BrainTrust Query: A Look Back at Loyalty Marketing in 2011
Through a special arrangement, presented here for discussion is a summary of a current article from the Hanifin Loyalty blog.
Top of mind for loyalty marketers at the start of 2011 was the need to add value for members while keeping costs under control, and to better manage the financial liability associated with unredeemed points and miles.
But cracking the code of Social Loyalty to engage, entertain and retain the business of Consumer 2.0 became one of the most intimidating challenges faced by the industry over the past 10 years.
So how did the industry fare in 2011?
On the liability management front, the year started out with more rumors floating about than during an American Idol contest. Solutions designed to unify consumer loyalty wallets and create uber currencies, some of which could be redeemed in real time point-of-sale transactions, as well as those promising unprecedented levels of consumer targeting via internet banking and credit card transactions, were receiving lots of attention.
Two highly viable solutions offered not only liability burn solutions, but a means to add a new wrinkle to the loyalty value proposition. KULA Causes, which launched in fall 2011, introduced a new concept of Cause Related Loyalty marketing. The "currency of giving" enables loyalty program members to convert miles and points into donations to any of over two million charities around the world. LoyaltyShares is equally innovative, allowing loyalty program members to convert miles or points into shares of stock in the sponsoring brand.
PointTunes.com and The First Club each introduced solutions that change the way digital content can be obtained by consumers through a rewards program. Improved customer experience and lower costs for program operators are key advantages.
Social Shopping became a reality as Zavee and Thanks Again expanded their respective footprints and delighted consumers in their chosen market segments.
"Gamification" took a big step forward during 2011 as both Badgeville and Bunchball proved that "gamification is not a fad." Watch for much more in this space as game theory moves from a solution designed to stimulate consumer engagement to one that can change consumer behavior across a full value chain.
As consumer research consistently supported the desire for immediacy and transparency of rewards along with improved customer experience and proximity to the loyalty "experience," some important brands proved they were listening.
Early in the year, American Express played the social card as it touted Membership Rewards as a "social currency" and tested location based promotions with Foursquare. More recently, Groupe Aeroplan rebranded as Aimia, signaling a new era of competition among industry leaders.
In a year when many industries slogged along in a mediocre economy, Loyalty Marketers could barely keep up with all the change.
Discussion Questions
Discussion Questions: Which loyalty mechanisms that debuted in 2011 show the most potential to engage consumers? Which vehicles seem particularly adept at handling the dual challenges of serving the brands that sponsor loyalty programs while engaging program members?
In my opinion, the only loyalty reward consumers care about is cash in their pocket. They want cash rebates. Target’s RedCard with 5% back. And all the other credit cards that give 1% to 5% back. Nobody likes having to carry 25 loyalty cards on their key chain just so they can get a price that is almost as low as Walmart’s.
Last week, a grocery store handed me 25 scratch off cards as part of their program. For each one, I was the big winner of 25 cents off an expensive, unhealthy item I would not want even if it was free.
I also hate hotel programs that give you a zillion points for this and that and a free room is a ka-zillion points with all kinds of restrictions. Worse yet are the childish games played on Facebook where if you “like” some company they will bombard you with emails and postings for things I don’t want. People want FREE stuff they like and can use, not discounts and coupons.
The goal of a loyalty program is to build a bond with consumers, so they will become regular customers. All of the methods listed in the article play off the same idea: if we reward consumers in a meaningful way, they will return and buy more. The Internet makes it easier to facilitate use of points and opens doors to programs in ways not possible before.
Retailers and brands should experiment with different types of programs: cause related, discount, free merchandise/services, etc., to find out which strike a chord with various customer groups.
This isn’t rocket science, and it doesn’t have to be complicated. It’s methodical marketing.
Even as the “loyalty experience” gets high marks by many and loyalty programs continue to proliferate, I admittedly don’t know which loyalty mechanism that debuted in 2011 shows the most potential to engage consumers in 2012. As of this date, I still believe history is full of more solid examples of the loyalty of dogs than of programs from “marketing friends.”
It’s a relative question because it really depends on the consumer segment you’re going after and how you measure success. Gamification is great for young males in terms of getting them to spend time with the brand and increase brand relevancy. KULA meets the need of a specialized segment of users (note: when I researched this at Forrester a few years back only a minority of consumers were interested in making charitable donations for loyalty however for the right target it can be highly effective.)
