BrainTrust Query: The Death of Loyalty Rewards As We Know Them?

Through a special arrangement, presented here for discussion is a summary of a current article from the Hanifin Loyalty blog.

I’m sensing a tipping point in how customers relate to loyalty program rewards, and my thinking goes like this: When customers choose which company to do business with, rewards just don’t matter like they used to.

My take is that the classic loyalty reward scheme — earning points toward "hard" rewards for repeatedly doing business with a company — has been trumped by the customer experience. In other words, today’s customer is more likely to opt for a better experience today, than accept a lesser experience that pays dividends down the road.

Let’s start with a personal example. I recently cleaned out my wallet and found reward cards for both Borders and Barnes & Noble. Now, I know I have points in both of these programs, but I haven’t engaged with either brand for years. Why? I’ve given all my business to Amazon, which for me offers a better customer experience.

A recent blog by marketing guru Seth Godin points anecdotally to a similar trend toward "experience over rewards" happening in the airline industry. Mr. Godin believes that the greater the risk involved with getting a reward — one we have to save for and may never use — the less we value it.

He writes: "Frequent flyer miles, for example, began with the promise that if you flew an airline regularly for months (or even years) you’d get a free flight. The airlines oversold the miles and undelivered on the free flights, though, so the reward started to lose its perceived value — too much risk that you wouldn’t get the prize you wanted. Many of the frequent flyers I know have ceased to ‘save up’ and now use their miles for upgrades, moving the benefit closer in time."

In another sign of the sea change, several companies are now offering customers "loyalty rewards" with no points, or long-term loyalty, needed. Take the telecomm space, where both Verizon and Optimum have recently launched reward programs with merchant discounts, special promotions and exclusive content–with no strings attached. Prove you’re a customer and you’re in.

Why is the trend moving toward more automatic and instantaneous recognition of customers? Mr. Godin attributes the change to the internet, stating, "One of the many things the web is changing is our focus on now." I see his point. Now more than ever, today’s consumer wants things at the speed of the Internet, whether it’s information, customer service–or a perk for being a customer.

BrainTrust

Discussion Questions

Discussion Questions: Do you also see retail loyalty programs inevitably moving more toward automatic and instantaneous recognition over earned points? Have consumers become less enchanted towards points-based loyalty rewards programs?

Poll

32 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Bob Phibbs
Bob Phibbs
13 years ago

PLEASE! Amazon is a better customer experience? Sure if you already know what you want.

But a better analogy would not have been B&N or Borders but a smaller bookstore who could have had their own reward program. A store with a curated collection of books that you could have your 300,000 choices reduced to a few because, even if just by their displays you could see a similar grouping of books you like. Bonus if someone helped you with it. That’s what makes loyalty stick.

As a frequent flier on United I can tell you its not the free trips–it is the fact they move me to the front of the line when a storm threatens to cancel. A biggie for a speaker. The upgrades = more room = greater customer service when you’re flying coast to coast.

Rewarding customers who know you is still smart. Call it old school. Call it loyalty but it’s what is being frequently dismissed in the rush to Groupon and mobile.

I detail much more in my manifesto: “Bricks and Mortar Retailing At Risk in the Digital Age” now available here.

Ryan Mathews
Ryan Mathews
13 years ago

Despite the persistent assumptions of marketers — consumers are not stupid.

The reason that “loyalty” programs are losing their appeal is that many of them were, at base, fraudulent to begin with.

Supermarket loyalty cards, for example, really didn’t offer what consumer saw as a discount, but rather established the “new normal” in pricing. As the article pointed out, for most flyers, frequent flyer programs failed to deliver on their promise and now, in the post merger era of air travel, one can be a platinum flyer (living in a hub city) and routinely never even get upgraded.

As to the author’s Borders and Barnes & Noble example, Barnes & Noble charges card carriers a fee and Borders now charges an up-charge if a card holder wants premium benefits. For the majority of book buyers, the benefit isn’t all that clear.

I’m not so sure what consumers are doing is trading service-in-the-hand for rewards down the line as much as it is that they are doing what they’ve always done — demanded to be treated as intelligent adults who can see through a transparent bait-and-switch marketing program or a data grab.

