Customer Loyalty Programs

June 5, 2009sparxoo_admin

brand market strategy and segmentation for business growth
Photo by Dimitri Castrique, from Stock.Xchng

Alison Streeter, Emerging Leader

Customer lifetime value is an estimate of how much each customer is worth to a business in monetary terms. It reflects how much a company should be willing to spend to acquire and keep each customer.  Loyalty programs may become the link between the new era of marketing via social media and online communities.  They serve to recapture and reinforce a company’s most profitable customers by keeping them involved in company initiatives, offering them rewards, and sending personalized messages to make them feel welcome.  A personalized marketing approach to the target consumers is the most effective way to gain and retain business in the long run.

In many ways, loyalty programs are the price you pay for individual customer data. You make money from the careful use of this data. When you know the identity of the customers in your (branded) community, you can:

  • look introspectively at their behavior within your business
  • identify your best and potentially best customers
  • enrich this with third party data if you choose
  • match it all to their behavior in the community – what do they post about, what ideas do they rate highly, what do they disagree with, how do they rate us (in Net Promoter terms) – segmentation by ‘behavior in the community’ allows you to profile your brand advocates usefully using insight into their attitudes and beliefs.

Harrah’s Entertainment, a leading casino company, puts much effort into customer loyalty programs.  Providing their most profitable customers with the best experience possible is at the heart of their business strategy.   They focus primarily on service and the customer, customizing the experience to each and every individual with a high level of customer intimacy.

Harrah’s creates value through the point of Customer Intimacy.  The gambling company concentrates heavily on its gaming customers – those who are “avid experienced players” that spend $2,000 or more.  This tactic of Harrah’s ultimately increases the lifetime value of each customer by making its consumers more loyal to the Harrah’s brand.  Its highly integrated information systems enable the company to customer understanding and satisfaction, which will ultimately increase the customer lifetime value.

Some key factors that enable Harrah’s to succeed are its intimate knowledge of its customers, such as demographics, visitation information, gaming information, and preference behavior, and its ability to exploit this information by identifying the right targets and using the proper interventions.  Harrah’s acquires information from the loyalty card, their Hotel system, tournaments held in their facilities, and its business intelligence systems.

The Customer Relationship Management (CRM) at Harrah’s consists both of Database Marketing (DBM) and the Total Gold Program.  The CRM team developed an algorithm to accurately predict customer worth (the theoretical amount the house expects to win, over the long term, from a customer based on his level of play).  The Total Gold Program worked as follows: players would be given Total Gold cards which could track their play preferences, betting patterns, where they like to eat in the casino, how often they visited, and how much and how long they played.  This information, coupled with each customer’s basic information, was used to create sophisticated customer profiles.  In addition, credit-type cards were given to each of the customer segments and they could build up reward credits on their cards.  The more credits built up, the higher the reward opportunities they could receive (similar to frequent flier miles of the airline companies).  Rewards that could be won included jewelry, houses, cars, trips, money, etc.

The Total Rewards Program was put into effect to capture lost business by making it “easier for customers to earn and redeem rewards seamlessly at any of Harrah’s properties across the countries”.  In order to execute this program, an integrated IT program was established that linked all of the Harrah’s properties together.   This enabled customer level information to be shared in real time across from numerous casinos.  Cross-market revenues grew as a result of this program.

It can easily be seen that putting your customers first pays off, as is the case at Harrah’s.  Utilizing the optimal customer loyalty programs serves to invite and keep customers that are the most profitable to the company.  The lifetime value of a loyal customer is worth much more to a firm than one might think, and it pays off to keep these beneficial customers in the long run.

Reference: Harrah’s Entertainment Inc. Case Study– Harvard Business Review