Are stand-alone loyalty approaches anachronistic?
Through a special arrangement, presented here for discussion is a summary of a current article from the Mark Heckman Consulting blog.
Well over 20 years ago, the first "electronic" card based loyalty programs arrived to help retailers build further rapport with the most valuable shoppers (the 80:20 rule) and promote less often or differently to those outside that group.
With the limited technology of the day and inherent expense, retailers quickly gave up on the promise of targeted deals despite having mounds of customer data to smartly do so.
Today, shopping technology is exploding. Apps are so abundant and present so many functions that shoppers can be overwhelmed with choice — couple that with every major retailer having their own proprietary app, each with their own version of loyalty points or rewards.
Shoppers want automation, simplicity and consolidation of the many offers and rewards from each retailer, both online and in the physical store. Consequently, while loyalty cards live on, they are gradually giving way to shopping apps, wireless chips and other technologies that identify the shopper both online and in the store.
Further, options are emerging for shoppers to manage their own loyalty. Shopping sites such as retailmenot.com, allyou.com and others aggregate offers from multiple retailers for the shopper to access in one consolidated place. But these popular sites often lack full retailer participation, meaning they work independently from the retailer’s own website or shopping app.
Solutions like LOC (www.locenterprisesllc.com) enlist retailers to participate both in-store and online to extend the reach of their current loyalty program, by creating a consolidated online "shopping mall" where shoppers can access the full compliment of their favorite retailers’ offers and rewards. In-store, the LOC card or app either replaces or augments the retailer’s own mechanism of shopper identification and engagement.
Shoppers naturally love the idea, and yet many retailers remain deeply vested in their own websites apps, even though LOC and others in their space have heeded all the precautions of not accessing or sharing retailer’s proprietary shopper databases with other retailers or content providers.
Technology has accelerated shopper expectations and put the onus directly on retailers to elevate their loyalty game. A retailer, no matter how big, is just one piece of the shopper’s loyalty environment — not the alpha and the omega of the shopper’s needs, as many have viewed it in the past.
Concurrently, technology companies understand that working with (not around) the retailer is optimal, as it provides the most holistic shopper solution. On the other hand, if retailers remain guarded and over protective of their programs, ignoring the increasingly loud voices of their customers to become more holistic in their approach to building relationships, even their best efforts of offering stand-alone loyalty will miss the mark with the shopper.
Discussion Questions
Do you agree that retailers need to shift away from proprietary or stand-alone approaches to their loyalty programs? What pros and cons do you see in linking a store’s mobile app and its loyalty rewards to many of the popular shopping apps?
This is a tricky one.
On one hand, the principle of customer-centricity demands that retailers make it as easy as possible for their most valued customers to find/interact with them. But on the other hand, there’s good reason to believe that an omnibus loyalty program can erode value and commoditize the retailer’s offering.
Thus there is no clear answer and so the only way to way to find out is through careful experimentation. I suspect that the standalone program will be best in some contexts and the omnibus in others. Retailers have to go out on a limb and try both (in limited settings) and carefully watch (and learn from) the experience of others.
It will be interesting to see how this emerging trend plays out in 2015.
An academic view might say retailers need to spend a lot more time on developing a differentiated customer experience as opposed to worrying too much about their loyalty program. It’s putting the cart before the horse. All the apps and efforts are geared around price, what’s in stock, available for pick-up or shipping now, etc. It makes it all seem like a commodity space where everyone is killing each other slowly with lower prices and discounts. The right answer for the loyalty piece specifically is to get your brand in front of the largest audience possible and so a walled-garden approach seems short-sighted. Pairing your own loyalty program with popular shopping apps seems like the right play, but unless you work on the bigger issue of customer experience first you risk just being browsed based on price alone.
The research says omni-channel customers are not as loyal, at least not in the traditional sense.
Traditional loyalty card programs were in fact based upon a physical card to be used in physical stores. Pretty archaic methodology for today’s omni-channel shoppers who are 24/7 anytime and everywhere.
There seem to be conflicting objectives. Retailers want to tie consumers in with offers, and consumers want convenience, services and flexibility.
The great “loyalty” success stories have been emerging from department stores like John Lewis in the U.K. There is no difference between the mobile app and loyalty rewards—it’s all one unified seamless experience.
Retailers will earn loyalty when they offer a seamless, unified approach that is a “natural” part of how consumers shop by phone, online and even in-store.
If you look at Starbucks and how they have succeeded in customer loyalty with their own internal program, I don’t think you could say that retailers should abandon their proprietary loyalty strategies. It’s all in the effort—across channels—and giving customers what they want. But if you’re a smaller retailer struggling with acquiring and retaining new customers, then you might want to consider connecting with a shopping app. But be mindful about the ability to retain your own brand identity and image. You don’t want to give up brand loyalty to the shopping app in exchange for short-term sales.