Paul R. Schottmiller
Paul R. Schottmiller
13 years ago

It’s about the perceived value and immediacy that effect that equation….how many lottery winners take the full long term payout vs. the discounted immediate lump sum?

Improved analytics (speed and content), mobility, and location capabilities have enabled more ways to drive immediate rewards and I expect this trend to continue as retailers look for the formulas that not only drive loyalty but also drive other metrics (i.e. inventory ROI).

Max Goldberg
Max Goldberg
13 years ago

If current loyalty programs are losing their luster, the owners of those programs have no one but themselves to blame. The rewards are too far away and competitors are offering better service along with lower prices (some even offer their own loyalty programs).

This is not to say that loyalty programs are dead. They need to be retooled to meet the realities of the current marketplace. Rewards should have levels that are easier to attain and they should be available when consumers want them. Then combine those programs with good customer service and consumers will want to build points in those programs.

Phil Rubin
Phil Rubin
13 years ago

The shift away from the ubiquitous points and rewards is a great topic, Tom, and one we are in support of for a lot of reasons.

First, there are too many programs that are short on soft benefits (e.g., those tied to the customer experience like upgrades and priority boarding to use your frequent flier example) and lean on rewards. Next, too many brands are offering generic rewards that are “me too” and indistinct from competitors’ programs. They don’t run the same advertising – why would it make sense to offer the same, tired loyalty proposition? Last, customers are increasingly sophisticated and recognize pricing parity and distribution parity, especially with the ability of Amazon Prime to compete with brick-and-mortar retail.

There’s one other area that is worthy of inclusion in this discussion and that is the ability for retailers to remain relevant away from the point-of-purchase. This is more than the “Now” and is directly tied to the “Next”. If Now is going to be better then the next opportunity is tied to what happens after the sale. That’s where the value of loyalty marketing is: the data that can be used to sustain and drive the relationship to succeeding transactions and developing emotional loyalty.

Roger Saunders
Roger Saunders
13 years ago

“Loyalty” cuts both ways. Consumers understand that they need to demonstate it in order to receive it. The “automatic” programs are offering an added convenience in reminding and thanking the shopper for their recent visits and purchases, via a “bounce back” rebate/discount.

These are simple and useful reminders, as they function as a marketing call back to the best customers. They also serve merchants well who are faced with the perhaps frustrating reality that the consumer shops across channels, and they have significant levels of “No Preference” in chosing the retailer they may use for varied items.

The Consumer Intentions & Actions (CIA) Survey points to the fact that when consumers shop for the following products, “Non Preference” is part of their repertoire of choice: Fast Food Restaurants 20%, Full Service Restaurants 35%, Pizza 30%, Women’s Clothing 30%, Men’s Clothing 27%, Children’s Clothing 55% Electronics 25%, Sporting Goods 47%, Home Improvement 23%, etc.

Loyalty programs make the statement to these and other consumers — “We’re not taking you for granted. We want you to come back.”

Well run loyalty programs have an important mix in the CRM arsenal for retailers — both via points and as “automatic” contact points throughout the year.

Gene Hoffman
Gene Hoffman
13 years ago

I can’t add much beyond what the experts above have already stated save for this: History is much fuller of the loyalty of dogs than of loyalty to retail loyalty programs.

John Boccuzzi, Jr.
John Boccuzzi, Jr.
13 years ago

Loyalty programs have lost some of their luster, not because consumers don’t want them, but because retailers lost sight of the true purpose of the loyalty program and its value. Too many retailers today are tossing loyalty cards out without any real plan or purpose. The results are ineffective, expensive, and possibly reputation damaging programs.

Loyalty programs need to focus on providing savings and special treatment to customers to help them know they are valued. So, how can grocery retailers make their loyal customers feel special?

Some ideas: Provide a free cup of coffee when you enter the store (just swipe your loyalty card at the coffee counter); Loyalty card holders get their groceries carried out to the car for free; A thank you gift each quarter for loyalty card holders that have been active at least 8 times in the last quarter. You could hand out a Free PL item that you want your loyal shoppers to try. Are these ideas expensive? Maybe. But are they more effective than current approaches that try and draw from the masses that only then come in and cherry pick your sales?

