BrainTrust Query: What Does It Take to Become a Loyalty Marketing One-Percenter?

Discussion
Aug 02, 2013

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

It’s safe to say that the lifestyles of true one-percenters would be unfamiliar to most of us, even if for markedly contrasting reasons.

That said, are you surprised to learn that almost all of us are living the one percent loyalty lifestyle? Our entire industry, until recently, has been built on rewarding points that are accumulated and then redeemed at a future time for prizes, rebates and other freebies. The benchmark for this deferred discount has been one percent for a very long time.

This legacy loyalty model is changing based on the demands of Millennials and other digitally connected consumers. Soon you’ll see fewer of the traditional models that have been lovingly built by Boomers for Boomers.

Looking at one-percenters from a different angle, I probed two different wine and spirit merchants in the past month — one offering a two percent rebate for every $100 spent, the other three percent for the same threshold. No other perks came.

My reaction: Why spend money at either store for an expensive, high-margin product only to earn enough to put in the parking meter out front?

The offer was evidence of why retailers should not even bother to create a loyalty or rewards program if they aren’t going to put some effort into the design. It’s also a heads-up that programs based only on reward without recognition miss the mark.

An unusual perception of the underlying math of traditionally structured loyalty programs is held by many retailers and adds urgency to the need to change. While those 20-40 percent off sales are taken at time of purchase and don’t show as an expense item on an income statement, every penny of marketing expense related to a points based loyalty program is targeted like a bad guy in the cross-hairs of an assault rifle.

The comparison doesn’t seem fair, but no one said life would be fair. Perceptions are hard to change and therefore it is the job of loyalty marketers to use what they know best (data) and to put that knowledge to use to create new value propositions that will engage and delight the customers we serve.

If we do that, we can claim to be part of the loyalty marketing one-percenters.

What’s the shortcoming of the deferred discount rebate in most loyalty programs at stores and how does it reconcile with larger “sale” discounts? Is the promise of a “one-percent rebate” (or two or three percent, etc.) not going to be enough to drive loyalty programs in the future for retailers?

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13 Comments on "BrainTrust Query: What Does It Take to Become a Loyalty Marketing One-Percenter?"

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John Boccuzzi, Jr.
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John Boccuzzi, Jr.
4 years 4 months ago

Anyone creating a loyalty program needs to understand the following:

1) Why are you building the program? Trips, basket size, reward best customers because you’re nice? You need to know why before you think about what.

2) Make sure what you create is attainable in the eyes of a customer. If I earn 1 point for every $1 I spend and I need 100,000 points for a worthy reward, a consumer will not be interested.

3) Make sure you tie the value of the reward in with what your customers need or want.

4) Finally, keep it simple and avoid exclusions. Complex loyalty programs with exclusions rarely work.

Max Goldberg
Guest
4 years 4 months ago

In order to be successful (meaning consumers who are engaged, rather than along for the ride) loyalty programs should provide immediate and aspirational rewards. Those rewards should be customized to fit each consumer, providing value that is meaningful to each consumer. One-size-fits-all programs do not drive loyalty. When loyalty programs are personalized and offer meaningful rewards, they will play a greater role in consumer decision making, and isn’t that what they were supposed to do in the first place?

Ben Ball
Guest
4 years 4 months ago

Interesting timing, as my wife and I dropped by Mariano’s last night to pick up dinner. She mentioned that the store now has a 1% cash rebate that automatically kicks in when you reach a $650 threshold. “Not bad” I thought—then realized that the rebate wouldn’t even cover the six pack of Negro Modelo that I had just put on the belt. As one RW contributor used to say “Hmmmm……”

Maybe the 1% is a product of our Baby Boomer raising, where our Depression Era parents taught us that “a penny saved is a penny earned” and that “pennies make dollars.” Or my wife’s favorite version…”but it’s OUR 1%!!!”

So, those same Millennials that wouldn’t bend over to pick up a penny aren’t enticed by our meager 1% rebates either? A pox on their Porsche then!

Of course, maybe we Boomers share a bit of the blame. Maybe if we wouldn’t encourage them to live at home, all-expenses-paid until age 30….

Ralph Jacobson
Guest
4 years 4 months ago

As I have said here many times before, if the “loyalty” (most programs drive NO loyalty) program doesn’t generate a compelling reason to shop that specific store or that specific brand, then it’s only a mass, untargeted discount program.

Again, we must look to the truly successful loyalty programs in other industries and migrate those best practices to our businesses… e.g. airlines and hospitality.

