Background and Challenge
When a leading department store announced plans to aggressively target a major apparel retailer’s core market, the company enlisted L.E.K. Consulting to develop a counterstrike strategy to strengthen its relationship with its core customers. As the company’s most loyal customers comprised a significant portion of revenues, heading off the competitive threat was critical.
One key component of the strategy was to strengthen the company’s existing loyalty program, which had multiple reward tiers that didn’t clearly differentiate the benefits for its most valuable customers. Additionally, certain customer segments were not being addressed in the client’s rewards program, including customers who made frequent purchases but the client only captured a small share-of-wallet from them. Increasing spend among groups such as this represented a further opportunity to be addressed by the loyalty program.
Approach and Recommendations
To address these issues, L.E.K. first identified the key objectives for the client’s loyalty program: retain valuable customers, increase share-of-wallet among existing customers, and capture customer data.
Then, the L.E.K. team performed a diagnostic on the existing loyalty program to identify areas for improvement. For example, L.E.K. found that the current loyalty structure and rewards benefits were not stimulating customer behavior. Furthermore, awareness of the program’s benefit trigger points did not give consumers clear enticement to spend more with the client.
To identify the loyalty program attributes that resonated with consumers, L.E.K. tested multiple incentives and rewards – from point expiration criteria to enhanced customer service benefits – and measured the attractiveness of each feature by tier level. This consumer insight, combined with an assessment of the economics of various benefits, enabled L.E.K. to design a program that drives intended consumer behavior.
Leveraging these findings, L.E.K. designed a new loyalty program with tiers that have tangible and compelling benefits to incent more frequent visits and higher annual spend. Finally, L.E.K. developed a marketing initiatives program to promote the launch of the loyalty program, including print media, in-store advertisements, staff incentives and email marketing.
The recommended loyalty program provided the client with a robust tool for stemming the competitive threat in the near-term and increasing customer loyalty and driving incremental growth over the long-term.