BrainTrust Query: The Death of Loyalty Rewards As We Know Them?

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Jan 31, 2011
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Through a special arrangement, presented here for discussion is a summary of a current article from the Hanifin Loyalty blog.

I’m sensing a tipping point in how customers relate to loyalty program rewards, and my thinking goes like this: When customers choose which company to do business with, rewards just don’t matter like they used to.

My take is that the classic loyalty reward scheme — earning points toward "hard" rewards for repeatedly doing business with a company — has been trumped by the customer experience. In other words, today’s customer is more likely to opt for a better experience today, than accept a lesser experience that pays dividends down the road.

Let’s start with a personal example. I recently cleaned out my wallet and found reward cards for both Borders and Barnes & Noble. Now, I know I have points in both of these programs, but I haven’t engaged with either brand for years. Why? I’ve given all my business to Amazon, which for me offers a better customer experience.

A recent blog by marketing guru Seth Godin points anecdotally to a similar trend toward "experience over rewards" happening in the airline industry. Mr. Godin believes that the greater the risk involved with getting a reward — one we have to save for and may never use — the less we value it.

He writes: "Frequent flyer miles, for example, began with the promise that if you flew an airline regularly for months (or even years) you’d get a free flight. The airlines oversold the miles and undelivered on the free flights, though, so the reward started to lose its perceived value — too much risk that you wouldn’t get the prize you wanted. Many of the frequent flyers I know have ceased to ‘save up’ and now use their miles for upgrades, moving the benefit closer in time."

In another sign of the sea change, several companies are now offering customers "loyalty rewards" with no points, or long-term loyalty, needed. Take the telecomm space, where both Verizon and Optimum have recently launched reward programs with merchant discounts, special promotions and exclusive content–with no strings attached. Prove you’re a customer and you’re in.

Why is the trend moving toward more automatic and instantaneous recognition of customers? Mr. Godin attributes the change to the internet, stating, "One of the many things the web is changing is our focus on now." I see his point. Now more than ever, today’s consumer wants things at the speed of the Internet, whether it’s information, customer service–or a perk for being a customer.

Discussion Questions: Do you also see retail loyalty programs inevitably moving more toward automatic and instantaneous recognition over earned points? Have consumers become less enchanted towards points-based loyalty rewards programs?

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32 Comments on "BrainTrust Query: The Death of Loyalty Rewards As We Know Them?"


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Bob Phibbs
Guest
10 years 3 months ago
PLEASE! Amazon is a better customer experience? Sure if you already know what you want. But a better analogy would not have been B&N or Borders but a smaller bookstore who could have had their own reward program. A store with a curated collection of books that you could have your 300,000 choices reduced to a few because, even if just by their displays you could see a similar grouping of books you like. Bonus if someone helped you with it. That’s what makes loyalty stick. As a frequent flier on United I can tell you its not the free trips–it is the fact they move me to the front of the line when a storm threatens to cancel. A biggie for a speaker. The upgrades = more room = greater customer service when you’re flying coast to coast. Rewarding customers who know you is still smart. Call it old school. Call it loyalty but it’s what is being frequently dismissed in the rush to Groupon and mobile. I detail much more in my manifesto:… Read more »
Ryan Mathews
Guest
10 years 3 months ago
Despite the persistent assumptions of marketers — consumers are not stupid. The reason that “loyalty” programs are losing their appeal is that many of them were, at base, fraudulent to begin with. Supermarket loyalty cards, for example, really didn’t offer what consumer saw as a discount, but rather established the “new normal” in pricing. As the article pointed out, for most flyers, frequent flyer programs failed to deliver on their promise and now, in the post merger era of air travel, one can be a platinum flyer (living in a hub city) and routinely never even get upgraded. As to the author’s Borders and Barnes & Noble example, Barnes & Noble charges card carriers a fee and Borders now charges an up-charge if a card holder wants premium benefits. For the majority of book buyers, the benefit isn’t all that clear. I’m not so sure what consumers are doing is trading service-in-the-hand for rewards down the line as much as it is that they are doing what they’ve always done — demanded to be treated… Read more »
Paul R. Schottmiller
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Paul R. Schottmiller
10 years 3 months ago

It’s about the perceived value and immediacy that effect that equation….how many lottery winners take the full long term payout vs. the discounted immediate lump sum?

Improved analytics (speed and content), mobility, and location capabilities have enabled more ways to drive immediate rewards and I expect this trend to continue as retailers look for the formulas that not only drive loyalty but also drive other metrics (i.e. inventory ROI).

Max Goldberg
Guest
10 years 3 months ago

If current loyalty programs are losing their luster, the owners of those programs have no one but themselves to blame. The rewards are too far away and competitors are offering better service along with lower prices (some even offer their own loyalty programs).

