Retailers need to get emotional to engage loyalty program members

An eMarketer article yesterday pointed to a number of published studies that came to a conclusion that most of us have come to by looking at our key rings and over-stuffed wallets. Americans are members in a whole lot of loyalty card programs, but the percentage of those who are actively engaged in them is much lower. (Editor’s note: I finally removed the Pathmark fob and a few others that have not been used in years from my key ring as a result of writing this article.)

Research conducted by Catalina, referenced in the eMarketer piece, found that only 45 percent of consumers maintain their level of loyalty for the top 100 consumer packaged goods brands over a 52-week period.

According to COLLOQUY’s “Customer Loyalty in 2015 & Beyond” study, the two biggest reasons that members continue to participate in a loyalty program is because it is easy to understand (87 percent) and the rewards and offers are relevant (75 percent). The biggest reasons members stop participating are that rewards and offers are not relevant (56 percent) and earning rewards is too difficult (54 percent).

Another recent COLLOQUY article concluded that consumers define the value of a loyalty program differently during the acquisition and retention phases of the relationship.

In the beginning stage, customers are interested in transactional value, points and discounts. As time goes on, customers look for emotional value with rewards that align with their interests and values being key, along with a program’s simplicity and the time (preferably shorter) it takes to earn rewards. “Customers,” according to the article, “are clamoring for an emotional connection, and they want to be recognized as unique.”

BrainTrust

"These programs do not engender loyalty to retailers, they are simply part of a game to get lower prices. Consumers get these lower prices at the cost of their privacy."

Max Goldberg

President, Max Goldberg & Associates


"Relevant offers can create a value connection, but this is less than half the battle. Relevant experiences encourage an emotional connection — a much harder trick."

James Tenser

Retail Tech Marketing Strategist | B2B Expert Storytellingâ„¢ Guru | President, VSN Media LLC


"I don’t believe that consumers are looking for an emotional connection with retailers. Instead they want to know what the retailer offers them in terms of product, price and experience."

Joan Treistman

President, The Treistman Group LLC


Discussion Questions

DISCUSSION QUESTIONS: How can retailers use loyalty programs to better connect with consumers on an emotional rather than transactional basis? What current retailer loyalty programs are models for success?

Poll

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Cathy Hotka
Cathy Hotka
8 years ago

I had this conversation yesterday with a retail CIO.

Loyalty programs need to go beyond discounts and rewards to remain relevant, and provide customer engagement instead. What if customers could tell retailers what products they’re interested in and receive communications about those products only? What about special services for disabled customers or alerts about new SKUs? When loyalty programs get personal, they’ll really resonate.

Bob Amster
Bob Amster
8 years ago

It has always been my opinion that loyalty programs should not be implemented solely to erode gross margin but, rather to make the loyal customer feel that s/he is getting something special that non-members cannot not get. For example, remembering a birthday or special date if provided, or participation in a special pool or contest, or being invited to join in some drawing that includes items in a category determined to be of your liking.

These are ways to identify with and make a customer feel emotionally connected to the retail establishment. After all, when a consumer opts into a loyalty program, that consumer is telling the retailer: Look at me, at my purchases. Surprise and delight me with something that is meaningful to ME.

This is tantamount to permission to study the customer’s shopping patterns and use that information to do something that is special to that customer. An opportunity not to be squandered.

I don’t belong to any loyalty programs that do a particularly great job of hooking me in emotionally but that doesn’t mean that there aren’t any. Most of them offer tangible rewards which I am perfectly happy and of which I take advantage, but they are not emotionally rewarding (if you pardon the pun).

Frank Riso
Frank Riso
8 years ago

Retailers need to continue to find ways to add value for the consumer to their loyalty programs. The most recent use of “cents off” the price of gas has been a big change for many of the supermarket chains using the promotion. Another major concern for consumers with so many loyalty programs is the sheer management of all of them. I recently came in contact with a company the proposes a universal loyalty card to help both the consumer and the retailer better manage their loyalty programs. LOC Enterprises located in Cleveland, seems to have a unique view of how to better manage loyalty. Century 21 and Kohl’s comes to mind in the department store space as having done a good job. Century 21 mirrors the airlines with separate checkout lines for gold members. Let’s try that at the local supermarket deli!