The days of “walled gardens” are sure to fade into distant memory. As shoppers learn new ways to flex their power and demand greater choices, retailers and others will follow.
The future is one that is more open than closed around systems and technologies, and that includes new paradigm for loyalty programs.
Retailers need to do what is best for their shoppers. I know that my wife and Macy’s have a thing goin’ on. She is focused on her Macy’s loyalty program — online and at the stores — but does not use any apps or other chaos coupon websites to find the best, best, deal. I am the same with my Nordstrom stuff.
My read: some areas of innovation bring chaos. Let the chaos clear on loyalty apps, etc., stay focused on the shopper, at the stores and online. When the chaos clears, evaluate how performance can be improved with new loyalty tools.
The question not addressed in this column is whether today’s loyalty programs meet any consumer needs other than offering discounts. As the article points out, retailers have reams of data about consumers but for the most part lack the budgets necessary to mine that data to make loyalty programs meaningful to consumers.
Whether it’s a standalone app or an individual card or a partnership with other retailers, until loyalty programs directly address the needs and desires of consumers they will have little relevance in consumers’ daily lives.
It’s interesting to first note that Byron Sharp’s work (extensive study of loyalty programs) indicates that the 80/20 rule isn’t accurate in marketing. And that loyalty programs often reward the most polygamous shoppers—those who bargain shop at your competitors.
I think the real question to ask here is: Do loyalty programs deliver the loyalty retailers want? And that question needs to be clearly answered before looking at new ways to execute what may not really be working.
In fact, this modified approach sounds far more like a coupon approach than a loyalty approach—likely to appeal to bargain shopping consumers rather than build loyalty.
As a small local independent retailer I don’t agree. My customers seem to love the true personal touch and service they receive at Animal Fair. We know them by name (not a number or a scanny card) and while the computer does the heavy lifting of keeping track of their purchases, the simplicity of a surprise $25 bonus when they reach their reward level elicits, more often than not, a spontaneous “I love you guys!”
As a high-end demographic they feel over-targeted, over-marketed, and over-gamed by incessant emails, texts and other promos. That’s why our approach works. We don’t beat them over the head and make them carry cards—all they have to do is show up and remember their last name if I blank on it. Our philosophy is that our loyal customers get the best deals and the best prices. When they used their reward, they also receive a heartfelt “thank you for shopping with us.”
Unless you’re a retailer that sells products that consumers need to buy frequently (like groceries), it will be difficult to encourage consumers with a loyalty program that is based on frequency or purchase value. Taken to an extreme, how about the Ford loyalty program—buy 10 cars get your 11th free? Just doesn’t work. So if your product/brand can’t generate frequency you might as well as a retailer join a group program and get some benefit from that, in that breadth of offer across retail members does create the ability to encourage frequency within the retailer member community. The banks today really own the loyalty programs with credit card points and rebates. The challenger in the space is of course now Apple.
As an independent my concern is what goes on inside the four walls of my store, and we try to build our offers for all who stop in. I guess this really isn’t a loyalty program, as our special offers go out to everyone, but finding something special and using strictly our social media to promote it has worked pretty well. If they are not using our Facebook page to check the special offers, or email blasts, then only the ones who follow us will be the first to get their hands on something extra special, which is what we want.
I am vigilant on staying fresh on our updates, and it has a loyal following, so maybe in some strange way it kind of is a loyalty program, without the bells and whistles. Even I’m confused now. But anyway, happy New Year to all.
Folks, let’s not get ourselves confused with loyalty vs. a points program. There is a BIG difference.
I always like to say that retailers need to be where their customers are, and if they want to offer points to get them interested then skate to where that puck is going to be (from Wayne Gretzky). Join the shopping apps.
But loyalty? That is when the retailer has delivered their unique experience, value, expectation of the customer and the customer has acknowledged it by returning and/or sharing. This can only happen in a proprietary setting.
Think about giving that loyal customer something other than points or promotions. If they are only shopping with you because of the promotion, what does that say about the brand?
Come on retail, let’s put our experience hats on in 2015.
… And that’s my two cents.
Thanks to the widespread adoption of loyalty apps, the barriers that existed between the consumer and her program activity—a computer, an in-store purchase, even a phone call—have been replaced with devices. As a result, consumer expectations are shifting. The need today is not so much about shifting from proprietary apps as it is to making loyalty interactions seamless. Merchants can partner with financial services to offer real-time rewards through card-linked services, for example, or deliver relevant offers through beacons and other in-store tracking technologies. These functions should be automatic, but with the consumer’s permission.
