommerce

Operations

Sales

Strategy

It is a standalonebusiness function

Marketing

“Within your organization, what level ofposition heads up your customer

loyalty program?”

SVP or VP32%

C-levelexecutive

12%Manager21%

Director35%

“What department has the most responsibilityfor your customer loyalty program?”

“How many dedicated (full-time) employees support your loyalty program?”

10 to 14 employees, 4%

15 to 19 employees, 2%20 to 24 employees, 2%

25 to 29 employees, 4%

30 to 49 employees, 0%50 to 74 employees, 6%

75 to 99 employees, 1% 100 to 149 employees0%

1 to 4 employees46%

No one is fullydedicated to loyalty

20%

5 to 9employees

10%

150 or more employees, 2% Don’t know, 2%




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Loyalty Program Progress Is hindered By Customer Intelligence Immaturity

We asked loyalty program marketers about the top challenges facing their initiatives and found that challenges abound. Top responses focused on difficulties in creating unique value for their program and transforming customer data into insights. Specifically, they grapple with:

· Team size. Despite having stable budget support, nearly half of our respondents have teams of fewer than five people, and fully 20% have no dedicated full-time equivalents devoted to their loyalty programs. With people and associated skills lacking, all of the responsibilities for managing day-to-day operations fall on a few people, some of whom have a separate day job, leaving little time for innovation.

· Creating differentiation. When we asked respondents about the three greatest challenges facing their customer loyalty programs today, “differentiating our program from similar efforts in the marketplace” garnered the most responses (28%) (see Figure 4). And 26% of respondents cited

“delivering offers with a high perceived value” as one of their top three challenges. Creating differentiated rewards is difficult, especially when all that members want are more discounts. Across industries, marketers recognize the need to set their programs apart from similar efforts but struggle to identify and execute solutions.

· Data complexity. Loyalty programs produce a steady and rich stream of customer data, but 27% of respondents told us that understanding customer interactions across touchpoints and managing data quality are two of their top three challenges. The data produced by loyalty programs serves little purpose without the proper processing tools and activity to turn it into actionable customer insights.

Figure 4 the top Five Challenges Center around differentiation, data, and Program Value


28%Di�erentiating our program from similare�orts in the marketplace

“What are the greatest challenges facing your customer loyalty program/initiatives today?”(Select all that apply)



Understanding customer interactions acrossall touchpoints

Maintaining customer data quality

Delivering o�ers with a high perceived value

Ensuring member awareness/understandingof the program and its bene�ts

27%

27%

26%

25%



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SAtISFACtIOn WIth StRAtEgy AnD ExECutIOn REVEALS OVERCOnFIDEnCE

Digging a little deeper into the survey responses from a program and strategy perspective, we found that:

· Most programs have similar functionality. More than half of respondents told us they employ a loyalty currency; integrate their programs with back-end management systems, such as customer relationship management (CRM), enterprise resource planning (ERP), or point of sale (POS); and enable online account management (see Figure 5). Fewer respondents reported more complex functionality such as value-based customer tiering or real-time integration with customer touchpoints. And fewer still venture into emerging channels such as social and mobile. On the rewards side, utilization of discount-based rewards is most prevalent (51%). Fewer than half of respondents utilize other reward types, such as experience- and service-based rewards, coupons, or partner networks.

· The goals for loyalty focus on existing customers. When we asked respondents about their top three business objectives for loyalty, customer retention (58%), revenue (48%), and engagement (37%) topped the list (see Figure 6). But, while loyalty programs primarily remain an exercise in retaining an organization’s best customers, 30% of respondents told us that customer acquisition drives their loyalty initiatives. In our conversations with marketers, we find ample evidence. For example, after launching its Loyalty Rewards program in 2008, Progressive Casualty Insurance noticed a surprising lift in new customers. As a result, Progressive now includes loyalty messaging in its online and TV advertising targeted at new customers.1

· Respondents are overly confident about their loyalty program strategy. More than half of respondents told us they have a defined process in place to measure results (61%), a well-defined strategy (60%), and a solid business case for loyalty (57%) (see Figure 7). But, based on the challenges respondents face with differentiation and customer insights, these results reveal some disparity, especially when it comes to execution. Case in point? Only 37% of respondents feel that they have the technology and analytics structures to deliver customized offers across channels, and only 34% of respondents feel that their internal systems (e.g., loyalty platform and campaign management platform) are integrated enough to share customer insights and responses.