W. Frank Dell II, CMC
W. Frank Dell II, CMC
8 years ago

What is the surprise here? Vast majority of frequent shopper or loyalty programs are simply selective promotions/discounts. Having high shelf prices for the few who are not members only sends the consumer to the competition or Walmart. Every wonder how a retailer gets a high-price image? Just have a high shelf price. For years price has been the only competitive difference for most retailers. Seems like all the merchant princes have left the industry. For all the pricing software sold, the consumer is still smarter. Profitable growing retailer know they need more than price. Consumers are simply not impressed with today’s loyalty programs. They only carry the card or load the information into the smartphone for the discount.

Anne Howe
Anne Howe
8 years ago

In a study done by Time Trade in 2015, 64 percent of consumers said that deciding where to shop would be based on customer experience in a situation of price transparency when items are priced the same across multiple retailers.

And guess what? Experiences provide triggers to emotions, and that’s what really drives many purchase decisions.

I use many loyalty cards to keep me feeling that I’m getting a good deal, especially on groceries, so there is a level of emotional satisfaction that is inherent in most programs. But over time there is rarely any time that the program itself gives an emotional jolt beyond “they remembered my birthday” (read this as “that’s the least they could do with gazillions of data points”).

So, in 2016, retailers had best be ready to ramp up the tangible experiences that result in “feel something, do something” among their core shopper base.

Brian Kelly
Brian Kelly
8 years ago

Deals are table stakes. Relationships are built upon a higher order of value.

Two things retailers know that consumers really want are:

  1. What is the right product for me? Educate customers, leverage the category knowledge of merchants. That’s easy.
  2. When are things going on sale? Share the calendar. That’s hard.

As we like to say, “retail ain’t for sissies!”

Max Goldberg
Max Goldberg
8 years ago

Most retail loyalty programs mean one thing to customers — savings. Most programs are confusing and void of significant rewards. These programs do not engender loyalty to retailers, they are simply part of a game to get lower prices. Consumers get these lower prices at the cost of their privacy. Retailers do little with the information they gather.

I prefer the old punchcard program that my local car wash offers. After 19 visits I get a free wash and have the emotional satisfaction of driving a clean car.

Ralph Jacobson
Ralph Jacobson
8 years ago

Mass, un-targeted discount programs are NOT loyalty programs. Deep customer penetration in these type of programs is misleading to use as a metric of success. Shoppers know that they must be members in order to receive the advertised promotions. Making it personal is key! And even the smallest retailers can now take advantage of compelling capabilities to create those truly personalized offers we’ve been talking about for years.

Ken Morris
Ken Morris
8 years ago

Retailers who understand their customers at the most granular and intimate level will increase the relevance of interactions and improve customer retention and loyalty and increase sales. Customer context is the answer. Customer context is “the interrelated factors of customer insights and environmental conditions that make the shopping experience relevant.”

Real-time retail is key to executing customer context and in-turn delivering that emotional experience. Integrating all customer touch points in real-time to create an “Amazon-like” experience across all channels creates an intimacy that has the potential to transform loyalty programs forever.

Effective loyalty programs make a big difference, as illustrated by the 44 percent of Nordstrom’s sales that are from loyalty customers in 2015. These loyalty customers spend four times more than non-loyalty customers and visit the store three times as often. Nordstrom’s loyalty program is truly a model of success.

Richard J. George, Ph.D.
Richard J. George, Ph.D.
8 years ago

I have never referred to these programs as loyalty programs. Instead, they are continuity of purchase-oriented. However, listen to the research and make them, whatever you call them, easy to use and relevant to your target market. Retailers need to be loyal to their customers, not the other way around. How do retailers display loyalty, deliver on their promises and solve customer problems?