This is not to say that loyalty programs are dead. They need to be retooled to meet the realities of the current marketplace. Rewards should have levels that are easier to attain and they should be available when consumers want them. Then combine those programs with good customer service and consumers will want to build points in those programs.

Phil Rubin
Guest
10 years 3 months ago
The shift away from the ubiquitous points and rewards is a great topic, Tom, and one we are in support of for a lot of reasons. First, there are too many programs that are short on soft benefits (e.g., those tied to the customer experience like upgrades and priority boarding to use your frequent flier example) and lean on rewards. Next, too many brands are offering generic rewards that are “me too” and indistinct from competitors’ programs. They don’t run the same advertising – why would it make sense to offer the same, tired loyalty proposition? Last, customers are increasingly sophisticated and recognize pricing parity and distribution parity, especially with the ability of Amazon Prime to compete with brick-and-mortar retail. There’s one other area that is worthy of inclusion in this discussion and that is the ability for retailers to remain relevant away from the point-of-purchase. This is more than the “Now” and is directly tied to the “Next”. If Now is going to be better then the next opportunity is tied to what happens… Read more »
Roger Saunders
Guest
10 years 3 months ago
“Loyalty” cuts both ways. Consumers understand that they need to demonstate it in order to receive it. The “automatic” programs are offering an added convenience in reminding and thanking the shopper for their recent visits and purchases, via a “bounce back” rebate/discount. These are simple and useful reminders, as they function as a marketing call back to the best customers. They also serve merchants well who are faced with the perhaps frustrating reality that the consumer shops across channels, and they have significant levels of “No Preference” in chosing the retailer they may use for varied items. The Consumer Intentions & Actions (CIA) Survey points to the fact that when consumers shop for the following products, “Non Preference” is part of their repertoire of choice: Fast Food Restaurants 20%, Full Service Restaurants 35%, Pizza 30%, Women’s Clothing 30%, Men’s Clothing 27%, Children’s Clothing 55% Electronics 25%, Sporting Goods 47%, Home Improvement 23%, etc. Loyalty programs make the statement to these and other consumers — “We’re not taking you for granted. We want you to come… Read more »
Gene Hoffman
Guest
Gene Hoffman
10 years 3 months ago

I can’t add much beyond what the experts above have already stated save for this: History is much fuller of the loyalty of dogs than of loyalty to retail loyalty programs.

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
10 years 3 months ago
Loyalty programs have lost some of their luster, not because consumers don’t want them, but because retailers lost sight of the true purpose of the loyalty program and its value. Too many retailers today are tossing loyalty cards out without any real plan or purpose. The results are ineffective, expensive, and possibly reputation damaging programs. Loyalty programs need to focus on providing savings and special treatment to customers to help them know they are valued. So, how can grocery retailers make their loyal customers feel special? Some ideas: Provide a free cup of coffee when you enter the store (just swipe your loyalty card at the coffee counter); Loyalty card holders get their groceries carried out to the car for free; A thank you gift each quarter for loyalty card holders that have been active at least 8 times in the last quarter. You could hand out a Free PL item that you want your loyal shoppers to try. Are these ideas expensive? Maybe. But are they more effective than current approaches that try and… Read more »
Bill Bittner
Guest
Bill Bittner
10 years 3 months ago
This article actually ties very closely to an experience I had this weekend with a friend while shopping at a local A&P. In her case, she was very upset because for some unknown reason A&P had decided to reset her “lifetime savings” total. I don’t know why A&P did this, whether it was an accident or intentional, but judging from this shopper’s reaction it was not a good idea. As she said, “I enjoyed reflecting on the total as it approached the price of a used car.” Obviously, this consumer valued the “points” she saw accumulating on her frequent shopper card even though they weren’t directly applicable to future discounts. Which actually brings up another perspective to this article that comes from an old marketing class where the teacher pointed out that one of the biggest mistakes a marketing executive can make is to project their own feelings onto the general population. Personally, I have never been a big bargain hunter, I have usually focused on the revenue side. Not that I would throw away… Read more »
Gene Detroyer
Guest
10 years 3 months ago

Ryan Mathews says it all, “Despite the persistent assumptions of marketers, consumers are not stupid.”

It makes ultimate business sense to reward your most loyal customers. They are the most profitable customers you have and you should do everything you can to keep them. Unfortunately, most loyalty programs are generic in structure and have little meaning to the customer. Some that are terribly unique are so complicated that they ultimately have little meaning. It is not a matter of instant rewards, it is a matter of meaningful rewards.

With regard to experience, loyalty programs and experience…they are not trade-offs. The Amazon example is perfect. There is nothing that Borders or B&N can offer in customer experience to beat Amazon. No loyalty program in the world can change that equation.