Make me feel special and I will be loyal.

Bill Bittner
Bill Bittner
13 years ago

This article actually ties very closely to an experience I had this weekend with a friend while shopping at a local A&P. In her case, she was very upset because for some unknown reason A&P had decided to reset her “lifetime savings” total. I don’t know why A&P did this, whether it was an accident or intentional, but judging from this shopper’s reaction it was not a good idea. As she said, “I enjoyed reflecting on the total as it approached the price of a used car.” Obviously, this consumer valued the “points” she saw accumulating on her frequent shopper card even though they weren’t directly applicable to future discounts.

Which actually brings up another perspective to this article that comes from an old marketing class where the teacher pointed out that one of the biggest mistakes a marketing executive can make is to project their own feelings onto the general population. Personally, I have never been a big bargain hunter, I have usually focused on the revenue side. Not that I would throw away money, but I am not clipping coupons and rolling up frequent shopper points. But many people, and even more in this economy, are looking to reduce costs. This makes the emphasis on costs more important.

I think the challenge for retailers is to make sure their frequent shopper awards are relevant. And this is where I focus back to the A&P decision. I don’t know why they decided to reset the lifetime totals, but intuitively I would think providing short term rewards based on intermediate totals would be more appealing to shoppers than long term earnings. But then again, that is only my opinion.

Gene Detroyer
Gene Detroyer
13 years ago

Ryan Mathews says it all, “Despite the persistent assumptions of marketers, consumers are not stupid.”

It makes ultimate business sense to reward your most loyal customers. They are the most profitable customers you have and you should do everything you can to keep them. Unfortunately, most loyalty programs are generic in structure and have little meaning to the customer. Some that are terribly unique are so complicated that they ultimately have little meaning. It is not a matter of instant rewards, it is a matter of meaningful rewards.

With regard to experience, loyalty programs and experience…they are not trade-offs. The Amazon example is perfect. There is nothing that Borders or B&N can offer in customer experience to beat Amazon. No loyalty program in the world can change that equation.

Tony Orlando
Tony Orlando
13 years ago

Here is an idea for a loyalty card. My employees and our hot deals are the only loyalty card we need to make us different than the chain stores. Consumers are not stupid, and if you provide consistent low prices, and extreme value deals every week, the loyalty is built in. Top-notch service, and offering up super deals, without the consumer having to fetch a card at the checkout, is preferable to the time-starved consumer.

Richard Gordon
Richard Gordon
13 years ago

I do believe that the length of time it takes to receive your reward makes a significant difference in the amount of customers who hang in there and value the reward. However, I believe the real problem with many of these companies, as well as anyone who attempts a loyalty reward program, is that customer loyalty must be earned by your business first and foremost through your customer service and overall company brand, before you can expect any loyalty program to really pay off in terms of true appreciation from your customers. You can’t irritate your customers through other decisions and actions and then expect them to blindly continue to do business because you offer a reward card.

“The goal of a good loyalty card program is that it should be regarded by the customer as a special perk or membership card. The card and the program should allow your business to know the customer’s preferences in brands, colors, interests. . . maybe even their favorite wines, authors or foods (depending on what you sell). The ultimate goal should be to help bring your store and the customer closer together.” Above all, it should be a warm “thank you”, not a “hang in there no matter what we do to you.”

Mark Burr
Mark Burr
13 years ago

Mr. Mathews couldn’t be more right. Maybe fraudulent is even too weak of a word. Consumers aren’t stupid.

In the first place, as I have said many times, these aren’t loyalty programs. Retailers like to think they are and that they are the ‘silver bullet’. They are not.

Consumers own their own loyalty. Forcing them to use a card to get their weekly prices or to simply do business with you at a price they would have charged anyway is nothing but what Mr. Matthew’s refers to as a ‘data grab’.

As the writer points out, check your wallet or key chain for the numerous cards. I may be rare, but in most cases unless I have to have one to just get the regular price, I don’t sign up period no matter what the false ‘reward’ of having the card might bring.