Also, I wholeheartedly agree that shoppers want automation, simplicity and consolidation of the many offers and rewards, both online and in the physical store. That’s why multi-sponsor coalition loyalty programs such as AIR MILES in Canada and Dotz in Brazil are so popular. They allow consumers to quickly and easily earn currency from a variety of partners and offer a myriad of redemption options.
It’s a constant tug-of-war between what the consumer wants vs. what brands/merchants desire, further complicated by the unique characteristics of different “consumable” types (categories/industries) and circumscribed by consumer demographics and associated attitudes.
Brands that carry significant equity as a competitive category differentiator in the eyes of the consumers are more keen to keep their loyalty programs distinct and in closer control; luxury brands or retailers would fall in this category, and they go to long pains to constantly offer unique experiences, rekindle the passion and keep the brand brand prominent in consumers’ minds. Retailers who are effectively “non-relationship-focused” (i.e., devote little time or attention to their customers beyond making a product(s) available to them to purchase, and have transactional, and often disconnected, relationships) may be more eager to increase reach and SOW, and thus more willing to “open up” their loyalty program to other platforms/synergies—grocers might fall in this category; most restaurants potentially, too.
For all these reasons, it’s essential that brands identify first what is the right Consumer Relationship Strategy that they should pursue—what is right strategy for Kroger is not the same for Citibank, nor for Disney. Most brands aspire to have more “consumer-oriented strategies,” yet few perform well at their current strategy, which is why we offer to our clients a personalized assessment that helps them identify what is the right Consumer Relationship Strategy for them.
Any strategic relationship decision would permeate: a) the information that a company collects on its customers & the technology that facilitates this; b) the ways that the company applies that consumer intelligence to support their strategy; c) the culture they encourage and drive within the corporation.
A loyalty program can’t successfully exist outside this framework.
No. Standalone loyalty programs have clear-cut benefits in many arenas, such as airplane loyalty programs (there are only a few airlines left), hotel and rental car programs. Size does matter (Walmart) since the larger loyalty programs will benefit and create greater expectations. This is not just because of technology, but because of the “leveling” of the loyalty program that technology creates.
Retailers continue to see benefits from dedicated loyalty programs, particularly in high-frequency models such as grocery. These rewards programs are part of a differentiated shopping experience, which goes beyond discounts and can include personalized benefits such as events and recognition. The data that retailers collect from these programs is invaluable in influencing the store’s operating model toward the behavior of its top shoppers.
Today’s programs keep the retailer’s brand front and center in the shopper’s mind and deliver clear communications uncluttered by the cacophony of the major shopping sites. Retailer loyalty programs are evolving to encompass multi-channel communications and now reach shoppers with in-store, email, mobile and social offers.
The leading retailer loyalty programs today provide the simplicity that shoppers desire along with the data and loyalty-building benefits that retailers need. These programs can exist side-by-side with other rewards programs in which shoppers may choose to participate. Shoppers can still control their loyalty environment, but today’s retail-branded programs will continue to play a major role as they work well for both retailers and shoppers today.
The problem with multi-retailer approaches to loyalty programs is that the specific relationship between the retailer and their best customers gets lost. When the relationship is just about points and redemptions, then joint programs seem to work well—but that is really not about loyalty, it is about buying customer retention.
When the goal is to build a relationship with a customer, you cannot have lots of brands shouting at the same time—you will never get heard. The goal is to build a connection through engagement and value, not just through a transactional approach.
A true relationship requires focus, which can only be achieved on a 1:1 basis.
My first response to this is a question. Are we talking about a loyalty program or a marketing program?
A shopping app is not a loyalty program and vice-versa. A rewards program is not necessarily a loyalty program either. It will take a delicate balance to merge these together.
While affiliate or omnibus approaches have a longer adoption runway in the U.S. market, a better way to begin would be by ensuring the loyalty program informs the brand’s holistic understanding of their customer, and is a cohesive element of the entire customer experience. Communications—across all channels—should be consistent, relevant, and meaningfully recognize the loyalty member.
With so many retailers beginning their loyalty efforts as a standalone initiative, or one tied to their credit card, loyalty understanding is locked up in yet another silo. By enriching their enterprise-wide view of customers with the loyalty view, brands are better able to provide a value exchange that recognizes customers’ entire experience with the brand—and not just when they flash a member card.
This integration allows the brand to deliver on customers’ ever-increasing expectations for more individualized experiences—taking the hard work out of being recognized as valuable member customers, and replacing it with deeper engagement and loyalty.