How can retailers make loyalty programs more effective?

Photo: RetailWire
Jul 05, 2017
Tom Ryan

According to the 2017 COLLOQUY Loyalty Census Report, growth in memberships in customer loyalty programs slowed to 15 percent during the census period versus 26 percent in 2015.

“The membership growth slowdown signals the U.S. loyalty market is maturing and retailers need to up their game on how to attract and retain members within their loyalty programs,” said Melissa Fruend, LoyaltyOne partner and COLLOQUY Census author, in a statement.

The report offers four tips for ramping up loyalty efforts:

  1. Tone down transaction-based rewards. One of the big motivators of frequent loyalty program participation across all industries identified in the research, is “I love the brand, company, retailer or service.” Yet in most programs, rewards are based on transactions alone. Exploring category drivers and brand attributes can help position programs around emotional connections.
  2. Make the redemption itself an experience. With the big focus on driving issuance of points or miles, little is paid to redemption and rewards. Yet 57 percent left a program because it took too long to earn rewards, and 53 percent left because a program did not provide rewards they were interested in. Gamification and contests tied to rewards redemption can help loyalty programs “step up the game on engagement,” according to COLLOQUY.
  3. Align with the customer experience. Starbucks’ pre-pay option that addresses long lines was touted as an example of how companies can integrate loyalty into the customer experience. COLLOQUY writes, “Programs must go beyond an earn-and-burn scenario; they must solve problems, ease a customer pain point or answer an unmet need.”
  4. Increased personalization. With customer data also available from other sources within the customer journey and investments in customer relationship management (CRM), marketing to segments should aim higher. COLLOQUY writes, “Perhaps it’s time for loyalty programs to both evolve and focus (or refocus) on rewarding the best customers. Or companies could do both: Create short-term promotional sales by leveraging loyalty for everyone while also focusing targeted investment on the best customers.”

DISCUSSION QUESTIONS: How do you see retailers moving beyond traditional points-based programs in their loyalty efforts? What’s working and what’s not working for retailers in today’s loyalty programs?

"Retailers can do a much better job using predictive technology to tell their best customers about new products of interest."
"I actually don’t see the vast majority of U.S. retailers moving beyond what I still call mass, untargeted discounts (AKA: loyalty programs.)"
"What Amazon, CVS and Costco have going for them into the future is the member data they are capturing with each interface (pre-sale, POS, post-sale)."

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24 Comments on "How can retailers make loyalty programs more effective?"

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Dick Seesel

Loyalty involves establishing an emotional connection between the retailer and the customer in order to move that shopper from a state of satisfaction to commitment. But far too often, retailers’ loyalty programs consist of little beyond price incentives. Extra discounts for cardholders may drive more frequency of visit but also encourage bottom-feeding when “loyalists” can apply one sale offer on top of another.

Among many other uses of data science, retailers can do a much better job using predictive technology to tell their best customers about new products of interest — not just when those products are available at the lowest possible margin to the store.

Sterling Hawkins

There are three main parts to a loyalty program: gathering data, understanding it and then using it in going to market. Gathering loyalty data historically only happened via identified transactions. Today, many retailers miss the opportunity to gather data across all customer touch points, including in-store behavior, online, mobile, etc. in addition to any specific transactions. Understanding and using all that data requires BI tools that can process the variety of inputs and some of the more effective are using AI and machine learning to draw correlations and even create promotions specifically relevant to an individual.

Dick is right on that there’s a massive opportunity to utilize and optimize those tools to be more effective. All three pieces done right create a value exchange where customers are ready and willing to offer up more information in return for personalization and a great customer experience.

Brandon Rael

All of the points within the 2017 Loyalty Census Report are valid, and loyalty rewards programs are indeed undergoing an evolution. The traditional transaction-based rewards system is effective, however it does not add any true value in creating and sustaining a long-term relationship with the consumers.

The key finding of this study is that consumers are seeking an experience-based loyalty program. Starbucks has done a very effective job of seamlessly integrating the loyalty program with their mobile app, combining that with an integrated payments system, as well as driving value via partnerships with Spotify and mobile app companies.

The next stage, as the article points out, is personalization. That is the most challenging stage, as it will require a significant amount of consumer information. However, what better place to learn more about your consumers than than a very engaging digital-first mobile app shopping experience?

Charles Dimov

Tom, you are right on the mark by suggesting that points redemption needs to become an experience for shoppers. Experience is what drives customers to spread your brand’s value — through Word Of Mouth (WOM). Doing this well will determine the difference between which loyalty program works for which retailers.

