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Thought Leadership

The Fandom Journey: Building Long-Term Loyalty Through Rewards

In our last piece we wrote about Delta’s recent changes to their loyalty program and the backlash it caused. Based on the outcry of longtime SkyMiles members, Delta’s CEO announced that they will be reworking the program changes the day we published it. This is a great example of how collective fan feedback can influence leadership decisions due to the economic value loyal fans create. The logical conclusion in all of this is that loyalty programs create real value for brands if done properly. So this week we are digging deeper into loyalty and the steps we think brands need to consider when developing a loyalty program aimed at creating long term fans and brand value. 

A quick overview of why loyalty pays:

  • a company’s most loyal customers are also its most profitable with 31% spending more than new customers (per Decoding Fandom, our latest report)
  • each additional year of a relationship, customers become less costly to serve because of awareness and familiarity
  • 34% of loyal customers buy more as well as pay premium prices
  • Roughly 60% of loyal customers bringing in new customers through referrals and word of mouth while integrating it into their life

Universal Agreement At The Top Is The First Step In Building a Loyalty Program

Loyalty is a result of creating the right conditions for fans to thrive. This starts at the leadership level inside an organization. There needs to be a universal agreement across the organization that loyalty pays and that it will take time to build. Varying departmental perspectives on loyalty and what to measure will hinder the program before it starts. Rewards programs should not exist in isolation but integrate seamlessly with a company’s overall strategy and existing business offering. Using Delta as a continued example, it wouldn’t make sense for them to include custom clothing as part of their reward tiers. Loyalty programs are a part of a brand’s competitive strategy that will need to not only resonate with customers but be a better alternative to competitors. 

Brands should ensure that the value their loyalty program offers aligns with the value those customers bring to the business. This is where we think Delta made a mistake and then later realized they got it wrong. Delta’s increased requirements for status moved so high that the return customers received was not worth the effort. Profitable customer behavior should be rewarded and companies need to figure out how to quantify the impact of their loyalty programs on customer behavior in order to understand the true profitability. One-time promotions may work in the short term, but they often fail to build lasting loyalty and only encourage transactional relationships. When paired with a brand’s marketing strategy, the objective should be to educate and motivate customers to earn rewards continuously, creating a sustainable loyalty program that can be measured in years not months. To Delta’s credit, they have been able to do this but the changes they imposed threatened the continued support from long time customers.

Not all customers are created equal. 

We think that one of the jobs of a loyalty program is to take a customer through the fandom journey. Starting as a “tourist” or someone just shopping with the brand for the first time, and through consistent marketing and experience, help them to become a “champion” of the brand. 

A brand should prioritize its best customers, those who contribute significantly to its business in order to maximize both loyalty and profitability. A new tech start up, Blackbird Labs, created an app that rewards a restaurant’s regulars. A device inside the restaurant scans the app on the person’s phone which then notifies the restaurant with the person’s details and their special offers depending on that restaurant’s loyalty program and milestones. For small businesses, this is an opportunity to use tech to create something like Starbucks’ loyalty program on a smaller scale and help manage customer relationships. The tricky part is that most regulars are already known in a restaurant and likely already receive small gestures. As a regular at a few neighborhood spots in NYC, we are often treated with a free round of drinks or a dessert. This app could be useful during a time when staff turnover is frequent and having a stored knowledge base is difficult. But in the bigger context of developing a loyalty program, our view is that, in theory, this could be a great start for small business, but question if the initial investment restaurants will need to make will result in long term returns and how it will support an effort where personal relationships are an important part of being a local business owner. In addition, in a business that is judged by the experience with the server and food quality, there are a lot of variables that a loyalty program can’t compensate for. If the experience is bad, loyalty programs can’t save you. 