It always comes back to strategy and metrics. Loyalty programs engender, more often than not, a Pavlovian response not true “loyalty” in the sense that, if the program goes away, people aren’t left with affinity for the brand. Understanding emotional triggers for your consumer, aligning your brand with those deeper triggers and providing salient programs can help drive deeper bonds. I don’t know that has to be in a formal program or just good brand marketing but either way marketers should think long and hard about what they’re trying to achieve before engaging any vendor in the loyalty space.
There is an inherent tension in any rewards scheme: the currency of the rewards is most valuable to the consumer when it is least valuable to the merchant. By definition, an unrestricted, universal currency (i.e. cash) is most valuable for a consumer, because if there was an equivalent reward the consumer valued more than cash, they could always buy it with the cash. And by definition, the retailer gets the most value from a reward scheme that draws greater spend from the consumer at their stores.
So, what’s a retailer to do? The answer has two parts, one rational and one not.
On the rational side, the retailer simply must find ways to continue to delight the consumer, so that the consumer *wants* to spend rewards with the retailer and to earn more rewards. This means offering the right combination of quality, selection, service, and price for your market niche, and truly earning their business. It also means structuring a simple, non-gimmicky rewards program that let consumers use their currency in the way they want to, but that incents them to spend it with you.
On the irrational side, there’s a world of opportunity for innovation. Consumers often value intangible benefits (like “exclusivity” and “status”) more than they value money. And behavioral economists have been proving for years that people have very little sense of absolute value, and that they can feel better about, say, a donation of $50 being made in their name than they would by receiving $51, even though they could obviously have then donated the $50 themselves and had $1 left in their pocket.
I’m excited to see the continuing creativity and evolution in this space.
All of these up and coming solutions have the potential to meet the needs of specific consumers. Consumers are moving past the novelty of loyalty programs and are more interested now in relevance. Retailers and service providers like airlines and hotels need to take a serious look at their most loyal members and understand what interest them most. On a recent flight to California on Virgin America it became very clear that the loyal Virgin customer enjoyed music and entertainment. Solutions like Point tunes and The First Club may be a good solution to consider. North Face may get a stronger reaction from solutions provided by Kula.
In many cases today, consumers are willing and eager to pay a premium to be part of a loyalty club. Just look at the F.Y.E. VIP Program and Whole Foods as great examples of this successful and profitable approach.
Looking back doesn’t exactly make the hair on the back of your neck stand up, does it? Not so much the mechanisms as what was shared here — pure block and tackle effort to leverage the data to be relevant and meaningful to those customers you truly value. Of course, you should have the methods to identify and then the analytics tools to know who those customers are.
Suppliers are trying to innovate as Bill has shared, but to me the smart practitioners in the space are those that combine brand advertising plus 1:1 dialogue to establish a clear value proposition and thus a reason to shop, make a reservation or use a preferred credit/debit card vs. the competition.
Over the holidays in particular, Dick’s Sporting Goods showed a commitment to their long-standing Scorecard program with TV spots that were balanced between depth of merchandise, great prices, superior service and rewards for being part of the program. This type of integration is what could be seen as a trend other retailers will follow.
Likewise, the soft benefit oriented program My Lowe’s showed that you don’t have to embrace a rewards currency to encourage engagement. Share insight on your household and project needs and we will respond with personalized and relevant communications.
What concerns me most is the “me too” aspect of so many programs, that flies in the face of trends reported by Colloquy, IPSOS and others in that participation post enrollment is less than stellar. This speaks to poor design borne out of a lack of disciplined planning and/or putting something out there without a strong enough value proposition to make the customer or future customer care. The issue of unused rewards is due to poor communications strategy, lack of understanding on how the program works as well as such a low funding rate that the consumer could care less whether the points expire or not.
Technology vendors in the Mobile space will bring new mechanisms to the forefront to support enrollment, redemption and identification at point of purchase through increased penetration of smart phones. POS vendors working closely with client back-end IT will support real-time redemption and reward satisfying consumer need for immediacy in retail/specialty retail.
Can we be honest about this? These programs aren’t about “loyalty.” They’re a vehicle for offering discounts and promotions to proven customers. In these programs, “loyalty” is denominated in dollars. Customers are pretty smart. They know that so much of what the major national chains sell is commodities or near-commodities, and that pretty much all that really differentiates one retailer from the next is price.
Loyalty implies that a relationship exists. There’s no relationships involved in these programs. They are merely a means of driving volume.