Retailers need to identify those customer pain points and offer frequent shopper solutions to the same. I still do not understand why retailers do not follow the lead of probably the worst customer service business, namely, the airlines. What is a common source of pain for grocery shoppers? Checkout! How do the airlines solve this problem (in this case check-in rather than checkout)? They offer separate check-in lines or kiosks for their “frequent” (not”loyal”) flyers. Beyond this they address other problems, e.g., better seat selection, priority tagged baggage, etc.

Why doesn’t a retailer offer special checkout lines for its frequent shoppers? Seems to me that this would be a significant point of difference, insuring that shoppers dedicate more of their spending to a retailer who addresses this point of pain.

Dave Wendland
Dave Wendland
8 years ago

Meaningful loyalty programs? That’s a tricky question because most are based on discounts, increased consumption and email/mobile blasts that are impersonal and non-specific.

As was said by many panelists, the future of loyalty programs requires personalization. When some retailer finally cracks that code and relevance replaces randomness, consumers may start paying attention and participating for the right reasons.

Alan Lipson
Alan Lipson
8 years ago

I separate my experiences with loyalty programs into a few different categories.

First is the grocery store. I am a member of pretty much every grocery store in my area so that whenever and wherever I shop, I get the best prices. There is really no “loyalty” in this whatsoever. I do tend to shop one store more than the others, but that is due to overall product selection and location. So no emotional attachment or one program being better than another.

Second are the stores that provide branded credit cards and discounts on every purchase. Again, similar to the grocery stores, I’ll use them and if I don’t already have them I’ll wait to sign up until I’m ready to make a major purchase, then get the additional 10 percent off the first purchase. It does provide me some sense of loyalty in that I will go to those retailers first when deciding where to purchase, but if I have both home improvement retailer cards, then it comes down again to location, product availability and price.

Lastly the programs where I can earn points that eventually result in a discount or dollars-off coupon. The frustrating part for me now is that I lose the coupons as I have to be carrying them with me for the most part. Why can’t they just be on my account and available when I make my next purchase? Also, I understand from the retailer why they have an expiration date, but in many cases these are retailers I don’t shop very often so I lose the benefit. It’s frustrating and in some cases loses my loyalty rather than gaining it.

As a tangent to the discussion I would like to think about loyalty in a completely different format. Why is it always looked at as the customer being loyal to the retailer? Shouldn’t we be thinking about how the retailer should be loyal to the consumer? This is talking about the brand promise. Who are you as a retailer? What value along with product and services do you provide to your consumers? How are you helping the consumer to accomplish their goals and aspirations?

By answering these questions, you can probably earn more “loyalty” from your customers than through many of the programs currently in existence.

Ross Ely
Ross Ely
8 years ago

The most effective way for a retailer to improve its loyalty program is with personalized and relevant offers. Shoppers would rather see promotions for items they have purchased in the past instead of generic promotions, such as turkeys for Thanksgiving.

Shoppers today are willing to let retailers use their personal transaction data in exchange for compelling personalized offers on products that they want. These offers signal to the shopper that the retailer is listening and making an effort to earn the shopper’s business. Leading practitioners of this approach today include Kroger among the large chains and Foodtown, Lowes Foods and Shop ‘n Save among the independents.

Dan Raftery
Dan Raftery
8 years ago

Only thing people are loyal to in these programs is their wallet. The other hook that I don’t see mentioned, maybe because it has been forgotten, is mystery. S&H figured it out way back when. Some travel rewards programs deploy it with their redemption catalogs. It’s fun to see what is in the new Marriott Points book. Some different, cool stuff each time. By the way, I think “emotion” is mis-used here.

Andy Casey
Andy Casey
8 years ago

We need to make a distinction here. Customers should not be considered “engaged” with a loyalty program just because they use it from time to time. Most loyalty programs are focused on immediate discounts which means if you ever darken a retailer’s door for any reason (stopping for milk on the way home, whatever) you have to have a card to avoid being robbed. There is no loyalty involved on the store’s part and certainly not on the shoppers’.

Engagement always starts on the retailer’s side as they seek to market directly to shopper preferences rather than just giving price discounts to anyone with a card. That sounds straightforward and easy but in practice is anything but, which accounts for why so few actually do it.