Consumers exercise their loyalty when they choose to purchase from your store when they have other choices and consistently make that choice. I would and have continuously made the argument that above all else, consumers make that choice based on consistent experience above all factors. They would rarely make that choice simply because they have a card in their wallet because the retailer forced them to do so.

Consumers own their own loyalty. Retailers going about earning it with out fraud and gimmicks will have much greater success.

Billy May
Billy May
13 years ago

I actually take a contrarian point of view vs. the other “pundits” on this thread. Now, I do believe loyalty programs have a place in services-based industries such as airlines, hotels, etc. It is a way to differentiate and as the other authors point out, there are some softer benefits (upgrades? softer pillows, etc.) where the value lays currently. But loyalty programs for loyalty’s sake is a losing battle.

Think of it this way–think of some of the best brands in the consumer space. Nike, Ralph Lauren, Coach…do they have loyalty programs? No. They have differentiated market positions and differentiated offerings/experiences which elicit greater engagement, participation, and thus, loyalty.

What about world-class retailers with superior financial returns? Does Williams-Sonoma have a loyalty program? How about Zara or H&M? How about Whole Foods? What about Nordstrom, which has a credit card and a limited “double points” program? To a merchant, loyalty programs are an excuse, a byproduct of laziness and limited market differentiation. I have to discount or promote to you for you to shop.

Amazon’s algorithm and Prime programs aren’t truly classified as loyalty programs but instead, are tools to improve the consumer experience, and thus, drive greater loyalty. No discounts; no promotions. Just better recommendations, reduced friction, more seamless transaction.

Now, using “experiential” marketing to drive loyalty–think about the NIKE ID concept which encourages participation and drives registered user data–is quickly becoming the norm for market leaders, allowing for greater insight and improved offerings. This is the “now” Seth references. And mobile could quickly become just another discount channel (hey–come in and get $20 off) instead of a way to better connect the physical and the digital.

Smart marketers recognize this challenge. The best ones create unique offerings that engender loyalty and stand the test of time. We’ll see what shakes out from today’s social and mobile spaces, but I guarantee you, if it’s discounts to drive foot traffic and “loyalty,” the impact will be fleeting.

Bill Hanifin
Bill Hanifin
13 years ago

From reading this string of great comments, I might distill the remarks of our panelists this way:

1. Loyalty programs have their place but need to be executed with more imagination and innovation.

2. Even the best conceived programs can’t overcome certain competitive obstacles (Honest marketers will admit to this).

3. Customers can’t be bribed, fooled, or cajoled into patronage no matter how many miles or points are offered. More than ever, there has to be a holistic approach adopted to engender sustainable and valuable customer behavior to meet objectives for the brand.

Interesting to me is that the core players in the industry are seemingly trapped in traditional models and quick to defend the status quo. There is a very short list of experience loyalty marketers who are tracking the evolution of Consumer 2.0, understand Millennials, and are breaking new ground in social loyalty.

Brands and the consumers they seek to serve will be wise to listen to new ideas from companies nimble enough to execute enterprise loyalty in the digital world.

Dan Frechtling
Dan Frechtling
13 years ago

The Hanifin Loyalty Blog offers good evidence about a tipping point where loyalty rewards are trending toward immediacy. Yet there are variants on this story. Here are a few other observations–admittedly opinion-based and unscientific:

1. The difference between frequently and infrequently used retailers. For the average shopper, the utility of points owned at a bookstore pales compared to points earned at a grocery or big box retailer. The same is true for points earned on, say, American Express.

2. The difference in value of points to regular versus irregular shoppers. More regular or “loyal” shoppers will more quickly accumulate points and have more reasons to redeem them.

3. The difference between leaders and also-rans. Consider the strategic benefit Tesco derives as contrasted with a loyalty program that simply presents two-tiered pricing.

Brian Woolf of the Retail Strategy Center describes how Tesco defied conventional wisdom and doubled the rate at which shoppers earned points. Analysts estimated a drop in margins due to higher costs. Instead, Tesco margins and sales actually increased.

Tesco has (1) become a frequently used retailer (adding stores, adding e-commerce, and adding department store items and banking services); (2) differentiated how it rewards its most valuable shoppers; and (3) increased the distance between itself and other retailers.