The loyalty program that still seems to work is fair pricing, good service and promotions available to all. To many loyalty programs seem to be designed to penalize shoppers unless they agree to provide a merchant with personal information and carry around some key-chain FOB or card. If you want to design a loyalty program to double my American Express points then you might entice me to do business with you, but I am not going to willingly participate in any program that requires me to join your club to receive discount provided by a manufacturer/supplier that was contractually intended to be made available to every shopper. I will go out of my way to deal with honest merchants, who are interested in providing service and fair prices and only deal with others as a last resort.
I recently had a great experience with a grocer, Piggly Wiggly in Charleston SC. While shopping there on vacation, I asked the register operator if she would pass along their “member discounts” as a courtesy? She asked if I was on vacation and when I responded yes, she handed me a temporary vacation card that would entitle me to every discount and benefit the store offered. The card was paper, no expiration date, and required the provision of no information to Piggly Wiggly at all, not even a signature! Now this is the kind of loyalty program every merchant should have. It made me feel good about shopping there and you bet I went back 4 more times before I left town. Now isn’t that what a loyalty program is all about?
Different customers have different needs, and each of the mechanisms has potential with the right groups. The challenge for these mechanisms is how to become more effective and sustain relevance and value to consumers and brands.
In the world of loyalty it is notoriously hard to continue to demonstrate uplift in future years once you are comping previous performance.
Typically this pressure for visible financial returns erodes investment in the mechanic or in the consumer value equation, as well as undermining investment in understanding customers to drive future relevance.
Overcoming these challenges are key for all these mechanics once they get over the initial engagement and uplift “spikes.”
The best loyalty program is to make it much easier to repeat purchase than to switch. Forget the games, badges, etc. Remember me — my passwords, credit card, preferences, addresses, etc.
None of these programs will move the industry “needle” in terms of cracking the code on loyalty. The answer is simple, just not easy. Retailers can have a nice “frequent shopper” program, however, that won’t drive loyalty. It only serves to give mass, unwarranted discounts to shoppers whom would have bought the products regardless.
Retailers and CPGers need to find the differentiators. I have written in the past about retailers stepping away from what everyone else is doing, and trying some new services to generate compelling reasons to shop their stores, rather than their competition’s stores that have the same products. For grocery, how about a “Premier” checkout line? Jewel Food Stores did it in Chicago in the ’70s. They had “Super Team” POS lanes that had 3 people unloading, scanning, tendering and bagging the large orders. Why cater to low-value transactions with “express lanes”? Take care of the big lifetime value customers!
Thanks for the responses here from our panel members and others.
Many of you seem to resist the traditional loyalty construct and express that customer affinity and repeat purchase will be built through a holistic offering of quality, price, service, and a few freebies. To that I do not disagree. Even the traditional loyalty suppliers are recognizing the importance of customer experience being integrated into any promotional program.
I’ll let a secret out. We’re not expecting to create loyal customers while creating mindless dog-like relationships. We’re about using data to efficiently allocate marketing resources while weighting investment strategically to encourage specific goals like retention or increased share of wallet.
Maybe we should change the way we describe the business. I tend to use the term Customer Strategy for the work we do. At any rate, intelligent use of data seems to me to beat putting up a 20% off sign in the window and waiting for the crowd to rush in the door.
Always a good debate here at RetailWire.
Give you more but don’t give me (the merchant) anything? Sorry, won’t work that way. Nice try. It is a give/take, or reciprocal relationship. Why should I (as merchant) give you better pricing or deeper recognition/reward benefits if you can’t at minimum share your address, email and if opt’ing in, mobile number as well? It’s called a two-way dialogue for the purposes of mutual gain.
Incremental lift can be achieved in a short window depending on the business dynamics, if done right. Likewise, impact to EBITDA can be sustained over a very long time — so long as you build a program/design and commit to communication with a near-term as well as future view of how the program will evolve. Base membership, private tiers, test benefit enhancements over time, work in tandem with merchants to drive insight from IDENTIFIED customers to impact merchandise selection, depth, pricing, display.
I do love the Piggly Wiggly personal encounter as the temporary shopping card in this case recognizes two things — you have options on where to shop and for the short-term; okay, shop with us and we will give you the benefit of two-tier pricing. Also, we don’t want to waste the expense of adding you to the dbase, let alone bother fulfilling the enrollment with a card/fob. But, be sure to come back next year on vacation!