Shep Hyken
Shep Hyken
8 years ago

The first thing retailers (not all, but many) have to do is stop thinking that their marketing program is a loyalty program. There is a difference. A free sandwich after ten punches of a card is marketing. Coupons for merchandise because you gave an email address to the cashier the last time you were in a store is a discount program. The best loyalty programs may have some of that, but they also connect to the customer on an emotional level. Maybe it’s recognition. You go to a restaurant and they remember what you ordered the last time, a favorite table, etc. (It’s in their system.) Same for a hotel. Or your salesperson at a clothing store knows your wardrobe and can make the perfect recommendations. (Also in the system.) Or, just be so good at what you do so that if the free perks went away, the customer would still do business with you. That’s loyalty!

Nikki Baird
Nikki Baird
8 years ago

I would replace “emotional” with “authentic.” The idea is basically the same, but there is a subtle difference. Yes, retailers can reward shoppers with experiences rather than deals, and this can help promote engagement, which, really, is the basis of loyalty. If there is no engagement, the key fob, as George says, gets removed.

But the basis of engagement is relevancy. And it is here where retailers really struggle. They make lots of guesses about whether an action they take or an offer they make is something the consumer might be interested in, and sometimes they even have feedback loops to understand whether they hit the mark or not, but more often they’re guessing there too.

The best way for retailers to short-circuit this issue and get on a clear path to engagement is to stop thinking about relevancy and start thinking about authenticity. And by this I mean, demonstrating genuine care and thoughtfulness about how to help consumers who shop with you. This is a lot harder than making guesses about offers, but in the end, when we talk about “emotion” in retail or in loyalty specifically, it is this demonstration of genuine thoughtfulness that consumers are really looking for. And if relevancy is hard enough, authenticity is well-nigh impossible, at least at the moment.

James Tenser
James Tenser
8 years ago

“Authenticity. If you can fake that, you’ve got it made.” – Groucho Marx

Relevant offers can create a value connection, but this is less than half the battle. Relevant experiences encourage an emotional connection — a much harder trick.

Consider frequent flyer programs. They’ve got it half right. After enduring many flights, gold and platinum flyers get a few experiential perks like better seats, early boarding, and access to the executive lounges. But the reward of a free trip is also kind of a punishment.

How do retailers use frequent shopper programs to improve experiences? There have been plenty of tries: Automatic re-ordering of pantry staples. VIP showrooms in department stores. Food and wine tastings and cooking classes. Early access to sales. Free home delivery. Opt-in e-letters or zines that address lifestyle interests. Tickets to local events. Charitable activities.

Applying the CRM discipline, it should be a straightforward matter to use RFM analysis to rank members by lifetime value and provide the most personalized attention to those at the top of the list.

Martin Mehalchin
Martin Mehalchin
8 years ago

In most sectors we have found that the quality of the product, service or experience is a far stronger driver of loyalty than points-based programs. Emotion often plays a role, especially when the retailer or brand offers products that are connected to peoples passions, not just their everyday needs.

Two brands that I like to hold out as examples:

  • REI who does a good job leveraging it’s co-op status to build community among it’s members in addition to offering a dividend.
  • Hilton is consistently adding experiential benefits to the HHonors program. By the end of this year, I’ll be able to use the HHonors app as the key to my room at any hotel in the US.

Allegra Burnette at Forrester is doing very interesting research in this area. Watch for he reports later this year.

Vahe Katros
Vahe Katros
8 years ago

Consumers are smarter and look at loyalty programs like Valentines day — chocolate and flowers, thanks I’m on a diet. I like what Dr. George defines them as: “continuity of purchase” (trackers.)

Great loyalty programs are not even programs, they are things brands do in anticipation of a need. When that happens, I don’t need any points — in fact, I’ll bring you business.

Li McClelland
Li McClelland
8 years ago

I’m thinking for starters maybe we need to just nuke it and come up with a whole new name or names to replace “Loyalty Program” to describe all the things and aspects being discussed on this board today. Clearly there is very little common meaning associated with this term.