Tony Orlando
Guest
10 years 3 months ago

Here is an idea for a loyalty card. My employees and our hot deals are the only loyalty card we need to make us different than the chain stores. Consumers are not stupid, and if you provide consistent low prices, and extreme value deals every week, the loyalty is built in. Top-notch service, and offering up super deals, without the consumer having to fetch a card at the checkout, is preferable to the time-starved consumer.

Richard Gordon
Guest
Richard Gordon
10 years 3 months ago
I do believe that the length of time it takes to receive your reward makes a significant difference in the amount of customers who hang in there and value the reward. However, I believe the real problem with many of these companies, as well as anyone who attempts a loyalty reward program, is that customer loyalty must be earned by your business first and foremost through your customer service and overall company brand, before you can expect any loyalty program to really pay off in terms of true appreciation from your customers. You can’t irritate your customers through other decisions and actions and then expect them to blindly continue to do business because you offer a reward card. “The goal of a good loyalty card program is that it should be regarded by the customer as a special perk or membership card. The card and the program should allow your business to know the customer’s preferences in brands, colors, interests. . . maybe even their favorite wines, authors or foods (depending on what you sell).… Read more »
Mark Burr
Guest
10 years 3 months ago
Mr. Mathews couldn’t be more right. Maybe fraudulent is even too weak of a word. Consumers aren’t stupid. In the first place, as I have said many times, these aren’t loyalty programs. Retailers like to think they are and that they are the ‘silver bullet’. They are not. Consumers own their own loyalty. Forcing them to use a card to get their weekly prices or to simply do business with you at a price they would have charged anyway is nothing but what Mr. Matthew’s refers to as a ‘data grab’. As the writer points out, check your wallet or key chain for the numerous cards. I may be rare, but in most cases unless I have to have one to just get the regular price, I don’t sign up period no matter what the false ‘reward’ of having the card might bring. Consumers exercise their loyalty when they choose to purchase from your store when they have other choices and consistently make that choice. I would and have continuously made the argument that above… Read more »
Billy May
Guest
10 years 3 months ago
I actually take a contrarian point of view vs. the other “pundits” on this thread. Now, I do believe loyalty programs have a place in services-based industries such as airlines, hotels, etc. It is a way to differentiate and as the other authors point out, there are some softer benefits (upgrades? softer pillows, etc.) where the value lays currently. But loyalty programs for loyalty’s sake is a losing battle. Think of it this way–think of some of the best brands in the consumer space. Nike, Ralph Lauren, Coach…do they have loyalty programs? No. They have differentiated market positions and differentiated offerings/experiences which elicit greater engagement, participation, and thus, loyalty. What about world-class retailers with superior financial returns? Does Williams-Sonoma have a loyalty program? How about Zara or H&M? How about Whole Foods? What about Nordstrom, which has a credit card and a limited “double points” program? To a merchant, loyalty programs are an excuse, a byproduct of laziness and limited market differentiation. I have to discount or promote to you for you to shop. Amazon’s… Read more »
Bill Hanifin
Guest
10 years 3 months ago

From reading this string of great comments, I might distill the remarks of our panelists this way:

1. Loyalty programs have their place but need to be executed with more imagination and innovation.

2. Even the best conceived programs can’t overcome certain competitive obstacles (Honest marketers will admit to this).

3. Customers can’t be bribed, fooled, or cajoled into patronage no matter how many miles or points are offered. More than ever, there has to be a holistic approach adopted to engender sustainable and valuable customer behavior to meet objectives for the brand.

Interesting to me is that the core players in the industry are seemingly trapped in traditional models and quick to defend the status quo. There is a very short list of experience loyalty marketers who are tracking the evolution of Consumer 2.0, understand Millennials, and are breaking new ground in social loyalty.

Brands and the consumers they seek to serve will be wise to listen to new ideas from companies nimble enough to execute enterprise loyalty in the digital world.

Dan Frechtling
Guest
10 years 3 months ago
The Hanifin Loyalty Blog offers good evidence about a tipping point where loyalty rewards are trending toward immediacy. Yet there are variants on this story. Here are a few other observations–admittedly opinion-based and unscientific: 1. The difference between frequently and infrequently used retailers. For the average shopper, the utility of points owned at a bookstore pales compared to points earned at a grocery or big box retailer. The same is true for points earned on, say, American Express. 2. The difference in value of points to regular versus irregular shoppers. More regular or “loyal” shoppers will more quickly accumulate points and have more reasons to redeem them. 3. The difference between leaders and also-rans. Consider the strategic benefit Tesco derives as contrasted with a loyalty program that simply presents two-tiered pricing. Brian Woolf of the Retail Strategy Center describes how Tesco defied conventional wisdom and doubled the rate at which shoppers earned points. Analysts estimated a drop in margins due to higher costs. Instead, Tesco margins and sales actually increased. Tesco has (1) become a… Read more »
Stacey Silliman
Guest
Stacey Silliman
10 years 3 months ago

All one has to do is look at Nordstrom’s loyalty program. Cardholders are entitled to free shipping for internet purchases, and you earn Nordstrom Rewards certificates in $20 increments when you make frequent purchases. They know how to treat a customer special, whether inside the store or through the virtual shopping experience.

