Three centuries ago, in the early 1700s, American retailers would offer their customers copper tokens with purchases that could be later redeemed on future purchases. Fast forward to 2018, and in spite of the myriad technological advances and evolving customer expectations, the concept of redeeming your reward points with the quintessential loyalty scheme hasn’t changed too much. Airline miles, “cashback” account credits, gift cards, coupons – such rewards are burgeoning across every consumer-related industry.

Traditional Transactional Loyalty Programs No Longer Work

According to a survey of more than 1000 UK customers by consultancy Rare, many of the high street’s loyalty programs are under-performing across several parameters, including ease of use, quality of purchase experience, perceived on promise and personalization. The report identified likeability (86% of consumers say) and trust (83%) rather than reward schemes as the key drivers of customer loyalty, while purchases were reported to be mainly influenced by price (81%), quality (80%) and convenience (55%).

It’s clear that while far too many programs focus only on transactional benefits like rewards, coupons or discounts, they lack the emotional resonance needed to build true brand affinity and engagement. Because as much as your customers look forward to earning that complimentary coffee when the punch card is full, if the quality of service doesn’t ring true, they are not walking home with anything to reminisce upon later.

Highly effective loyalty programs entice customers to come back by incentivizing the right behavior. Such programs are based on the knowledge that it’s important to focus on building the right customer experience– before expecting customer loyalty. Savvy brands must therefore find ways to move beyond functional benefits and focus instead on building the right triggers at the right time, to create meaningful engagements with customers. Such engagements allow a customer to feel valued, which in turn inspires them to come back and experience the same service over and over again.

 

Using Market Basket Analysis to Create Winning Loyalty Programs

It has been seen that companies with the most successful loyalty programs rely on a variety of sophisticated analytics to understand the multiple different drivers that influence customer behavior. This helps them enable advanced segmentation and program personalization to create loyalty programs that add real value.

In this section, we will specifically discuss how Market Basket Analysis can enable brands to strike a chord with customers and in turn drive strategies that enhance their loyalty programs.

While the classic MBA reflects combinations of items that occur together frequently in transactions, its scope can be easily expanded to assess customer behavior over longer periods and various events.

For instance, in the digital retail context, instead of merely focusing on a basket that represents successful transactions, one can view the customer’s baskets more holistically. This can be done by including those products that were added to the cart but abandoned before buying, and also those that were viewed but not added to the cart. The scope can be expanded further to aggregate the many different products that each customer viewed over their entire lifetime, rather than a single session.

This insight, in turn, can be leveraged to compute the conditional probabilities of what a user is most likely to purchase during his next visit.

 

Next Product To Buy (NPTB) methodologies can be adapted to the specifics of various industries. In telecom, for example, the definition of a market basket can be tweaked to reflect the collection of value added services bought together over a period of time. This can reveal various patterns and connections that enable brands to deduce useful insights such as:

  •  the top 5 packages/services that a given customer is expected to buy so that the call center representative can effectively cross-sell or up-sell using personalized recommendations when the customer  dials in the next time,
  •  identifying the target segment of customers most likely to buy a product or set of products, which can be immensely helpful for marketing campaigns,
  •  pinpointing the various customer segments that are inactive and likely to slip away, and determining the best offers and timing for win back campaigns.

Similarly, companies like Netflix use association rules to deepen their knowledge of viewers’ preferences, and deliver relevant recommendations that delight customers.  Based on this, they are able to determine if they should suggest a show like say, Daredevil to a viewer who digs House of Cards (the answer is yes!). It also helps them figure out which subset of viewers who landed on Daredevil because of House of Cards would get hooked to a third show like The Defenders.

As customers become more demanding and empowered, brands need to build such 1:1 interactions at scale. This is the reason why brands with highly successful loyalty programs are incorporating a variety of components, ranging from tailored user experiences, customer-specific offers and personalized recommendations through data-driven methodologies. McDonald’s, for example, has come up with a loyalty program where they shoot customized offers to customers based on their favorite burger or drinks if they are inactive, and haven’t visited for a certain length of time.

 

The Bottom Line

As mentioned earlier, it’s about moving beyond the functional and transactional benefits and offering an extended ecosystem of complementary products and services into the broader setting of customers’ lives.  Loyalty needs to be viewed as a fully realized extension of your brand, rather than an afterthought- that’s the key to designing winning loyalty programs. And advanced analytics such as predictive MBA would be paramount in achieving the depth of understanding you need to understand today’s empowered, connected customers and creating brand advocates out of them.

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