From Tesco’s Half Year Report in October: “whilst loyalty has been declining across the industry as a whole, Tesco has…widened the gap with its key competitors.” And “Tesco enjoys the highest level of customer loyalty among the major supermarkets…Despite low levels of industry like-for-like growth, Tesco grew sales faster than the market as a whole.”

Stacey Silliman
Stacey Silliman
13 years ago

All one has to do is look at Nordstrom’s loyalty program. Cardholders are entitled to free shipping for internet purchases, and you earn Nordstrom Rewards certificates in $20 increments when you make frequent purchases. They know how to treat a customer special, whether inside the store or through the virtual shopping experience.

Doug Stephens
Doug Stephens
13 years ago

What I’m projecting is that loyalty offerings are going to become far more polarized in nature. We will continue to have the mundane point-per-dollar-spent type programs but we will also begin to see a new breed of exclusive communities specifically for elite customers. These exclusive branded communities will not only offer real tangible rewards but also social and lifestyle benefits.

Ted Hurlbut
Ted Hurlbut
13 years ago

Rewards programs were never more than a vehicle for offering targeted promotional discounts. But once you’re out on the slippery slope of discounting, why limit it to targeted customers?

Ed Dennis
Ed Dennis
13 years ago

The trend is moving to instantaneous because the consumer has learned that he/she cannot trust the integrity of any of the issuing companies. I was a victim of Delta Air Lines. At one time I had over 1 million miles and Delta found a way to devalue each and every mile and also charge for redemption. While all of the miles were eventually used, my feeling toward Delta will never recover.

My fondest wish is that loyalty programs be declared illegal. I am sick of having to carry around a pack of cards or 3 key chains full of FOBs just so I can shop and be afforded a retailer’s best prices (as if my money isn’t as good as everyone else’s). Imagine for a minute that a retailer calls you and tells you that if you shop in their store you will be charged higher prices unless you join their secret club; would you ever go? Somehow, this just seems to violate everything that is American!

Doug Fleener
Doug Fleener
13 years ago

My wife just got back from two grocery stores that don’t have a loyalty program. First she went to a local store Market Basket that has the lowest prices around.

Then she shopped at Trader Joe’s that has a great selection and terrific service.

She got low prices, distinct products, and great service without wanting or needing a card.

I don’t want companies to buy my loyalty. I want them to earn it.

Personally, I’m loyal to a retailer that sells what I want or need in a way that makes me feel appreciated and respected. I want to be a part of these retailers’ community.

Forget the card, forget the points. Be extraordinary.

David Livingston
David Livingston
13 years ago

My experience is, unless you are spending at least $10,000 a year at a business (airline, hotel, retailer, etc), you don’t get much in return.

The instant reward is what I like best. I like Walmart’s loyalty program. No card, just low prices instantly. At the conventional supermarket prices are jacked up about 20% above Walmart. Then you have to scan your card and clip coupons and maybe, just maybe you might get the item at about the price Walmart sells it for. Then 95% of the time it’s still more than what Aldi sells it for.

Airline programs are a scam. First you can fly just about anywhere in the US for just a few hundred dollars so most people save their miles for that $800 flight. But that one free seat available for frequent fliers is always sold out. Sure there are plenty of free seats on those $59 flights. Rule of thumb is that if a store has a frequent shopper card, you are paying extra for it.

Janet Dorenkott
Janet Dorenkott
13 years ago

I didn’t like loyalty programs initially because I also felt that I shouldn’t have to carry extra cards around just to prove I am a regular shopper. I also felt it was a way for retailers to increase price and force me to carry a card to get the prices they should have been charging.

Today, I probably have about 50 loyalty cards. However, I only carry about 5. I’ve discovered the differences, abandoned the ones with little or no reward, and thrown out those that just send me coupons. The ones I like give me cash that I spend at their stores. Dick’s Sporting goods for example. They are always sending me $10. It forces me to go back in. I like Giant Eagle, because I like a free tank of gas every few months. I do like some of the airline and hotel cards because I do get upgrades. Marriott and Continental are the ones I get the most benefit from. And for that matter, there are some online stores that also have loyalty programs.

