LOYALTY MARKETING
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Five Common Misconceptions about CPG Loyalty Programs
By Chris McLaren
The U.S. consumer packaged goods industry grew up during the golden age of mass marketing: an age characterized by three television networks, less choice, and far fewer competitors for consumer mindshare. Marketers could expend the minimal effort necessary to keep their customers loyal, gearing their marketing dollars toward customer acquisition at the expense of customer retention. The notion that brands could actually nurture long-term customer relationships had yet to capture marketers’ attention.
But that golden age is now a distant memory, gone with the days of Mad Men. Today, relentless economic pressure, media fragmentation, private labels, and the explosion of digital and mobile channels will continue to bedevil CPG manufacturers. That’s the bad news. The good news is that CPG marketers now have a road map to help them seize control of their own destiny by using data, recognition and rewards to build direct, real relationships with their best customers.
Here’s the reality of CPG marketing: Brands can no longer build strong, profitable relationships with their best customers by relying on advertising and promotions alone. Today’s savvy shoppers showroom in-store via their mobile devices, seek recommendations from friends on social media, and check user reviews online. To connect these new forms of brand interactions back to core shopping behaviors, brand marketers are increasingly turning to the tools of loyalty marketing to create emotional bonds with customers and drive appreciable return on investment (ROI).
Still, several myths regarding loyalty and rewards programs persist in the CPG space. Here’s a closer look at five myths versus reality in CPG loyalty:
Myth #1: Digital channels have reduced the role of retail in CPG loyalty. Procter & Gamble now spends more than one-third of its U.S. digital marketing budget on digital media, according to The Wall Street Journal. Some marketers believe this trend will accelerate, leading to fully digital loyalty programs that cut out the retail middleman.
Reality: Brick-and-mortar retail remains essential to the loyalty marketing mix. A recent Harvard Business Review study revealed that in-store visits increased intent to purchase more than 7.5 times that of any other product exposure — a number double the intent to purchase associated with website or social media exposure. Best-in-class CPG loyalty programs focus on producing in-store purchases.
Myth #2: Social media will drive the future of loyalty marketing. Brands such as Coca-Cola, Pepsi and Pampers have seen significant success from early and effective use of social media channels to produce engagement. These success stories have convinced some marketers to put all their eggs in the social media basket.
Reality: Social media marketing alone has unproven or tenuous-at-best links to purchase behavior. While social platforms will remain valuable tools for engagement and serve as a hedge against discount pressures, these platforms are just one component of successful multichannel loyalty marketing efforts. Your best bet? Don’t treat social media as a marketing silo. Instead, look for ways to leverage the unique identifier of loyalty program membership to link social media interactions with transactional purchase behavior.
Myth #3: In CPG loyalty, one size fits all. Because CPG marketers possess such deep insight into their brand demographics — whether moms, baby boomers or Millennials — the temptation exists to create a one-size-fits-all loyalty value proposition and call your work done. The perception is that demographic segments tend to behave in lockstep.
Reality: With more real-time customer data and increasingly precise targeted communication options now available, personalization and relevance in loyalty offers and rewards have become critical to success. Nearly three-quarters of Millennials surveyed in Aimia’s Millennial Loyalty Survey, for example, indicated a willingness to choose a brand with a loyalty program over a brand without one. However, this cohort values relevance and immediate gratification even more than older generations. To win their loyalty, you’ll need the tools and insight to build relationships at the level of the individual customer.
Myth #4: CPG loyalty doesn’t produce appreciable ROI. Because loyalty programs aren’t designed to function as quick-fix promotions that produce quarterly sales bumps, some marketers dismiss them as “nice-to-have” programs that don’t deliver the same ROI as traditional mass media and discounting efforts.
Reality: While loyalty programs can and do deliver shorter-term incremental sales lift, their real power lies in their ability to create long-term, profitable relationships that deliver increased lifetime customer value. A well-designed rewards program increases lift, builds share of wallet and reduces shopper attrition — all behavior shifts that resonate with the C suite. Sophisticated analytics platforms now enable marketers to design, test and measure offers and rewards that help manufacturers meet sales targets and deliver added value to shoppers.
Myth #5: Loyalty programs can’t create emotional bonds. For decades, CPGs relied on mass media to create emotional connections with consumers — think Maxwell House’s “Good to the Last Drop.” Today, marketers leverage social media to foster those emotional connections, while loyalty programs are viewed as a simple form of bribery or deferred discounting.
Reality: Best-in-class loyalty programs place all marketing activity and data collection in service of the customer. Loyalty programs engender trust, build commitment and fuel reciprocity in customer relationships, creating engagement that a 30-second television spot can never hope to replicate. And unlike mass media, loyalty marketers can generally measure, on a dollar-for-dollar basis, their return on investment. No other mass media or social platform can credibly make that claim.
Transformation is never easy. CPG marketers are naturally inclined to focus their efforts on the tried and true. But the days of standing pat with the same old marketing tactics are over. Consumer packaged goods companies that leverage customer-centric data to provide unique combinations of recognition and reward for their best customers will win the battle for customer loyalty. Those marketers who embrace this transformation, rather than shy away from it, will be the brand leaders of tomorrow.
Chris McLaren is vice president of marketing at Aimia, a global leader in loyalty management with offices in 20 countries around the world.
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