• by Jack Loechner , Staff Writer @mp_research, February 2, 2010

A new report from the Chief Marketing Officer (CMO) Council report indicates that marketers are under-valuing perks, discounts, deals and additional service opportunities, as customers give them high marks. Both customers and marketers agree that deeper engagement and personalized contact drives loyalty.

61% of marketers believe that loyalty program participants are the best and most profitable customers. And, 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.

• 13% of respondents believe they have been highly effective in leveraging loyalty and brand preference among club members
• 20% don't even have a strategy for this
• 25% admit they have not mobilized brand loyalists to become active advocacy agents

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:

• 39% of respondents view discounts and savings as the key member benefits
• 34% view free products and premiums as essential incentives
• 33% are committed to offering points for merchandise redemption as a further motivator

Customer complaints about loyalty programs include:

• 30% of marketers report that some customers see little or no added value to becoming a loyalty member
• 24% indicate rewards lack substance
• 24% feel they don't get enough personalized attention
• 21% have problems with receiving too much spam email and junk mail
• 23% complain about a lack of individualized communication
• 18% have issues with redeeming points and miles

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. Over 34% report they are significantly increasing their commitments, and 45.9 are maintaining their current commitments. Just 4% expect to discontinue their programs.

Online channels dominate expected investments as nearly 60% of the marketer 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%)

When it comes to in-depth profiling of customers, the vast majority of marketers still only aggregate and analyze limited customer data sets.

• 73% collect basic demographics and
• 68% track the location of members

But critical insights are not being leveraged:

• Advocacy rates (14%)
• Brand loyalty and attachment (27%)
• Personal preferences (31%)
• Satisfaction levels (33%)
• Product preferences (38%)

Donovan Neale-May, executive director of the CMO Council, says, "... 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... "

Acquiring and retaining motivated and engaged participants is the number one problem facing 46% of marketers. Other obstacles and issues include:

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

Digital marketing channels are taking precedence in ways marketers promote their loyalty and rewards programs. Nearly

60% rely on web sites, nearly

60% on email, 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 email 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%)
• Social networks (16%)

Consumers report they see value in loyalty program membership:

• 79% of consumers surveyed say they are very, or pretty, satisfied with their loyalty and rewards program experiences
• 70% want to see more discounts and savings
• 52% want more compelling personal deals and offers as reward for steering their business to loyalty program operators
• 58% say they want more compelling personal benefits and services, as well as more relevant offers or individualized deals

While social media also tops 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:

• 65% acquired information about the programs in retail environments compared to only
• 4% in social media networks,
• 3% in blogs and
• 11% in online advertising.

Too much spam and junk email topped the list of negatives associated with loyalty and rewards program membership (44%), followed by:

• Too many conditions and restrictions (38%)
• Rewards that lacked real value (37%)
• Members having a hard time redeeming points or rewards, program membership lacking value, as well as communications and service not being personalized or targeted specifically for members

Neale-May concludes that "...  the economy is not a big driver of program participation... figuring out ways to deliver added value to those willing to repeatedly purchase your products and services, advocate your brand... actively respond to offers and incentives, is critical to marketing effectiveness."

Additional facts and figures from the report

• It is estimated that there are 1.8 billion members of loyalty programs in the U.S.
• Marketers spend about $2 billion annually on operating these programs
• The average U.S. household is enrolled in 14.1 loyalty and rewards programs, but is only active in 6.2 of them

Top U.S. loyalty program memberships ranked by industry, reports Colloquy, 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
• All other types 127.9 million

For more information, please visit the CMO Council here.