I would like if loyalty programs were automatic and recognized my credit card or license. The worst part is all the cards. But I do enjoy the rewards provided by some programs.

Kinshuk Jerath
Kinshuk Jerath
13 years ago

Almost every company offers loyalty programs now, and as many above have said, they often don’t give enough of a reward to consumers. So companies are routinely over-promising but under-delivering the rewards.

However, a new kind of loyalty program that has worked very well is one that provides awards in a different but often used category. For example, grocery chains offer consumers rewards in the form of discounts on gas purchased from gasoline stations in the local area, and this loyalty program has worked very well until now. One reason is that once you have bought grocery, you don’t really want to buy more of it (even at a discounted price) until the next trip, which can be far away in time. But you still need gasoline, and the reward suddenly seems more salient because it is at a different time and in a different context. Gasoline is also a category in which consumers feel more delight when they get a discount. I discuss this in a recent paper available here.

So while I think reward programs definitely have the power to keep customers hooked, some creativity is needed in the reward structure. Companies need to find situations in which every dollar spent irks consumers a lot, and provide discounts in a very salient way to reduce consumers’ expenses in such situations.

Doug Pruden
Doug Pruden
13 years ago

If we think back to the earliest days of loyalty cards two examples come to mind. First we had the punch cards from the donut shops and their likes: Buy 12 dozen, get the thirteenth free. No database, no sign-up, just an impersonal card and a volume discount. Then in the early 80s, American Airlines (and very shortly after United Airlines) created programs that allowed them to actually capture names and addresses of their customers and to thereby identify those individuals who were flying most on their airline. Their original goal was not actually to build an ongoing incentive program, but rather to identify those most valuable customers so that they might be provided with a special level of care to hopefully keep them coming back.

As others have mentioned, the airlines actually still do provide special care for those most valuable customers (early boarding, free upgrades, special customer care phone lines, priority re-scheduling after cancelled flights, etc.). But a couple of things have happened to that “frequent flyer” concept. First, though the basic concept has been tried in just about every industry imaginable, it really just doesn’t translate well in all cases. Top frequent flyers generate hundreds of thousands in revenue each year to the airlines, and their services are really custom made for those special differentiated benefits. Hotels and rental car companies enjoy similar fits, but not supermarkets, shoe stores, and many others. Second, the airlines recognized that their points had a tangible value and could be turned into called hard cash when awarded by banks, fuel oil distributors, and every other non airline merchant imaginable. That helped the airlines’ bottom-line (I’m told selling frequent flyer points to other businesses in some tough years meant the difference between profit and loss for several of the major airlines) but raised demand for those free seats, and set expectations among less than top frequent flyers that could never be fulfilled.

So are loyalty programs dead? Probably not for quite a while. But with every player in virtually every category offering some kind of points program, and nobody actually having proven the impact on sales, management will likely be reluctant to pull the programs until their competitors do the same.

Bill Cunningham
Bill Cunningham
13 years ago

I believe the Loyalty market will see a steady increase in virtual/digital rewards. Administrators are finally starting to spend money to update their out-of-date business models and reward platforms. In large part these reward administrators were slow to react to the changes in the outside world–for example, the social media explosion. I, like many of you, belong to multiple rewards programs and to date I have never been asked to Tweet, blog or Facebook post about my points redemptions. Not once. To me this a huge missed opportunity. And guess what? It’s basically free advertising for your rewards program. It’s a weighted referral because it comes from a friend.

Is it possible digital or virtual rewards solve the entire problem? No. Will digital or virtual rewards grow to a significant part of the preferred rewards mix? Absolutely. Reward administrators shouldn’t be resistant to this change. This is the next logical evolution for the industry. With no warehouse or shipping costs these administrators can deliver rewards on behalf of their clients more frequently (speaks to engagement) and at reduced costs (reward more customers with smaller budgets). The execution of the rewards can be set to be virtually automatic and delivery instantaneous. Picking up a free coffee when you walk into a book store is in my opinion not a viable option as it takes a valuable employee away from what is really going on in books stores–they are there to sell books, not take care of the free coffee bar. In case you have not noticed retailers aren’t over-staffing their stores over the past three or four years. Times are lean everywhere; they can’t afford extra people. Rewards need to be more integrated and easier to redeem and enjoy.

