Marketers are undervaluing and under-utilizing the loyalty programs in which they have often invested a great deal of money, $2 billion in the aggregate. The bottom line secret to customer loyalty is that deeper engagement and personalized contact drive loyalty, not mass blast communications and gimmicks, according to a new report from the Chief Marketing Officer Council.

Most marketers (61%) believe that loyalty program participants are the best and most profitable customers. So it is not surprising that an almost equal number (65%) view customer loyalty program investments as a very essential, or a quite valuable part of the marketing mix. Unfortunately, only 13% believe they have been highly effective in leveraging loyalty and brand preference among club members, and nearly 20% don't even have a strategy for this. Another 25% admit they have not mobilized brand loyalists to become active advocacy agents, either.

Marketers are mostly inducing loyalty with discounts or free products and premiums rather than quicker, better service or improved customer handling, the survey also found. Some 39% view discounts and savings as the key member benefits, 34% view free products and premiums as essential incentives, while 33% are committed to offering points for merchandise redemption as a further motivator. Customer complaints also touch on a lack of individualized communication (23%) and issues with redeeming points and miles (18%).

Online channels dominate expected investments as nearly 60% of respondents said they planned to make better use of the Web and new community and networking tools to grow and develop loyalty programs. Other key actions for generating a greater ROI from club members include:

* Personalizing interactions and target messages (51%)
* Increasing frequency and relevance of communications (39%)
* Gathering more insights and intelligence for better customer handling (38%)
* Adding new benefits, incentives and inducements (36%)
* Studying industry best practices and making adjustments accordingly (19%)

Marketers appear to be falling down on extracting greater value from customer loyalists. When it comes to in-depth profiling of customers, the vast majority of marketers still only aggregate and analyze limited customer data sets. 73% collect basic demographics and 68% track the location of members, but critical insights -- such as advocacy rates (14%), brand loyalty and attachment (27%), personal preferences (31%), satisfaction levels (33%), and product preferences (38%) -- are not being leveraged.

Loyalty program operations, however, are increasingly challenged. Acquiring and retaining motivated and engaged participants is the number one problem facing 46% of marketers. Other obstacles and issues include:

* Measuring marketing value and effectiveness (42%)
* Collecting, integrating and maintaining customer data (41%)
* Deriving valuable insight and intelligence (38%)
* Delivering more personalized offers and inducements (34%)
* Creating more customized communications (33%)

Most member communication is monthly (30%), while 20% interact with members on a daily, weekly or bi-weekly basis. Cost-efficient email is the preferred mechanism for member communication among 84% of marketers, followed by printed mailings and statements (51%), corporate web sites (45%), dedicated club sites (32%), SMS text messaging (24%), and social networks (16%).

The Consumer View
Marketers can take a deep breath as consumers report they see value in loyalty program membership. A surprising 79% of consumers say they are very, or pretty, satisfied with their loyalty and rewards program experiences. But 70% want to see more discounts and savings, and 52% more compelling personal deals and offers as reward for steering their business to loyalty program operators. In a definitive call for personalization, 58% say they want more compelling personal benefits and services, as well as more relevant offers or individualized deals.

And while social media also tops the list of investments for marketers, consumers report that point-of-sale information, service representative interactions, company web sites and word-of-mouth are the primary sources for learning about loyalty clubs. Nearly 65% acquired information about the programs in retail environments compared to only 4% in social media networks, 3% in blogs and 11% in online advertising. This finding is not surprising when you consider that consumers engaged in loyalty programs demand high-touch direct engagements, versus mass messages, regardless of channel. Too much spam and junk email topped the list of negatives associated with loyalty and rewards program membership (44%), followed by too many conditions and restrictions (38%), and rewards that lacked real value (37%). Other prevalent beefs included members having a hard time redeeming points or rewards, program membership lacking value, as well as communications and service not being personalized or targeted specifically for members.

Surprisingly, soft economic conditions are not necessarily inducing consumers to sign up for loyalty and rewards programs. Only 22% said the economic climate had raised their interest in these programs compared to 41% who indicated it had no impact at all.

For marketers, the big question is how much loyalty club membership influences purchasing decisions and customer affinity and attachment to brands. Club membership strongly motivates, or is a big factor, in influencing buying decisions, for 52%. When it comes to word-of-mouth, nearly 20% of club members say they are big brand boosters and almost 50% say they sometimes talk up the product or service they support. On the other hand, 54% stated they would give up their loyalty or rewards club membership if they had a poor product or service experience with a brand.

Despite spam and junk email concerns and irritations, over 64% of loyalty club members want to receive information, notifications or updates electronically. That's good news for the environment and a significant contributor to cost reduction. Nearly 16% say they are comfortable visiting web sites to source their loyalty information and about 14% prefer a monthly printed statement.

Relevant Facts and Figures
* It is estimated that there are some different loyalty programs with 1.8 billion members in the U.S. (COLLOQUY 2009 Loyalty Census).

* Marketers spend about $2 billion annually on operating these programs, reports PROMO Magazine.

* The average U.S. household is enrolled in 14.1 loyalty and rewards programs, but is only active in 6.2 of them, notes COLLOQUY.

* Top U.S. loyalty program memberships ranked by industry include Financial Services 422 million; Airline 277.4 million; Specialty Retail 191.3 million; Hotel 161.8 million; Grocery 153.3 million; Mass Merchants 124.8 million; Casino/Gaming 106 million; Department Stores 92.8 million; Drug Stores 73.9 million; Fuel/Convenience 51.2 million; Restaurant 13.7 million; Car Rental and Cruise Lines 10.7 million; and all other types are put at 127.9 million, reports COLLOQUY.