Joan Treistman
Joan Treistman
8 years ago

It looks like everyone agrees that “loyalty” is a misnomer. Retailers want repeat business and advocacy. The latter is a spontaneous embrace built on a relationship, not just one-off transactions.

I don’t believe that consumers are looking for an emotional connection with retailers. Instead they want to know what the retailer offers them in terms of product, price and experience. And if there is an added value from a “loyalty” program it better be easy to understand and implement. Otherwise it’s just a source of database entries. And consumers know that too.

Karen S. Herman
Karen S. Herman
8 years ago

I’ve been a member of Macy’s Star Rewards for years and honestly, it is the one loyalty program that I consistently use, most likely because I receive relevant incentives via mail and email and my discount options are reinforced at time of purchase. Macy’s makes using Star Rewards easy.

The Plenti program, offered by US Loyalty and linked to Star Rewards, took me a while to join, but I did mostly to use the points against cosmetic purchases, which Star Rewards does not offer.

Bart Foreman
Bart Foreman
8 years ago

Most loyalty programs have been built on the premise of “spend and earn; redeem and save.” That’s transaction based thinking that rewarding the right behavior will drive more sales to our brand. And we have all proven it’s a good model but now the landscape is full of them.

Loyalty is the most overworked, overused word in marketing speak, even eclipsing “synergy.” We need to rethink what the new business drivers are and create new models around emotion, engagement and experience. Not easy.

Customers are not going to tell us enough to be smart but we can glean a lot by understanding better their buying habits and patterns.

We also need to change the focus of these marketing programs from loyalty to “retention” and “growth.” That’s a major shift in thinking. Think about it.

Prem Couture
Prem Couture
8 years ago

I agree with the comments about personalization and relevancy but would add the element of immediacy.

My observation is that over-reliance on spend-side analytics is creating too narrow a view of the customer to create relevance and personalization and it’s not enough in today’s world.

Here are a few examples to highlight the limitations of using spend-only insights:

  • Is customer-centric merchandising possible without obtaining in-store, shopping behavior insights?
  • Do loyalty programs tell us much about the customer’s profile, attitudes and interests?
  • Can customer communications be personal and relevant without knowing the shopper journey?

Here is my take: as the data universe around the shopper expands, brick-and-mortar stores are lagging behind online retailers for getting insights from combined spend, shopping, demographic and social data. With a fuller view of the customer’s in-store behavior, spend patterns and personal interests, online stores are realizing better engagement capabilities and ways to target shoppers in a meaningful way.

In fact, it could be argued that as customers increasingly look for immediate deals during the shopping journey, spend-side driven loyalty programs are actually contributing to an erosion of trust and loyalty — the opposite of the intended effect. Time will tell.

Seeta Hariharan
Seeta Hariharan
8 years ago

Loyalty programs need to have the customer at heart. My most favorite programs recognize me personally and make me feel like a celebrity whenever I check into a hotel or board an airplane. Retailers need to have the same mindset when it comes to loyalty, but it doesn’t have to be fancy. Sometimes the smallest, most simple gestures can make a customer loyal.

For example, a friend recently shared an experience she had while shopping online with a home-ware shop called Hammers and Heels. The store is run by women, offering U.S.-made, custom, exclusive-quality goods that are ethically sourced and support environmental stability — a portion of all purchases go to charity. Alone, this should be enough to make anyone want to shop with them.

As she was perusing online, a chat window opened that informed her she could “Talk to a real person here!” And just then, Kate, asked if she could help with questions about products. My friend replied she was just looking at lights and Kate suggested that she sign up for the mailing list because Hammers and Heels sends special offers and discounts only to those who are on the list.

So she did, and a few days later received an email from Hammers and Heels with a coupon code for $100 off new lighting fixtures. Two days later she received an email with pictures of more new lighting that would be added to website soon, but she could pre-order today before it hit the website.

I am not sure what happened after that but, in my opinion, this is simply good customer service. Loyalty program or not, that’s all any consumer wants.