I agree with the comments of Bill Hanifin that the industry needs to make a conscious effort to understand Millennials, and break new ground in social loyalty. If you are not in the same space as your potential program participants how do you expect to engage with them?

The Millennials are the “I want my reward and I want it NOW generation.” This group not only expects immediate delivery of goods they demand it. Let’s look at where they spend their a big chunk of their excess money: music, apps, movies and games and mobile phones. Just ask Apple or look at thier sale reports. If the demands of this generation are not met they will take their business elsewhere. The Millennials are a group who are comfortable using using social media to post about good/bad service to their 300 plus Facebook friends and lean on those friends for recommendations in an effort to find a business who is willing to engage with them in their preferred space -right now that space is Facebook, Twitter, FourSquare , Gowalla and Groupon. These are the companies who are giving them what they want. Why should you care? There are 80 Million of them in the US alone and they like to spend money. Reason enough for me.

And I have not even touched on mobile rewards. Mobile is where your program participants are engaging with the work around them. Need proof? Access to Facebook via mobile browsers grew 112 percent in the past year, while Twitter experienced a 347-percent jump. And these numbers are growing at an even greater pace this year.

Wake up people! Clients and program participants are demanding meaningful rewards that connect and engage people. Program administrators need to move and they move right now.

Steve Montgomery
Steve Montgomery
13 years ago

Is there a value to loyalty programs–short answer yes if they provide a reason to be loyal. I agree, some of the best benefits for United is the ability to board first, have access to better (more spacious) seating, etc. For those who fly a great deal, having points to redeem for more flights might not seem like much of a reward but giving your kids flights to go somewhere is a nice perk.

I also agree that a loyalty programs such as most supermarkets have where I need to be a member simply to get the sale price does not make me a loyal customer. Especially one you learn all you need to do is give them a phone number (which may or may not be real) to get the discount.

I agree with those who said you have to be creative in what rewards you get. What may be valuable to you may not be to me.

Mike Atkin
Mike Atkin
13 years ago

I do not believe that Loyalty Programme rewards will ‘die’ in the manner that this article suggests, as instant rewards are little more than cash back and/or discounts and do not drive incremental growth. The reward element of a Customer Value Proposition is often very weak and irrelevant and members can easily identify the value of the offer (usually 1%)!

My comments are from a UK/European perspective and I believe that several of the programmes operated in this region are ‘real’ loyalty programmes and not just Reward Programmes!

My evaluation of US programmes is that many of them are just ‘points mean prizes’ campaigns and they fail to influence behaviour and create long term loyalty.

The technologies available to manage data together with a real desire to recognise the Lifetime Value of customers has meant that programme members are becoming more loyal. Practitioners are collecting and using lifestyle data as well as transactional data that enables them to target relevant Member offers that create behavioural changes and thus create loyalty and even advocacy.

The key to creating and delivering effective, relevant and attractive rewards is to offer members products and services that have a high perceived value but a low cost. In order to achieve this loyalty practitioners should seek experiential rewards e.g. Spa Days, Golf Lessons, Driving Lessons, 2 for 1 dining etc., and create relationships with reward partners that can offer gifts and services that increase the value of the currency (points/miles). For example, hotels, restaurants, fashion retailers, etc. There are many examples of this in the UK where points value can be increased up to 10x its face value. Not only does this increase Member satisfaction but encourages participation as Members are keen to earn points and will seek and respond to bonus offers.

Recognition is highly relevant for high net worth customers and best customers as they are often more motivated by ‘soft’ benefits such as added value services and preferential treatment e.g. free delivery, free entry to exhibitions, sale previews etc.

Both reward and recognition are key factors in creating and managing effective loyalty programmes and when they are targeted and relevant will drive incremental growth.

Instant rewards are fine as a ‘surprise’ or part of the acquisition and engagement strategy but members will become more loyal if they are involved in their relationship with a business and not just rewarded for their patronage.

