CRM and Loyalty Programs Best Practices

In the following report, Hanover Research reviews Customer Relationship Management (CRM) systems and loyalty programs, outlining best practices as applied across a range of industries. In addition, it provides solutions for identifying key customer segments: Brand Loyalists and Brand Advocates.


Executive Summary

This report examines best practices in CRM and loyalty programs, offering examples where appropriate. As a rule, successful CRM initiatives are founded on the principles of strategy and organization. The selection of IT-based systems is secondary to the questions of scope and objective. Certainly data collection today requires IT systems, but more critical is how the company employs data and what it does with its information. In this regard, the age-old function of customer segmentation remains critical to CRM programs.

Overall, the goal of this document is to provide companies with insights so that they might design and then successfully implement CRM initiatives, which may include a loyalty component. The report does not provide an exhaustive list of best practices. But it does list the most important ones which have broad implications.

Structurally, this document has three parts. The first section provides context for a discussion on CRM and then outlines CRM best practices. The second examines best practices in loyalty programs and looks at company examples. Finally, the third discusses actionable segmentation, focusing on identifying Brand Loyalists and Brand Advocates.

Key Findings

  • CRM is best deployed in narrowly-focused increments, with clear business objectives. The idea is to initiate  a quick  victory, which can  set  the stage  for further successful CRM initiatives. Thus CRM involves long-term commitment and requires the dedication of leadership, not to mention a place in strategic planning.


  • Best practices in CRM involve brass-level sponsorship; a narrow approach with modest goals; cross-functional collaboration; proper use of data; close monitoring of the CRM initiative; an understanding that CRM solutions are investments which require cost-benefit analyses; and an acceptance that customers are not of equal value.


Figure 1: Best practices – CRM



Brass-Level Sponsorship and CoordinationTop management must back CRM initiatives because it involves cross-departmental efforts.
Narrow in Scope, Modest in GoalsCompanies that succeed with CRM take a highly focused approach, with feasible goals.

Inter-Departmental Collaboration

CRM often involves collaboration across multiple departments such as marketing, sales, and IT.
CRM Solutions Are Not Created EqualThe spectrum of CRM solutions involves costs, ROIs, and probabilities of success that differ. Analyze accordingly.
Customer SegmentationCustomers bring different amounts of value in revenue, loyalty, and advocacy. Invest in them appropriately.
 Data ManagementWith data analytics, companies can determine key customer segments. But it must use data discriminately.
Monitoring CRMWithout proper monitoring, CRM flaws can go unnoticed and become too expensive or too entrenched.


Best practices in loyalty programs involve effective program design; the ability to “fire” a customer; and recognition that controlling costs is critical. Furthermore, breakage must be monitored, which requires collaboration between finance and marketing, due to its impact on financial statements. It can also convey the success of a loyalty program. Finally, companies must always anticipate a failed loyalty program and create an exit strategy.

Figure 2: Best practices – loyalty



Design Effective Loyalty ProgramsCompanies must exclude the typical flaws and include positive components, focusing on the program’s purpose.

Know When To Lose a Customer

Some customers may not be worth the investment and should be discarded.
 Control CostsIf a loyalty program is not returning enough of a payback, it is a waste of money.
 Monitor BreakageBreakage (points issued – points redeemed) has implications on financial statements and can convey a program’s success. Monitoring it is crucial.
 Devise Exit StrategyGiven the competition, there is a likelihood that a loyalty program will fail. Plan for the worst.


Companies can identify their Brand Loyalists and Brand Advocates – two crucial customer segments in the CRM context – by either (a) monitoring these customers’ interactions with e-blasts or other online activities that track user responses, or (b) deploying well-designed surveys. Each of these “types” tend to cluster around the same area on the Likert scale and share the same behavioral traits and values.


  • Companies should create a shortlist of CRM problem areas and narrowly define each of them in terms of scope and possible solutions. For an illustration of these problem areas, companies may consult Fig. 1.1, which lays them out by segment and function. The graphic may help to identify which departments to involve and what stage of the CRM cycle the problem affects.
  • Companies  should  check  the  shortlist  with  Fig.  1.3,  which  provides  a  way  of assessing whether a problem qualifies as a “strategic pain point” and is truly worth fixing. At some point, it should also determine which “CRM fix” promises the highest return on investment while offering a reasonably high probability of success.
  • Following the prioritization process, companies should identify a single problem area and develop specific solutions to resolving it. This stage of the process calls for meticulous preparation and planning, which may require customer segmentation, identifying high-potential brand advocates, brainstorming on possible program solutions, and decided on which customers to “fire” and which customers to prioritize. Whatever the case, companies must outline the necessary measures, alter operations if necessary, establish clear business goals for the CRM initiative, and hold key personnel accountable for its delivery.
  • During the CRM-program implementation, companies should monitor the program for feedback and signs of failure and/or success. It must do so before a flawed initiative becomes too expensive or entrenched, and it must use feedback to tweak its approach so it can deliver a successful initiative in a reasonable amount of time.
  • Upon successful implementation of a CRM initiative, companies should communicate the success to the entire company. It can then use the momentum to enact further improvements along the CRM cycle, most likely in an area adjacent to the one that has just been improved.


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