Art Suriano

I agree with the points in the article. As retailers are suffering from too much sameness so are their rewards programs, and customers have gotten bored with them. What was once an excellent idea needs to be re-thought, and with technology today there are many possibilities.

Customers choose to be loyal to the company first because of its brand and perhaps the quality and/or service but not the rewards program. So making the loyalty program more customized and personalized for the customer is a huge plus. Special VIP offers, opportunities for double rewards points and different loyalty promotions are some ways to keep the shopper motivated and active in the rewards program. Creative ideas that are different from those of your competitors are what works.

Ian Percy

The “Thumbs Up” button wasn’t working for me this morning, Art, thus I am commenting. Your point about boredom may be the cornerstone of this discussion. Almost everything in our universe brings a yawn. Whether we’re talking about hotel rooms, clothing stores or automobiles where, with the exception of models I can’t afford, they all look the same.

A sad thing is happening in human evolution. Researchers say people have an eight second attention span and so we feed into it. Executives want everything on a single page (or two if it’s life threatening) because they can’t read anything longer than that, and entrepreneurs are told they have to summarize their entire vision into a 60 second elevator pitch. I differ from your comments only in that I don’t think technology is the answer, I think it’s the problem.

Lyle Bunn (Ph.D. Hon)

When loyalty earns rewards those “gifts” of recognition, experiences, products, service or discounts have to be redeemable and activated in order to have any value to the consumer in the relationship. Consumers know that they buy these gifts through transactions and time invested in interactions that are the basis of loyal behaviors. The best of programs enable easy redemption of points for what the consumer wants. The worst programs set redemption bars so high that just paying for a gift or reward item offers the best option. Point accumulation from various brands such as different airlines or hotel chains is attractive because rewards reflect lifestyle purchases, while credit or loyalty card accumulations provide bonuses with little effort.

Richard J. George, Ph.D.

Let’s stop referring to these programs as loyalty programs. They are continuity of purchase programs. Consumers can be loyal to their family, church, alma mater, country, etc., but not to a retailer. The term loyalty in retailing, if used at all, needs to reflect the retailer’s loyalty to its customers. How can this be achieved? Retailers need to determine what will lead to continuity of purchases, delivering on its promises and exceeding the customer’s expectations.

In essence, retailers need to increase the benefits they deliver to their customers while reducing the burdens endured. The Starbucks pre-pay option is an example of burdens reduced. Retailers should study every situation in which customers are asked to compromise. Solving these compromises will increase the likelihood of increased continuity of purchase.

Ian Percy
Again with the loyalty myth. Before responding I looked up the 2016 “loyalty” statistics. You can find them here. Read through this partial list of the research results and then tell me how good you feel about this whole initiative; about retail’s desperate effort to figure us all out. Spoiler alert — it can’t be done. One interesting debate still rages and that’s about which is more important: a.) retaining your good customers; or b.) attracting new ones. Everyone will answer “both” and so where does that leave us? The Forrester organization says that 66 percent of financial executives say their strategic priority is getting new customers. Isn’t that contradictory to the very notion of “loyalty?” No surprise that it was financial executives who were asked. First, we have five times too many retailers in pretty well every category with most of them using the same “me-too” strategies. Maybe we need to go back and focus more on serving than on statistics. Serve me well with reasonable prices while periodically giving me something new to look at so I keep coming back. If you can do some form of customization thing that may help for a short while. I’m loyal… Read more »
Phil Rubin
16 days 30 minutes ago

There are three fundamental problems that preclude most retailers’ “ability” to move beyond traditional, transactional programs.

First, they lack the customer-centric leadership that prioritizes customers over prospects. Or customers over merchandise. Or customers over stores. Or customers over promotion. Unlike Amazon and a handful of other industry leaders that recognize the value and opportunity from considering (and being committed to) customer-centricity as a business strategy.

Second, most of the players in the loyalty industry are focused on selling technology that is designed for enabling the dated points system and rewards strategy that is reflected in most retail loyalty program designs.

Last, and consistent with the first two points, is that absent those elements it is much easier for a retailer to be promotional, both in the context of its loyalty program and in general. Those things undermine profitability which in turn makes it that much harder for retailers to invest in new technologies, much less innovation and moving away from being so promotional.

It’s a vicious rather than virtuous circle that, along with the impact of Amazon, is accelerating the demise of weaker retailers.

