1. Targeting Customers (1/6)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Targeting Customers (1/6)
Programme targets guide the value delivered by the products and services
Target customers
Best practice companies develop an understanding of the ‘value exchange’ that links target customers to them and how they must position their products, service and marketing communications to
… increase the number of target customers purchasing their products
… sell more products to existing target customers
… substitute high-margin products for low-margin products
… keep target customers longer
… all at lower cost per customer
Best practice companies target customers based upon a detailed understanding of
… customer segment needs and the economics of fulfilling them
… its own capabilities to meet these needs
… the abilities of competitors to meet customers’ needs, particularly when competitors have a cost advantage
In competitive industries, the loyalty programme must be developed in a way that it provides the company with a sustainable competitive advantage

2. Targeting Customers (2/6)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Targeting Customers (2/6)
Basically there are two targeting approaches
Statistics and data mining often help targeting the right customers
Best practice companies target their loyalty programmes for several customer segments. Basically, there are two ways for a sequential targeting (see left chart below):
Bottom up approach: Starting with a broad customer penetration. Targeting takes place in a second step and is based on more information about each individual.
Top down approach: A loyalty programme tries to target only on the most profitable customer segment from the beginning. This approach is possible when already owning the customer profile and profitability.
The example below shows a typical customer structure in a Telco. A possible target group might be the group with more than turnover (5% of the customers making 24% of the total turnover).
Percentage Turnover
Percentage of customers
Legend: Turnover Percentage Percentage
per month Customers Turnover
% 40%
% 18%
% 11%
% 7%
% 5%
% 8%
% 11%
Band of turnover in US $
Example: 14% of the customers between 100 and 150 US$ generate 18% of the overall turnover.
Figures have changed in this example
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
Source: Price Waterhouse,
1998

3. Targeting Customers (3/6)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Targeting Customers (3/6)
Performance measurement is a key success factor
To keep track of progress towards their goals, companies must develop a suite of performance measures based around
… growth in customer lifetime value
... growth in customer share of wallet
... penetration of the loyalty programme in the target segment
An example of a balanced scorecard for a loyalty programme is shown below:
Overall measures
1. Net profit
2. Net profit per club member
3. Customer satisfaction
Customer structure
4. Amount of club members
5. Change in the amount of club members
6. Average turnover per club member
7. Change of the points collected but not redeemed
8. Club penetration
9. Future cross-selling potential in each target segment
Loyalty programme profit
10. Decrease of churn/ defection due to the club
11. Overall gross profit
12. Securing the turnover of not defected customers
13. Cross selling effects
14. Cost reduction due to less win-back costs
Cost oriented measures
15. Total costs
16. Operating costs
17. Communication costs
18. Costs for point redemption
19. Costs for rebates
Process oriented measures
20. Amount of club members per FTE
21. Time from first contact to welcome package received
22. Average length of a customer call
23. Response; cost per mail; costs per order for the different actions
24. Amount of questions per telephone, internet and/ or
25. Amount of faults
26. Amount of address changes

4. Best Practice in Targeting Customers (4/6)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Best Practice in Targeting Customers (4/6)
British Airways uses a version of the strategic staircase to
map the behaviours of customers through their relationship
cycle. The objectives for each step and target group are listed below as well.
Value-based
Relationship
Commitment/Trust
Based Relationship
Understand what target customers need and give it to them
develop predictive behaviour models driven by data mining
personal promotions
proactive service to pre-empt problems
share value created through personalised rewards
Build a value-based relationship
Mutual Interest
Relationship
Leverage information to personalise the service that the target customer receives
personal promotions
superior service in comparison to new competitors
rewards and recognition
Leverage the relationship
‘Ready for Service’
Use information about customer segments to exceed their overall expectations
targeted promotions
responsive service
desirable, achievable rewards
Exceed the promise
Position the loyalty programme in the mind of target customers
reliable partner
fair and trustworthy
Make the promise

5. Best Practice in Targeting Customers (5/6)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Best Practice in Targeting Customers (5/6)
Winning new customers at AT&T
Winning back defecting customers at AT&T
AT&T redesigned how markets to segments based upon segment economics
it identifies underserved segments
it buys in market data and develops predictive models to identify target segments and the value exchanges that would produce the optimum results
it identifies the most likely prospects from competitors and then identifies potential reasons for not signing-on
it then develops and tests hundreds of market offers to win target customers from competitors
Its results have been impressive: in 1995 it attracted 700% more customers than in 1990, with 50% of marketing spend being directly trackable to closure compared to 5% in 1990
Customers defecting from AT&T are contacted up to seven times to win them back, each contact offering a better incentive to return. The incremental offers are based upon an understanding of the customer’s value to AT&T, what they can afford to give away to win them back and what has worked for other customers with similar profiles

6. Best Practice in Targeting Customers (6/6)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Best Practice in Targeting Customers (6/6)
Hilton hotels has developed a number of loyalty pro-
grammes targeted at different customer segments
Hilton HHonors programme for frequent stayers offers ‘double dipping’ where members can collect points from airline partners as well as HHonors points
Hilton Business Privilege programme for very frequent stayers costs GBP 30 to join but offers an extended range of services to members
It has also developed a programme for hotel agents and secretaries to reward them for placing congresses with Hilton hotels rather than with competitors
Target group simulator as a supporting tool
A target group simulator was developed with this metholodogy to specify the behaviour and benefits of certain (micro) segments. Based on the current customer behaviour, the company can estimate the impact and benefits of certain offers in a loyalty programme for each target group.