BrainTrust Query: Loyalty Marketing Needs a Revolution

Discussion
Jun 04, 2012

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

"The revolution will not be televised. The revolution…will be live." – Gil Scott Heron

It’s been over three decades since American Airlines introduced AAdvantage and launched the era of modern loyalty marketing. Yet after just attending three important loyalty conferences in Europe and North America, there is still way too much focus on this traditional model for loyalty marketing. The world has changed, especially for brands and marketers, and it is time that loyalty marketing starts to lead and not follow.

For loyalty marketing to be relevant in the C-suite and change how companies and especially retailers go to market, it needs a revolution.

The raison d’être for loyalty marketing — identifying customers (via opt-in), understanding their current and potential value, and then treating them differently — still seems to be missing from most companies’ loyalty and relationship marketing practices.

Even with the sweeping changes in media, technology, consumer habits and behavior, most loyalty programs today are not fundamentally different. They are still focused on hard benefits discounts, with soft benefits few and far between.

It’s too much mass direct marketing; not enough true relationship marketing.

Further, the impact of social media requires a different approach. In contrast to one-dimensional loyalty programs, social creates a dynamic, customer-differentiated experience that recognizes a range of interactions in a customer’s relationship with the brand. Meanwhile, loyalty remains stuck in the paradigm of a stop-and-go experience that rewards "spend" with "get."

So what should the revolution, and the future, look like?

Loyalty "programs" will be increasingly invisible, with published programs on the wane. Published programs are not going away, but they will be increasingly overshadowed by what happens privately between brands and select customers.

Relationship marketing wins. The sustainable profit from loyalty comes not from the published program itself, but from the relationship marketing and promotion that it enables. This is a fundamental shift from mass discounting and mass marketing via channels like e-mail (or worse, Groupon).

Customer experience should more consistently sync with the brand promise. A loyalty program won’t fix a bad customer experience, so it’s imperative that loyalty strategies extend beyond programs to include the customer experience. Customers have short memories, so when brand experiences are overly transactional there’s very little emotional imprint. Emotion, which comes from experiences and relationships, trumps points and rewards.

Revolutionary loyalty "programs" will be:

  1. Unpublished, real time and difficult to replicate
  2. Built on proprietary data and insights
  3. Able to recognize customers accordingly
  4. Driven by customers not brands, in social as well as all channels
  5. The largest organic growth engine available to a company

 

Discussion Questions: Ideally, how do you see loyalty programs moving past points and rewards structures? Which of the suggestions in the article seem most feasible and which face the biggest hurdles toward adoption?

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23 Comments on "BrainTrust Query: Loyalty Marketing Needs a Revolution"

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David Biernbaum
Guest
5 years 6 months ago

Discounts are a dime a dozen and I don’t need your loyalty program to find a way to pay less.

The biggest change in loyalty programs does need to be subtle. Loyalty needs to become more personalized and almost invisible with most of the interaction becoming private between brands and select customers. Remember, it’s not about you, it’s about me.

Frank Riso
Guest
5 years 6 months ago
Loyalty programs continue to be attacked these days. I think change is about to happen as I see more and more retailers moving away from just only loyalty card holders get the sale prices. A lot of supermarkets are now offering lower prices at the gas pump for their loyal shoppers and that seems to be a real plus for them. Specialty apparel retailers are now offering a lifetime discount once a shopper spends a significant amount at full retail prices. My best discovery was a local department store chain in New York City. Century 21 stores provide a red… Read more »
Verlin Youd
Guest
5 years 6 months ago

Some good food for thought in the article and I agree that general hard discount programs are likely to slowly fade away as more sophisticated, targeted, and personal programs take root. At the basic level, loyalty programs need to continually change in order to make loyal customers feel special and incent non-loyal customers to become loyal in order to feel special as well. It also strikes me that American Airlines, although the vanguard in the past, needs to do some work to refresh their own loyalty program.

Steve Montgomery
Guest
5 years 6 months ago

Loyalty is a two way street. If you want me to be loyal to you, then be loyal to me. Know that I am an individual with specific tastes and concerns.

When you send me a message, it should be something that is not broadcast to everyone in the program, but something that analysis of my purchase data indicates would be of interest to me. Less frequent, but more meaningful contact works better than a message a day or a week.