Michael Day
16 days 25 minutes ago
Well, understanding what is working and why is a good first step for retailers. Amazon Prime is working (64 percent of U.S. households are Prime members), CVS ExtraCare rewards program is working (80 million active members driving material incremental spend), Costco membership is working (even with all the news and noise about Amazon and Whole Foods and Amazon Prime, Costco still holds membership renewal rates around 90 percent). The foundational business- and loyalty-driving sensibility that all three have in common is that they all “deliver the goods” and have a brand perception of maximizing member value relative to their respective business models. A good place to start for retailers is maximizing member value. No smoke and mirrors, just data-driven value relevant to the lives and lifestyles of their members. (Costco at this point is perhaps less member data-driven and innovative compared with Amazon and CVS, but they are also sitting on a mountain of customer/member data waiting to be mined for analytic insight to augment their already very strong intuitive sense and tribal knowledge regarding the likes and dislikes of their member base, etc.). What Amazon, CVS and Costco have going for them into the future is the member data… Read more »
Ralph Jacobson
I actually don’t see the vast majority of U.S. retailers moving beyond what I still call mass, untargeted discounts (AKA: loyalty programs.) For example, in the grocery business, which was probably the first retail segment to broadly offer frequent shopper programs (I refuse to call them “loyalty programs”) as far back as the early ’80s, retail executives shouldn’t be excited about 95+ percent penetration of transactions with their programs. Shoppers are smart enough to know that they need the club card to get the discounts. And they won’t pay full retail. So they simply carry all of the chain club cards in their wallet. How loyal is that?! I do see it as being valuable to implement some of the items mentioned in the article that are being used by some of the more innovative retailers. The true leaders in loyalty have established their brand as the primary driver to compel shoppers to shop there. Shoppers will pass by closer stores. They will ignore online ads touting discounts from competitors. Shoppers swear by these brands, and I know you can think of some such brands in virtually every major retailing segment. How do you build that brand? Well, that’s really… Read more »
Ryan Mathews
Loyalty programs are seen by many consumers — and most retailers — as discounting schemes aimed at increasing volume. I’m not a fan of most of these programs, but here are a couple of ideas that might help. First, make the rewards real, significant and fun. If you are going to reward shoppers, make it a real reward, not a ten percent discount on selected items. Don’t make redemption so tough and never underestimate the value of surprise rewards. Second, reward the right behaviors. Today, airlines reward you for using credit cards as much as they reward you for flying. The result? Lots of Platinum business flyers in coach grumbling about how their loyalty is punished. And lots of dollar-based loyalty programs tend to reward the worst kinds of shoppers — cherry pickers, resellers, etc. Third, reward addresses, not individuals. This might seem counterintuitive at first but think of how tying loyalty back to an address where two, three or even four card holders may live gives you a more complete picture of true shopping behavior. And finally, when you do focus on an individual, partner with other retailers to get a more complete picture of that individual. None of… Read more »
Ian Percy

Ryan, that address idea is brilliant!

John Karolefski

More personalization is the key. It enhances customer engagement, which leads to more visits and larger baskets.

Roy White

The time is ripe for the reinvention of loyalty programs, which have at many chains become quite tired. Research indicates that customer experience may overtake price and product as a key differentiator over the next several years. For many customers at many chains, loyalty programs currently have but a single dimension: price discounts. That needs to change, and loyalty programs need have many different touchpoints for every customer, especially digital. The retail landscape has become brutal and will likely stay that way for some time to come. Every retailer needs to find multiple ways of engaging customers and increasing their spend. Engagement may need to be expanded to the whole spectrum of communication, social media, email, etc. Mobile payment should be integrated into the loyalty program. Make it easy to get rewarded and provide value.

Mohamed Amer

Notwithstanding the appropriateness of the term, loyalty programs do need to be better and different in order to deal with two key trends. First, consumers desire personalized interactions with stores and brands; second, they expect to have experiences that transcend a specific store or brand.

The state of the current loyalty programs reflects a blind focus on point collection and redemption that operate within a specific store or brand. Few programs go beyond visit-based or product-focused point system and even fewer reward the consumer outside of the immediate store or brand silo. The working definition of loyalty programs is very transactional; it turns on making the consumer loyal to a specific store or brand through price/discount lever while ignoring ways of infusing the store or brand into the consumer’s lifestyle decisions and aspirations.

The crux of the problem is that many retailers continue to objectify the consumer even though today’s technology and myriad of options are making consumers, not just more demanding of retailers and brands, but also expecting a completely different set of experiences in how they spend their time and money. It’s a failure of the imagination in a changing industry.