Tom Rapsas
Tom Rapsas
13 years ago

Wow, an amazing response to this post with lots of insightful comments that have given me pause to think.

Ultimately, I believe the future of loyalty rewards is not a black or white issue, but more of a gray one. Some companies will stick with points-based schemes, while others will move on toward more instant or location-based rewards–and a good many companies will use some combination of the two. (Or as one astute commenter pointed out, it may be entirely based on the vertical you’re in.)

However, I think the most fascinating–and from the customer POV, the most compelling–change in the industry is the move to improve the customer experience on the spot by offering real time rewards and recognition. It’s fresh, it’s exciting, and may just prove to be more appealing to a new generation of consumers who want it “now.”

Much more on this to come in future blog posts at Loyalty Truth.

Roy Bergold
Roy Bergold
13 years ago

I agree that today’s consumer may not be willing to wait too much longer to get the promised reward from the typical loyalty program. As they are now and have been for several decades, most are structured to keep you coming back forever.

Plus, let’s face it: Most reward programs make it way too difficult to redeem the reward. This isn’t necessarily due to anything malicious on the part of the retailer, but things happen. Either the inventory is not available, the consumer needs to have accumulated scads of points, or it takes so long to get the reward that consumers either forget or don’t bother.

As a contrast, I think most consumers are adopting a habit of using very few programs many times and so their spending tends to ignore the many other programs. I also project that because personal service has once again become important (if not more so than before, if you believe the scores of blogs, tweets and Facebook posts dedicated to rants about poor service), consumers will demand programs where points are redeemed for “service upgrades” over actual merchandise.

Gerald Sawyer
Gerald Sawyer
13 years ago

I see this being true in a lot of areas, but I am in the grocery business and I see them still having value. I have seen customers avoid Walmart to go somewhere else where their rewards will actually make it cheaper than Walmart. I personally shop wherever the best deal is for most things, so rewards help with my grocery shopping.

Unless you have a specific place for a certain item, i.e. fresh fruits and meats, then almost everywhere carries almost every food item, so the rewards help, I believe, to steer you more towards a reward deal. I do believe the way you are treated helps as well but at least in my area, deals are the way I have seen people go.

Julius Dorsey
Julius Dorsey
13 years ago

I’m not seeing a decrease in loyalty programs, per se. I think most consumers don’t pay attention to loyalty programs that require a frequency of usage unless the benefit is a little more immediate.

Nevertheless, I question any premise which suggests that rewards have been, or should be a major factor in brand selection.

Do you really want to secure your brand with an add-on, likely to be copied by competitors? Better defense (loyalty) and offense (switching competitive users/trial among new users) are accomplished with intrinsic appeals linking products to users. There may be reason to look at the marketing planners for the cause of loyalty programs’ decline.

Could it be that loyalty reward programs have been over-emphasized to the detriment of building more integrated relationships with customers? Such a loyalty program is the equivalent of a “Lucky Strike Extra,” but those old enough will recall that the Lucky Strike brand message, “Lucky Strike Means Fine Tobacco” (L. S. M. F. T), in the promotions and advertisements was ALWAYS foremost.

When I joined Holiday Inn as Director of National Marketing in ’82, Priority Club had just been launched. Within a year, we saw the advantage in supplementing the existing reward structure to add dimension for travelers with varying frequency of travel. These supplements allowing redemption for special “within reach” rewards kept the program fresh, sustained participation, and reduced the costs of redemption among the most costly group to redeem–high frequency travelers.

Even back then, we began to mine the data to find better avenues to manage the program. Today the focus should be on volumes of information “card carrying” loyalty participants provide.

Smart companies offering frequency or loyalty programs are using the data they learn from behavior of their best customers to offer them targeted programs and promotions to maintain and strengthen customer loyalty. Market research alone is no match for knowing your customer’s actual behavior. Still, knowing the buying habits of top customers and using it to solidify the relationship and expand it, provides great marketing advantages.

The program is the side-show; key is the data derived to inform building the experience that Seth Godin refers to AS WELL AS building a more rewarding program to remind them why they selected the brand in the first place.