Is it time for retailers to tier up their loyalty/reward programs?
Sarah Toms, executive director and co-founder of Wharton Interactive, co-authored this article.
A classic “buy nine, get one free” loyalty program — or a more sophisticated variant — is often an effective way to squeeze a little more value out of a low- or mid-tier customer. Pretty much everywhere you shop these days has a similar program.
Are these types of programs the right way for retailers to appeal to their very best customers, as well?
As we have detailed in our book, “The Customer Centricity Playbook,” retailers are starting to think about how to leverage shoppers that have the highest customer lifetime value (CLV) with much more exclusive premium offerings. Companies, however, generally aren’t thinking about the strategic distinctions that should be made between the top tier of a conventional loyalty program vis-à-vis a true premium program that may be out of reach for most customers.
Many, often incorrectly, see loyalty programs as an aspirational reward for best customers. Simply giving them a little more — when they’re already doing a lot with you — doesn’t seem to be all that rewarding. For mid-low customers, this is the right move, but not for high-end ones.
Let’s not even think about discounts for the high-end folks. If they’re with you for the right reasons (true loyalty as opposed to inertia/switching costs), then that’s the wrong reward.
We think the best approach might be graduating customers from a traditional loyalty program to a genuinely premium offering. There’s no shortage of potential applications. Think of a supercharged version of Amazon Prime with your own personal concierge or a CVS CarePass with delivery in hours instead of days and exclusive customer-service contacts.
And, to go one step further, truly loyal customers may be willing to pay a premium for this level of service. This is how Amazon Prime started. A baby step in this direction is the rise of programs that require some kind of up-front payment or ongoing membership fee, like those from Lululemon. Even more advanced is CVS CarePass.
For retail’s best customers, it should no longer be “buy nine, get one free” when “pay a little extra and we’ll take care of you for life” is so much more relevant and rewarding.
- The Customer Centricity Playbook – Wharton Digital Press
- Lululemon expands test loyalty program with $128 annual fee – CNBC
- Will ‘Practice’ make for perfectly loyal customers at Lululemon – RetailWire
- CVS subscription program goes big to outdo Amazon Prime – RetailWire
DISCUSSION QUESTIONS: Do you see a real need for retailers to upgrade loyalty programs/rewards for their highest value customers? Is the “pay a little extra and we’ll take care of you for life” approach a better way to create a deeper connection with consumers?