Mark Price

True loyalty is not driven by deals; it is driven by personalization, as noted in the article.

One aspect of personalization that is not noted is personalization of channels. Millennials frequently wish to conduct all of their business through mobile devices. Mobile will be the key to driving loyalty in this segment, as well as in pieces of other segments as well.

That is one area where Starbucks got on board early and retained their focus over time — delivering key functionality and then expanding capabilities on mobile devices over time. Today, Starbucks has the most comprehensive mobile experience available, both for transactions, added value and loyalty program. Combining all three on mobile devices will be the key for retailers seeking to build loyalty going forward.

Doug Garnett

Research by organizations like the Ehrenberg-Bass Institute suggest that we overestimate the impact rewards programs have on shoppers and that they may not have enough impact to justify the cost. At the same time, rewards programs seem to have become mandatory for doing business.

Over the weekend I was reading about the antique Green Stamps approach to loyalty programs. Green Stamps allowed the individual brand/company to reward people doing business with them and get their reward through an independent channel. In other words, the rewards didn’t shout “look at me” toward the brand/retailer but were focused on the consumer. But my experience is that most reward programs are dominated by the retailers/brands marketing for themselves — which takes away from their being “loyalty rewards”.

If we’re going to have loyalty programs, they must be pointed outward — to where the customer truly feels they received something that is company marketing independent.

Ricardo Belmar
How consumers perceive most loyalty programs is largely driven by how most retailers promote their programs – as a reward based discount program, not something based on delivering value. Most consumers will join a program because the sales associate tells them they can “save 15% today” if they sign up at checkout. With that type of loyalty, what else would consumers believe? I’d say consumers want loyalty programs that give them an intrinsic value and deliver something special that non-members can’t have. Tiered programs tend to do this better than others, and luxury brands seem to have a better understanding of this concept of reward. I often question why low-price everyday value retailers would need a loyalty program for this very reason. Discounts are perceived by most consumers as available to anyone that asks so the value is low. Gaining access to something others cannot is more rewarding. Occasionally we see experiential rewards that accomplish this but those are rare. Retailers absolutely need to make better use of their data to understand their customers and create loyalty programs that offer true uniqueness and value. Look at Amazon Prime – it’s not just about discount shipping. It delivers free on-demand video… Read more »
Shep Hyken

This article has some excellent tips. The point is to remember that customer loyalty is not about a rating. It’s an emotional connection. The concepts of making the reward an experience and personalization are good strategies. Add a human element and you have an even better chance at loyalty. The key is to move a loyalty program beyond a marketing program. I’ve written about this before in responses to similar articles. If the company dropped the official loyalty program, would the customers remain loyal? In other words, are they loyal to the company or the loyalty/marketing program.

Ken Morris

Modern loyalty programs need to go past traditional earn-points-and-receive-rewards structures. Oftentimes, consumers have to wait too long to earn a reward and, if they don’t see value quickly, will lose interest and the loyalty program has the opposite impact — it decreases loyalty.

Retailers need to offer exclusive perks, relevant incentives, and personalized rewards as a way to further reward loyal customers. It’s all about engagement! Personalized offers based on personal preferences and past purchases are more meaningful as rewards and encourage participation in the loyalty program. Successful loyalty programs focus on immersive customer engagement and meaningful rewards that are sticky. Social media rewards instead of earn and burn are a great way to incentivize your brand enthusiasts. We need to get more creative to get back to the growth we achieved just a few years ago.

Naomi K. Shapiro

This seems to be a question of logic: Successful retailers will sign up more people to their loyalty programs. How to do this is the rub.

Dave Bruno

To me, the tips highlighted in the report should by now be old news, and yet we still see so many retailers falling back on traditional transaction-based rewards that lack imagination and personalization. The pitfalls of transaction-based loyalty programs are well documented, and the benefits of increased personalization have been validated time and again by Amazon’s powerful recommendation engine that drives over 35% of their revenue with nary a “shotgun” email in sight.

The time has long passed for interactive, omni-channel loyalty programs that reflect and react to each shopper’s unique history with the brand to be the norm, rather than the exception.

"Retailers can do a much better job using predictive technology to tell their best customers about new products of interest."
"I actually don’t see the vast majority of U.S. retailers moving beyond what I still call mass, untargeted discounts (AKA: loyalty programs.)"
"What Amazon, CVS and Costco have going for them into the future is the member data they are capturing with each interface (pre-sale, POS, post-sale)."

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