Most marketers doubt that their customer-loyalty programs are highly effective, a survey shows.  But the same survey that most marketers believe such progams are essential. And it also shows that marketers and customers agree that loyalty and rewards programs need to be personalized.

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 undervaluing these often costly programs even as customers give high marks to the perks, discounts, deals and additional service
opportunities.

Both customers and marketers agree: Loyalty is driven by deeper engagement and personalized contact, not mass-blast communications and gimmicks.

"The Leaders in Loyalty: Feeling the Love from the Loyalty Club" is the latest research from the CMO Council, tapping into the insights of more than 600 marketers, and gaining firsthand perspective from loyalty-program recipients n an audit of more than 700 consumers. Sponsored by InfoPrint Solutions Co., a joint venture of Ricoh and IBM, the study shows that loyal consumers expect rketers to understand them better and deliver more-relevant and more-valued offers.

But marketers aren't giving themselves high marks in meeting the needs of their business, and question their ability to meet the needs of the customer. Given that more than $2 billion is spent annually in developing 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%) believe that loyalty-program participants are the best and most profitable customers. So it isn't surprising that an almost equal number of respondents (65%) view customer-loyalty program investments as a very essential, or a quite valuable part of the marketing mix. But only 13% of respondents believe they have been highly effective in leveraging loyalty and brand preference among club members, and nearly 20% don't even have a strategy for doing so. An additional 25% admit they haven't 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% of respondents view discounts and savings as the key member benefits, 34% view free products and premiums as essential incentives, while 33% are committed to offering points for merchandise
redemption as a further motivator.

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

Despite these challenges, investments in loyalty programs will continue, as nearly 80% of marketers are committed to maintaining or further funding loyalty programs as customer-retention and relationship-building vehicles. About 34% report they are significantly increasing their commitments, and 46% are maintaining their current commitments. Just 4% expect to discontinue their
programs.

Online channels dominate expected investments, as nearly 60% 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%)
• Increasing frequency and relevance of communications (39%)
• Gathering more insights and intelligence for better customer handling (38%)
• Adding new benefits, incentives and inducements (36%)
• Studying industry best practices and making adjustments accordingly (19%)

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. Seventy-three percent collect basic demographics, and 68% track the location of members, but critical insights -- such as advocacy rates (14%), brand
loyalty and attachment (27%), personal preferences (31%), satisfaction levels (33%), and product preferences (38%) -- aren't 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 says.

Loyalty-program operations, however, are increasingly challenged. Acquiring and retaining motivated and engaged participants is the No. 1 problem facing 46% of marketers. Other obstacles and issues seen by the marketers include these:

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

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

"Targeting has taken on a very different meaning in today's marketing mix," says Sandra Zoratti, vice president of Global Solutions Marketing for InfoPrint Solutions Co. "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% of consumers surveyed say they are very, or pretty, satisfied with their loyalty and rewards program experiences. But 70% want to see more discounts and savings, and 52% more-compelling personal deals and offers as rewards for steering their business to loyalty program operators. In a definitive call for personalization, 58% say they want more compelling personal benefits and services, as well as more-relevant offers or individualized deals.

And while social media also top 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% acquired information about the programs in retail environments compared with only 4% in social-media networks, 3% in blogs and 11% in online advertising. This finding isn't surprising when one considers that consumers who are engaged in loyalty programs demand high-touch direct engagements rather than mass messages, regardless of channel.

Too much spam and junk e-mail topped the list of negatives associated with loyalty and rewards program membership (44%), followed by too many conditions and restrictions (38%), and rewards that lacked real value (37%). Other prevalent beefs included members' difficulty in redeeming points or rewards, program membership lacking value, and
failure of communications and service to be personalized or targeted specifically for members.

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

Perhaps surprisingly, soft economic conditions aren't necessarily inducing consumers to sign up for loyalty and rewards programs. Only 22% said the economic climate had raised their interest in these programs compared with 41% 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," Neale-May notes. "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% of survey respondents. When it comes to word-of-mouth, nearly 20% of club members say they are big brand boosters and almost 50% say they sometimes talk up the product or service they support. On the other hand, 54% 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 e-mail concerns and irritations, more than 64% 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% say they are comfortable visiting Web sites to source their loyalty information, and about 14% 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," Zoratti says. "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."

Facts and Figures

• Marketers spend about $2 billion annually on operating customer-loyalty programs in the U.S.,
  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,
  COLLOQUY reports.