Doug Stephens
Guest
Doug Stephens
10 years 3 months ago

What I’m projecting is that loyalty offerings are going to become far more polarized in nature. We will continue to have the mundane point-per-dollar-spent type programs but we will also begin to see a new breed of exclusive communities specifically for elite customers. These exclusive branded communities will not only offer real tangible rewards but also social and lifestyle benefits.

Ted Hurlbut
Guest
Ted Hurlbut
10 years 3 months ago

Rewards programs were never more than a vehicle for offering targeted promotional discounts. But once you’re out on the slippery slope of discounting, why limit it to targeted customers?

Ed Dennis
Guest
Ed Dennis
10 years 3 months ago

The trend is moving to instantaneous because the consumer has learned that he/she cannot trust the integrity of any of the issuing companies. I was a victim of Delta Air Lines. At one time I had over 1 million miles and Delta found a way to devalue each and every mile and also charge for redemption. While all of the miles were eventually used, my feeling toward Delta will never recover.

My fondest wish is that loyalty programs be declared illegal. I am sick of having to carry around a pack of cards or 3 key chains full of FOBs just so I can shop and be afforded a retailer’s best prices (as if my money isn’t as good as everyone else’s). Imagine for a minute that a retailer calls you and tells you that if you shop in their store you will be charged higher prices unless you join their secret club; would you ever go? Somehow, this just seems to violate everything that is American!

Doug Fleener
Guest
10 years 3 months ago

My wife just got back from two grocery stores that don’t have a loyalty program. First she went to a local store Market Basket that has the lowest prices around.

Then she shopped at Trader Joe’s that has a great selection and terrific service.

She got low prices, distinct products, and great service without wanting or needing a card.

I don’t want companies to buy my loyalty. I want them to earn it.

Personally, I’m loyal to a retailer that sells what I want or need in a way that makes me feel appreciated and respected. I want to be a part of these retailers’ community.

Forget the card, forget the points. Be extraordinary.

David Livingston
Guest
10 years 3 months ago
My experience is, unless you are spending at least $10,000 a year at a business (airline, hotel, retailer, etc), you don’t get much in return. The instant reward is what I like best. I like Walmart’s loyalty program. No card, just low prices instantly. At the conventional supermarket prices are jacked up about 20% above Walmart. Then you have to scan your card and clip coupons and maybe, just maybe you might get the item at about the price Walmart sells it for. Then 95% of the time it’s still more than what Aldi sells it for. Airline programs are a scam. First you can fly just about anywhere in the US for just a few hundred dollars so most people save their miles for that $800 flight. But that one free seat available for frequent fliers is always sold out. Sure there are plenty of free seats on those $59 flights. Rule of thumb is that if a store has a frequent shopper card, you are paying extra for it.
Janet Dorenkott
Guest
Janet Dorenkott
10 years 3 months ago
I didn’t like loyalty programs initially because I also felt that I shouldn’t have to carry extra cards around just to prove I am a regular shopper. I also felt it was a way for retailers to increase price and force me to carry a card to get the prices they should have been charging. Today, I probably have about 50 loyalty cards. However, I only carry about 5. I’ve discovered the differences, abandoned the ones with little or no reward, and thrown out those that just send me coupons. The ones I like give me cash that I spend at their stores. Dick’s Sporting goods for example. They are always sending me $10. It forces me to go back in. I like Giant Eagle, because I like a free tank of gas every few months. I do like some of the airline and hotel cards because I do get upgrades. Marriott and Continental are the ones I get the most benefit from. And for that matter, there are some online stores that also have… Read more »
Kinshuk Jerath
Guest
Kinshuk Jerath
10 years 3 months ago
Almost every company offers loyalty programs now, and as many above have said, they often don’t give enough of a reward to consumers. So companies are routinely over-promising but under-delivering the rewards. However, a new kind of loyalty program that has worked very well is one that provides awards in a different but often used category. For example, grocery chains offer consumers rewards in the form of discounts on gas purchased from gasoline stations in the local area, and this loyalty program has worked very well until now. One reason is that once you have bought grocery, you don’t really want to buy more of it (even at a discounted price) until the next trip, which can be far away in time. But you still need gasoline, and the reward suddenly seems more salient because it is at a different time and in a different context. Gasoline is also a category in which consumers feel more delight when they get a discount. I discuss this in a recent paper available here. So while I think… Read more »