W. Frank Dell II
Guest
5 years 6 months ago

Many American retailers missed the boat with frequent shopper programs. The original concept was based on knowing, rewarding and communicating with your customers. Instead, most programs are simply tier pricing with newspaper circulars. The mass market advertising budget was to pay for the frequent shopper program. It is time for a change. Social media or one to one communication is evolving at a fast rate. What was originally envisioned is what is happening today. Customers need to segment into buying patterns, not social-demographic classifications. Then establish frequent two way communication tied to targeted rewards.

Max Goldberg
Guest
5 years 6 months ago

Loyalty programs need to have meaning in consumers’ lives. Points at the bottom of a cash register receipt don’t cut it with consumers. Rewards need to be immediate and have emotional significance, whether a discount or a different benefit. This means that retailers need to understand individual consumers, a proposition that can be expensive. Few retailers have the deep pockets necessary to make this happen. So while we talk about the need for personalized programs, the reality is frequently different.

Cathy Hotka
Guest
5 years 6 months ago

David’s correct. Most current “loyalty” programs give customers a way to pay less than the artificially jacked-up prices that others pay.

I’d like to see a program that allows me to state my preferences (skinny black pants?), then informs me when they come into the store. No need for discounts — just personal communication between the brand and the customer.

Dan Raftery
Guest
5 years 6 months ago
Frank Dell is right about the original strategies of loyalty programs in the food industry. As a resource fortunate to be involved in the development of some programs which still exist today, I watched the original enthusiasm get dampened by fears of privacy issues. I was once told by a retailer whose program I helped develop that I could not deliver a free market basket analysis for them because they needed to be able to tell shoppers that no one looks at the purchase data. So the very vocal minority won that round and retailers shirked from the opportunity to… Read more »
Bill Bittner
Guest
Bill Bittner
5 years 6 months ago
No matter what the vehicle, there are only four objectives for promotion programs: attract new shoppers, get current shoppers to buy more categories, get current shoppers to buy higher gross margin items, discourage current shoppers from going to a competitor. When you consider how frequent shopper programs address these objectives you first realize the contradiction in attracting and retaining customers. On one hand, a retailer who becomes noted for an aggressive frequent shopper program may drive away experimenters who might not try them because the shopper doesn’t have a card. On the other hand, accumulated points programs are the modern… Read more »
David Slavick
Guest
David Slavick
5 years 6 months ago
First of all, excellent point of view, Phil. Loyalty is a two-way dialogue to the benefit of both the enterprise and the individual — mutual gain. It does not need to be hard benefits (discounts, two-tier pricing) to be effective. What it does need to incorporate is a commitment by the enterprise to truly embrace 1:1 marketing, customer experience/service and all its component parts. The days of loyalty driven by a credit card relationship and managed on the back-end of a credit card statement/inserts with dull/boring offers are over. Those who seek to step it up need to start now… Read more »
Robert DiPietro
Guest
5 years 6 months ago
The key to moving forward is to engage with your customer and to be relevant. It is not about spend and get, but about creating that relationship. How do you know that one of your best customers just walked into your store (or website) and how are you treating them differently? Are they greeted with a personal shopper? Can they print out the last items they purchased and what sizes for which brands fit them best? Do they have a special checkout line or on the fly checkout? The best customers want to be treated differently than the pack, and… Read more »
Richard J. George, Ph.D.
Guest
5 years 6 months ago
I totally agree with the sentiments expressed in this article. I have never perceived the loyalty programs as currently structured, as anything more than a discount-driven continuity of purchase program. Loyalty occurs when companies are loyal to their promises of solving their customers’ problems. Therefore, going forward we need to listen to our customers and determine which problems or needs we are uniquely positioned to address. Once we know these need states, the opportunities for cultivating a viable (for both parties) long-term relationship present themselves. The key is to focus on the relationship, not the transaction, and get rid of… Read more »
Gordon Arnold
Guest
5 years 6 months ago

One of the benefits cherished by loyal and or large order customers is the coveted “private showing” experience. Retailers wishing to replicate this in the IT industry can and will create sites for these customers to enter and enjoy on an exclusive “made for only you” basis. While the template for this kind of site will require a significant amount of money and resources to build, the clamor to earn and keep membership in the best of these sites will pay well.

