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Feb 28, 2005
How To

Gap Inc's Top 10 Rules to Create a Successful Customer Loyalty Program

SUMMARY: Open admission -- unfortunately this is not a typical MarketingSherpa article. You see, we interviewed Scott Key who heads loyalty programs for Gap, Banana Republic, and Old Navy. Scott rocks. He has all sorts of fascinating results. But then he checked with his PR department ... and they squashed it. We respect them; they are just doing their job after all. While what Gap Inc.'s PR left us with was pretty darn good by other marketing publication's standards, it's not the hands-on tactical and data-driven info you expect from MarketingSherpa. Normally we'd just bail on the story...
"The apparel retailing environment has become remarkably challenging in recent years," says Scott Key, VP Relationship Marketing and Business Development for Gap Inc., the largest specialty apparel retailer in the US.

"Increasingly customers are willing to trade down in the category, and price transparency is a reality. Add to this issues surrounding media fragmentation, and it's clear that retailers need to find new ways to differentiate themselves and reach customers."

Some retailers' approach to these challenges are personified in a loyalty program. These programs allow retailers to speak directly to customers and offer a mix of hard (e.g., discounts) and soft (i.e., service-oriented) benefits. "Ultimately, effective loyalty programs are built on a solid brand position, product, and fair pricing. If the core of your offering is strong, loyalty programs can do a lot to encourage incremental customer spending and improve brand affinity."

"In the loyalty marketing arena, the apparel retailers are behind other verticals like hospitality/entertainment and grocery. Most apparel retailers don't have a freestanding loyalty program, but many offer one as a component of their private label card."

Key notes: "Gap Inc. is currently in this category and has taken a leadership position among private label cards.

"This October, we launched a new program, which lets customers earn rewards by using one card to shop across our family of brands (i.e., Gap, Banana Republic, and Old Navy). Our decision to link our brands and the underlying loyalty program was driven out of extensive consumer insights research and quantitative analysis."

"Brand marketing logic would argue against the brand associations, but we have chosen to follow our customers' interests in making a family of brands more readily available to them. We believe this is a meaningful competitive differentiator for our program and the first of its kind in specialty apparel retailing." Gap Inc.'s efforts to launch its new program posed a significant internal challenge.

"In an organization of our size, there are multiple brands, channels, and specialized functional areas. Aligning these teams around a common goal can be harder than you think." Following are some of the considerations Scott shares with others considering a similar effort.

Scott's top-ten list:

#1. Master the basics first -- Strong fundamentals (e.g., brand, product, price, service) are prerequisites for a successful loyalty program. Don't charge down the "path to loyalty" until your customer outreach says you are ready to support a more complex strategy.

#2. Identify drivers -- What drives your customers' feelings about your brand? Find out, and while you're at it, learn how you measure up to your competition in terms of loyalty.

#3. Ask yourself three questions -- Before adding any new programs or services, ask yourself -- How will this help the customer? Can the offering be supported at the necessary operational scale? Do the financials work?

(Example: Marketing might want to offer personal shopping services, but consumers might actually not yearn for this at all; conversely, consumers may be highly interested, but you are unable to justify the resulting increased payroll expenditures at this time.)

#4. Create unique programs -- Loyalty programs are readily cloned and then become a commodity. Think about what your unique strengths are and then introduce programs that will be difficult, if not impossible, to copy.

#5. Lead technology efforts -- Many marketing groups abdicate responsibility for the "technology side." In loyalty marketing, data and technical infrastructure are critical. At Gap Inc., marketing owns the customer database, which offers a true 360-degree view of the customer. Most CRM databases fail, while ours is thriving. That's due in large part to the investment we put into owning the infrastructure.

#6. Align the organization -- Launching a loyalty program requires support from many functional areas. The process will be significantly easier if you can align the organizational "stars" through CEO-level sponsorship, alignment of team goals, and incentive structures.

#7. Leverage all channels -- The value of the online channel is often overlooked during loyalty program development. The customers using your Web site today are likely the largest source of qualified reach you have, and you should leverage this opportunity to its fullest.

#8. Know and maintain your ethics -- Customers have expectations of privacy when dealing with a major brand. Consider this when handling data they share with you.

#9. Measure like crazy -- Pick your key metrics and stick to them. If you find yourself reporting back in terms like "enhanced brand image," you have probably strayed from your loyalty objectives. Gap Inc. utilizes 18 key metrics, which cover everything from customer satisfaction levels to financial return.

#10. Get outside yourself -- Loyalty programs are generally led by marketing but also require broader general management skills (i.e., finance, technology, customer service, operations, etc.). Marketers working in this area will benefit from being able to communicate effectively with other functional areas and manage their business across different levels and divisions within the organization.

Developing and leveraging an effective customer loyalty program is one approach to differentiation and a potentially exciting one for marketing organizations who increasingly need to quantify the return on their spending.

That being said, it will be harder than you think to launch a successful program. Having a strong leader, with a solid general management background, effective communication skills, with a decisive love for marketing, customers and technology, will certainly increase your chances of success.

That's a tough job to recruit and hire for. A company's best bet may be to grow a loyalty leader from within, by moving an executive through several departments over time. That's how Gap Inc. grew Scott -- over 15 years and still counting.

Note: Gap Inc. is a member of Shop.org, a forum for retailing online executives to share information, lessons learned, new perspectives, insights, and intelligence. More info at http://www.shop.org

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