But as companies increase in size, their ability to develop one on one relationships gets harder and so does the personalized customer relationships and the accompanying insight on how to show loyalty in a value based way. This is where loyalty programs become an integral part of a brand’s relationship building. Sometimes brands treat all customers the same, offering products or services of equivalent value regardless of their loyalty. Businesses that over-deliver for less profitable customers while under-delivering to loyal ones are making a costly mistake. This could have been a reason why Delta wanted to change up lounge access rules in their latest update. Lounges were being taken up by anyone with a Delta Amex credit card, affecting service through long lines, dirty lounges and overworked staff. If lounge access is based on flights taken, it could remedy this issue and keep their biggest supporters happy instead of losing these valuable but high-expectation customers. 

In order for a rewards program to be profitable, the rewards must be connected to the desired behaviors brands want their customers to have as they move through the customer and fan journey. For example, the cost of acquiring new customers can be very high so in order to combat that, offering rewards for referrals which are of value to the customer, but less than acquisition costs, can be more cost effective than marketing dollars spent on acquisition in the traditional sense. For example, I was recently offered a $30 reward from Seated, a dining app offering discounts at local NYC restaurants, if I invited other friends and family to use the app. Upon their first use, the rewards were given to myself and the person I invited. Where the referral offer fails is that there was nothing to follow up with or any other messaging around what they are offering for continued loyalty as part of the program.  

To be useful from a customer’s perspective, value from rewards programs should encompass: 

  • cash value
  • redemption options
  • aspirational value
  • relevance
  • convenience 

Delta is really leaning into the aspiration value of their status with their recent changes over the cash value of what their former program offered. Free upgrades and plane tickets provide a great incentive but when those are out of reach for most because the spend is so great to obtain it, it becomes aspirational and loses some of cash value. It shouldn’t take years to earn or be seen as too difficult to earn. Since their rewards are locked into how they can redeem them i.e. free flights, upgrades and free checked bags, the rest of the program needs to work for their customers. They could remedy this by bringing in other partners for expanded redemption options if they were looking to provide greater value. And to further the point, if it was difficult to redeem Delta Skymiles or came with lots of black out dates, it would add another ding to the program, discouraging its value for long term loyalty, which at the moment is not the case. The value of a reward should be seen as a percentage rebate on what the customer spent to earn it. Credit cards are great at this by highlighting the amount of cash back or point values when redeemed in their various offers. It’s hard to achieve all 5 in one program but to make value sharing with your fans work, a company’s offerings to its best customers should excel in these areas. 

With the amount of consumer data that’s available now, there is ample information to design a program that pinpoints a brand’s biggest fans. Growth marketing has become the sales strategy du jour and in our opinion, it does not create a long lasting relationship because of the strategy’s transactional nature. It emphasizes new customer acquisition at the expense of retaining current ones or building loyalty over a long period of time. 

Here’s what you need to do to get started, you’ll need to: 

  • Set a universal agreement across the organization that loyalty pays, establish how it will be measured and that it will take time to build.
  • Ask yourself, “Which needs can we meet profitably and differently?” in our loyalty program.
  • Integrate your rewards programs seamlessly with a company’s overall strategy and existing offering.
  • Brands should ensure that the value their loyalty program offers aligns with the value those customers bring to the business
  • Establish a marketing strategy with the objective to educate and motivate customers to earn rewards continuously.
  • In order for a rewards program to be profitable, the rewards must be connected to the desired behaviors brands want their customers to have.
  • The value of a reward should be seen as a percentage rebate on what the customer spent to earn it.

If you are not sure where to start, we can help you and your team with:

  • A Fan Essentials Sprint which provides your team an action plan that defines your key fans and an action plan for activating them. Want to know what it’s like to work with us? Emily said, “We had such a productive experience a few weeks ago thanks to the team at Unconquered. Their communication, flexibility, creativity, and genuine interest and heart for our brand exceeded our expectations.”
  • An insights and research engagement that discovers who your brand’s fans are and unlocks the emotional codes for fandom, from individuals to culture.
  • Content production and experiences that enrich your fans’ worlds.