Joe Devine
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Joe Devine
4 years 4 months ago
I tend to agree, the idea of one percent “cash back” or any sort of tiny loyalty percentage reward is uninspired to say the least. Two, three, even five percent is outmoded. If you use incentives as part of your pricing strategy, that discounting needs to be understood and leveraged holistically. We need to reward good behavior, not turn a blind eye to it. If you are running “twenty percent off” offers throughout your marketing calendar, that is a lot of margin to give away. Rewarding your worst shopping behaviors with poor pricing strategy hurts your relationships with your best customers and hurts your brand image. Even blanketing your best and most active customers with an automated margin sapping percentage based loyalty program needlessly degrades your price integrity. Although price and/or discounts play a major role in purchase decisions, advocates and evangelists aren’t coming back for price alone. Using the value and motivation of existing incentives to drive brand loyalty and to build advocacy is a much better use of the discounting. When you are… Read more »
Bryan Pearson
Guest
4 years 4 months ago

I agree with the premise that the accounting for loyalty programs does place a strain on creating a design that provides a meaningful return (since any investment in the loyalty dividend is treated as a marketing expense.) Given this situation, it is imperative that companies fully utilize the information from their programs to better understand how their customers shop for services and which products they buy. Only in this way can they begin to understand how they are mis-allocating their efforts in markdowns and promotions. Costs which, as Bill says, have traditionally been treated in a way that doesn’t bloat the CMO’s marketing budget.

Done correctly, not only will the retailer eliminate poor performing programs, but in turn they will free up additional investment room to create experiences that will appeal to their best customers.

There may even be a way to invest in the type of experiential benefits that can form part of a loyalty program strategy, thereby enhancing the perceived value of that one-percenter program.

Jerome Schindler
Guest
4 years 4 months ago

The immediate 5% discount Target’s REDcard makes most others look anemic. [Even if Walmart is 2.4% more expensive, you are still saving 2.6%] Staples’ 5% “Rewards” is probably second best. 1 or 2% is not worth the bother for most people to change their buying habits, but if you are going there anyway, it is free money.

Lee Kent
Guest
4 years 4 months ago

For those of us on a budget…we have a wine and spirits store here that offers a small discount for cash purchases. Yes, I go there instead of the ‘other place’ for the meager return. They are both equidistant from home and their prices are about the same.

No matter how you toss it, that’s loyalty! Just sayin’….

W. Frank Dell II
Guest
4 years 4 months ago

Today, most loyalty programs are simply tiered pricing which have not fared well versus Every Day Low Price. There is little excitement left and consumers are finding them boring.

We are currently in a steady state of 1 percent in phase 1 of the consumers deal addiction. This will not last. Credit card companies are offering 1%, 2% and 3% rebates depending on the type of products purchased with the card. Each quarter they are changing the product groups and asking consumers to sign up.

With consumers carrying around 10 or more loyalty cards, many for competing retailers, where is the loyalty? Frequent shoppers programs have never lived up the initial hype.

Bill Hanifin
Guest
4 years 4 months ago
I truly appreciate a good dialogue on the marketing topics raised on RetailWire. Thanks for your collective comments on this post. At the point where I voted, I see that a whopping 82% indicate the 1% model will only “somewhat” or “not work at all” in the future. There is clearly need for change, and many of the comments in the discussion stream highlight valid opportunities for improvement. One person did admit that even a 1% rebate created a sufficient tiebreaker between stores equidistant from her house, saying “Yes, I go there instead of the ‘other place’ for the meager return.” At the least, the tiebreaker effect discounts another comment that “Frequent shopper programs have never lived up to the initial hype.” On the contrary, data-driven marketing programs do work. The problem is there are too many DIY programs that don’t get the job done. Bryan Pearson gave us a good view of the bar we need to clear, saying “it is imperative that companies fully utilize the information from their programs to better understand… Read more »
James Tenser
Guest
4 years 4 months ago
I’m firmly in the camp that won’t change my behavior one bit for a one percent delayed incentive. I don’t enjoy “gaming the system.” In fact, I kind of resent the requirement to present one of my dozen frequent shopper cards just to activate promotional prices. If credit card company ads can be taken as an indication, there are apparently plenty of folks who find the 1% cash-back promise compelling, however. Let’s check some basic arithmetic: Say a typical American middle class household earns $60K per year and has $42K left after taxes. If they pay all their bills (mortgage, groceries, gas, utilities, etc.) using a cash-back credit card, the benefit would be $420 per year, or about $8.00 a week, less any incurred interest charges. If the same household spends 10% of its after-tax income at Target using a 5% rebate REDcard, the dollar value of the benefit comes to $210 annually, or $4.00 a week. Are these benefits worth the mental energy and sharing of personal data they require? That’s a very individual… Read more »
Barry Kirk
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Barry Kirk
4 years 4 months ago

I’m definitely with the majority on this one, as I answered “Not at all” in Bill’s poll. I’d go further to say that the discussion should not be around “If 1% isn’t enough, then what is the right number?” Frankly, the focus on the disguised discount model of traditional program design means the brand is settling for only playing at the level of “mercenary” or “inertia” loyalty. What they should be striving for is “true” loyalty, defined as resistance to the competitive offer engendered through value, emotional connection and mutually-beneficial interactions. With the maturing of social media tools, gamification and sophisticated customer data modeling, relying on ANY percentage rebate as your primary loyalty driver is an outdated strategy.

Tom Lipscomb
Guest
Tom Lipscomb
4 years 4 months ago

Problem is taking the discount higher to 2-5% doesn’t drive loyalty or differentiation. You’re competing on costs. What you want is a differed discount rate that gets people to join. Then you need to leverage the data from the loyalty program to provide personalized service and differentiate your company/brand.

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