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Figure 5 Loyalty Program Functionality and rewards remain Basic


6%

22%

23%

25%

27%

32%

38%

42%

51%

Other

Partner networks

Cash back

Shared products, services, andcurrencies with partners

Instant wins and sweepstakes

Service-based rewards

Coupons

Experience-based rewards

Discount-based rewards

4%

19%

21%

30%

38%

46%

54%

54%

57%

Other

Gami�cation elements

Mobile application

Integration with socialnetworks

Real-time integrationwith customer

touchpoints

Customer tiering basedon value

Online accountmanagement

Integration with back-end management

systems

Loyalty currency

“Thinking about your customer loyalty program,which rewards mechanisms do you utilize?”

(Select all that apply)

“Which of the following capabilities/componentsdoes your customer loyalty program use?”

(Select all that apply)





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Figure 6 Loyalty Programs Set their Sights on Improving retention, revenue, and Engagement


“What are the top three business objectives for your customer loyalty program/initiatives?”

1%

5%

10%

14%

25%

26%

30%

33%

37%

48%

58%

Competitive threat

Customer service

Customer centricity

Customer satisfaction

Customer experience

Customer data collection

Customer acquisition

Customer lifetime value

Engagement

Pro�tability/revenue

Customer retention





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Figure 7 respondents are Confident about Strategy But Falter When It Comes to Execution



“Thinking about your current customer loyalty program strategy and initiatives,please indicate whether you agree or disagree with each of the following statements.”

(Responses on a scale of 5 [strongly agree] to 1 [strongly disagree])

Our campaign management system is wellintegrated with our loyalty platform, sharing

business logic, o�ers, messages, and customerinsights and responses

We have the technology and analyticsstructure to deliver consistent customized

customer experiences and o�ers acrosschannels

Our customer loyalty strategy is well de�nedand �ts into both the broader marketing

and enterprise strategies

We infuse our loyalty program with customerintelligence to drive segmentation, targeting,

and real-time o�er management

We have a solid business case to defendloyalty program results and e�ectiveness

relative to program costs

We have a de�ned process and metrics formeasuring program performance, customer

engagement, and business impact

34%

37%

52%

57%

60%

61%

19%

16%

15%

25%

19%

19%

47%

47%

33%

19%

21%

21%


Agree [5,4] Neither agree nor disagree [3] Disagree [2,1]

r E C o M M E n d a t I o n S

InVESt In CuStOMER IntELLIgEnCE FOR SMARtER LOyALty

While few loyalty programs are in danger of losing their funding, loyalty program marketers need to get smarter with their investments to enhance their results and generate deeper customer relationships. to overcome challenges and make the most of their resources, loyalty program professionals should look to bolster their customer intelligence practices by:

· Benchmarking current loyalty efforts. this report focuses on 81 respondents who play an important role in managing their loyalty programs. using their responses as a guide, figure out where your program size, performance, and organizational structure fall. Comparing your own goals and challenges with the responses from the survey will help give you an idea of where your program stacks up.



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· Reassessing the relationship between loyalty programs and customer intelligence. Customer intelligence is key to understanding member behavior and motivators and makes programs smarter by improving targeting, segmentation, and offer development. How smart is your loyalty program? use Forrester’s self-test to examine the intelligence quotient of your loyalty program.2 It considers data, strategy alignment, customer intelligence maturity, offer management, and measurement skills to ensure that you’re getting the most out of your loyalty data.

· Investing in CI to drive innovation. Customer intelligence will help you refine offers, targeting, and segmentation and help identify areas for innovation that meet member needs. Loyalty program members, especially those who participate regularly, show promise for deeper engagement. Continue to push for innovation that drives customer interactions beyond the transaction.

SuPPLEMEntAL MAtERIAL

Methodology

Forrester fielded its Q3 2011 Global Loyalty Benchmark Online Survey to 81 loyalty marketing professionals from our ongoing Marketing & Strategy Research Panel and members of Loyalty360, a loyalty marketers association. The panel consists of volunteers who join on the basis of interest and familiarity with specific marketing and strategy topics. For quality assurance, panelists are required to provide contact information and answer basic questions about their firms’ revenue and budgets.

Forrester fielded the survey during Q3 2011. Respondent incentives included a summary of the survey results.

Exact sample sizes are provided in this report on a question-by-question basis. Panels are not guaranteed to be representative of the population. Unless otherwise noted, statistical data is intended to be used for descriptive and not inferential purposes.

If you’re interested in joining one of Forrester’s research panels, you may visit us at http://Forrester.com/Panel.

EnDnOtES1 For more information about Progressive Casualty Insurance’s loyalty efforts, please see the June 10, 2011,

“Case Study: Insurance Gets Progressive With Loyalty” report.

2 Successful intelligence-driven loyalty involves five major components: data, strategy, customer intelligence, offer management, and measurement. To help CI professionals assess the intelligence quotient of their loyalty strategy, we’ve created a self-test based on key factors in each area. See the January 21, 2011, “Assess Your Loyalty Program’s Intelligence Quotient” report.




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