• by Sarah Mahoney  @mahoney_sarah, October 8, 2013

As more marketers struggle to add both beef and nuance to their customer loyalty programs, a new study from Forrester reports that budgets are rising as top management recognizes their potential. Nearly 60% of the firms in the study named loyalty a top priority, both in terms of customer retention and increasing revenue. Marketing Daily caught up with Forrester analyst Emily Collins, who fills us in on what’s changing.

Q: What surprised you in the findings?

A: The big thing for me was seeing the way loyalty efforts are becoming elevated within organizations. We’re seeing budgets increase, and also an increasing number of marketers saying loyalty is a strategic imperative. And while in many ways programs haven’t evolved much from when they began way back when with frequent flyer programs, we think they are on the verge of big changes.

Q: Why?

A: For a long time, loyalty has been all about transactional rewards and benefits. Today, marketers are realizing those transactional benefits are great, but those only provide short-term rewards. One way to define loyalty is a feeling of affection or dedication, and that benefits the entire brand. Points and benefits only go so far.

Q: You found that 62% of respondents say loyalty efforts are overseen by marketing departments. And you mention Progressive Insurance as a company that has done a great job of aligning it all.

A: Yes. After it launched its loyalty program, Progressive had a surprising lift in new customers, as well as the increase in satisfaction and retention that it had anticipated. So now it includes loyalty messaging in its ads aimed at new customers.

Q: What happens when efforts are less integrated?

A: The goal of loyalty programs is to recognize and reward loyal customers, and motivate them to share information, and to drive incremental behaviors -- to spend more or visit more. Each program has a specific give and a get. When those aren’t synced up with marketing and overarching business goals, you run the risk of failing to reward customers. And if you mess that up, you won’t see the benefits, and you risk creating a negative relationship.

Q: Who else is doing a good job?

A: Some retailers, like Nordstrom and Sephora. And Walgreens, which is describes itself as “at the corner of happy and healthy,” is even rewarding customers for healthy activities like walking, strengthening its overall brand positioning. Hotels like Starwood and Hilton are getting very good at building customer experiences into their programs. American Express is doing interesting things with both social and mobile.

Q: What makes loyalty programs fail?

A: Some target every customer the same, regardless of their value. So the reward dollars are then spread among everyone, including people who would already have bought the item. Also, too many programs fail to engage customers beyond the transaction. One of the biggest benefits of loyalty programs is that it’s one of the few times consumers are willing to raise their hand and self identify, giving you all this information -- like their birthday. And then companies ignore it. Why not send a birthday greeting, or something personalized?