Doug Pruden
Guest
Doug Pruden
5 years 6 months ago
Loyalty programs certainly do need to be totally re-structured. We just need to accept that for those who take the first steps toward the “revolution” that Mr. Rubin discusses will not do so without pain. Few loyalty points programs were built with test and control groups, so it’s virtually impossible to tell how much true lift in business they are generating — compared to the cost of promoting and executing the programs. But even if they are now just me-too offerings that produce little real upside, the first major airline, hotel chain or supermarket to back out is the current… Read more »
Dave Carlson
Guest
5 years 6 months ago
I agree fully with Phil’s 5 tenets of revolutionary loyalty programs. Steve Montgomery adds the concept of “permission marketing,” well described by Seth Godin in a book by the same name. Almost every commenter, using different words, makes the critically important point about true content relevance — the customer’s needs are best based on what they buy, not their address or demographics. Speaking for the FMCG industry, most senior executives now know that a revolutionary loyalty program delivers a strong competitive advantage. Especially true when the best (most relevantly targeted) programs the retailer AND its vendor partners have to offer… Read more »
Bill Hanifin
Guest
5 years 6 months ago
Glad to hear someone chime in with what we’ve been talking about the past year or two. I fully agree with Phil that the business needs to change and his outline of 5 points of revolutionary loyalty programs is valid. Another interesting question to consider is where the innovation and change will come from. As Phil, I have heard the jungle drums beating, and most of the drumming has come from forces outside of the traditional loyalty provider set. There is not only big change afoot from a customer and execution standpoint, but there will also be dis-intermediation of traditional… Read more »
Ted Hurlbut
Guest
Ted Hurlbut
5 years 6 months ago
In the world of mass-market retailing, where price is the driver, these so-called loyalty programs will never evolve beyond delivering targeted discounts to drive volume. To suggest that these programs could evolve into something based on a relationship between the retailer and customer is to suggest that the customer ultimately is looking for something more than the lowest price and that the retailer is capable of delivering more. That’s just not the way things are. In those retailing segments (primarily upper-end specialty and luxury retailing) where value is denominated in something more than just low price, retailers have been building… Read more »
Mark Burr
Guest
5 years 6 months ago
I think Cathy Hotka makes the best point in the discussion so far about what types of things a retailer can actually do that create “real” loyalty. Current programs do little more than train the knowledgeable consumer to be disloyal. The customer grants loyalty by experience and by how the retailer interacts and treats them as a customer. Years ago, a local retailer where my Dad purchased suits used to call him and let him know that they had two or three suits in that he would like. They knew his taste, size, and the last time he purchased. They… Read more »
Ralph Jacobson
Guest
5 years 6 months ago
I actually don’t even call 95% of the programs in retail “loyalty” programs. They are typically mass, untargeted and unwarranted frequent shopper discounts. They are non-differentiating. They are not compelling. My wife has all three major grocer cards in her wallet… not because she is loyal to any of them, but because she simply doesn’t want to get ripped off by not getting the POS discounts. I think the best loyalty programs out there started in airline and hospitality industries, however, a few great retailers have made their programs work, by building the brand, rather than by discounting the products.
Herb Sorensen
Guest
5 years 6 months ago

Count me as a skeptic. Any program run by a huge organization that is primarily focussed on the supply chain, both operationally and for profits, is simply not going to engage shoppers. As I often point out, we are dealing with, mostly, self-service businesses, which means the customers serve themselves. This means that retailers’ real skills are in managing the supply chain, facing another direction, rather than managing the shoppers, which is what “loyalty” programs are ostensibly about. NOT!

Matthew Keylock
Guest
Matthew Keylock
5 years 6 months ago
Good discussion and comments. One challenge that is big for retailers that hasn’t been commented on is the difficulty in aligning objectives and measures across departments to deliver on a loyalty proposition. If loyalty remains a marketing-only initiative, it won’t get much past a few coupons, some communications, and maybe some digital and social levers. As many comments suggest, it needs to be able to influence individual customer needs around things like price, product and time, and do so in a personalized way. For this to be possible, loyalty needs to be a strategy not a tactic, and all departments… Read more »
James Brooks
Guest
James Brooks
5 years 6 months ago
It is all about the relationship! Thank you Phil for the 5 points and great comments by most. This is the ‘information age’ and those with the best information will win — but only if they USE it, and USE it correctly. This means C-level support and a mindset that makes the customer feel special. Not the shotgun approach that gets me lower prices on select items or is only valid on select days. Can you say “herd the cattle, trade in margin erosion for the customer to give you their proverbial ‘name, rank and email address’? Followed by generic… Read more »
Phil Rubin
Guest
5 years 6 months ago

Thanks so much to everyone for the thoughtful and insightful comments. We’ve had tremendously positive feedback and as we’ve long espoused loyalty as a brand differentiator and eschewed traditional, tired approaches, it’s welcoming to see so much agreement.

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