Is it time for retailers to tier up their loyalty/reward programs?

Discussion
Source: CVS CarePass ad
Aug 15, 2019
Peter Fader

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.

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?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"No matter how great a loyalty program might be in concept, no retailers will ever achieve success unless they “wow” their customers with products, prices, and service."
"Surely the first question for any brand that has returning, high-value customers is why do they come back? What do you get so right that they want to return?"
"Trust (the marker of what I call true human loyalty) is highest when interests are aligned at a fundamental level — so fundamental that you don’t have to think about it..."

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15 Comments on "Is it time for retailers to tier up their loyalty/reward programs?"


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Bob Amster
BrainTrust

Among certain segments of the retail industry, and specific brands within that segment, there is an aspirational aspect to these programs. If the program is properly conceived and designed, multiple tiers (no more than three, please) can be successful in increasing the value of any and all customers.

Shep Hyken
BrainTrust

A “buy nine get one free” strategy is not a loyalty program. It’s a marketing program. There’s nothing wrong with that, but keep in mind that loyalty programs are often ways to get customers to return, not actually become loyal. There’s a difference between repeat customers and loyal customers. True loyalty comes from the “deeper connection.” So look at the companies who have had great success with not just repeat customers, but loyal customers who evangelize their brands. What are they doing that can help drive loyalty in your business?

Neil Saunders
BrainTrust

There is a lot of sense in looking at high-value customers and assessing how they can best be rewarded. Discounts and offers are welcome, but as the article notes these are not always necessary to drive behavior with customers who are often loyal for other reasons. Unlocking a range of benefits, whether it be invitations to special events, exclusive previews of new products, or some kind of service such as a personal shopper is probably a lot more valuable and sustainable in terms of creating goodwill and loyalty. The exact configuration will vary from retailer to retailer, but it’s worth taking time to understand the most important shoppers in order to make them feel valued.

Rich Kizer
BrainTrust

Buying nine and getting one free is an incentive program. I’m with Shep Hyken on this one. True loyalty is what is above and beyond what other customers receive. And it truly is earned. Concierge service, personal services that go above and beyond, taking any aggravations of the transactions out. It’s like a room always on the concierge level, and with perhaps an assigned staff person.

Art Suriano
BrainTrust
It merely comes down to value, meaning, “what do I the customer get for spending money on this?” Loyalty programs can be very beneficial. They range from the car wash punching the customer loyalty card and giving the 11th car wash for free to more sophisticated programs like Amazon Prime.  Value is vital and will make or break a customer’s participation. Looking at Prime, for example, the $119 a year I fork over is a considerable value. I save on shipping; I get to watch unlimited movies and TV on my devices and Smart TV, I get to download and read many free books on my iPad or Kindle all for $119. That’s real value. So retailers need to look at the big picture and create value for customers participating in their loyalty programs. However more than anything, in the end, it still comes down to how the customer feels about shopping you; are they satisfied with their purchase and the service? No matter how great a loyalty program might be in concept, no retailers will ever achieve success unless they… Read more »
Susan O'Neal
BrainTrust
3 months 1 day ago

Trust (the marker of what I call true human loyalty) is highest when interests are aligned at a fundamental level — so fundamental that you don’t have to think about it, you don’t have to calculate the cost/benefit more than once, and definitely not at every transaction. If a retailer has an offering comprehensive enough, and that offering is relevant frequently enough, then the “premium service for a one-time fee” model works and the outcome of it is more akin to real human-to-human loyalty. But not all retailers have a comprehensive enough value offering, or they may not be relevant frequently enough, to justify a one-time free for premium service offering. In those instances, the transactional incentives (the “buy nine, get one free”) would be dangerous to remove altogether.

Shikha Jain
BrainTrust

For the highest value customers the biggest question is whether loyalty programs keep these customers within their four walls or if they are just another promotional activity that can cannibalize potential future sales.

Evan Snively
BrainTrust
The most recent Maritz | Wise Marketer study found that 55 percent of consumers were willing to pay an upfront fee for an elevated loyalty program (a statistic that has increased for three consecutive years) – so out of the gate, yes there is an appetite for this approach. There are two main types of people that an explicit above and beyond paid loyalty program appeals too – 1.) the legit brand loyalists who feel a need to be connected as deeply as possible to every aspect of the brand AND, 2.) customers who simply have the financial means to buy in at a higher level. What these two groups expect to receive from an upgraded loyalty program is not necessarily the same thing so brands considering this approach need to have a clear vision of WHY they are doing it. Are you actually trying to increase true and cult loyalty to your brand by catering to your core base, or are you looking to create a new revenue stream? Both approaches have merit, but… Read more »
Phil Rubin
BrainTrust
3 months 1 day ago

Peter and Sarah are spot on.

Most retailers need to do more than upgrade their loyalty programs, they need to understand and practice loyalty marketing — which is more than simply offering a loyalty program. More importantly, they must understand what customer loyalty actually means.

Loyalty marketing is not about discounts. Customer loyalty — as defined by customers (through rDialogue proprietary research) — means a willingness to pay a premium or go out of one’s way to do business with a brand. That’s why loyal customer are willing to pay a membership fee or, alternatively, pay more for similar products. Case in point: Amazon for retail, Delta Airlines for travel.

As a CFO at a client of ours aptly said, “great companies get their best customers to pay more.” Retailers play one card in their hand, discounts, to the extent of their profitability.

Ralph Jacobson
BrainTrust

How long will we need to keep talking about this?! The vast majority of “loyalty” programs are still nothing more than frequent shopper incentives, offering mass, untargeted discounts to whomever shops there. By all means there needs to be more prominent incentives for the top tier customer audience that offer significant benefits to those who are truly loyal to the brand, versus the masses.

Richard Layman
Guest
3 months 1 day ago

Buy 9/10 get 1 free can be part of a premium or tiered loyalty program. I have read about Dorothy Lane Markets, which promotes loyalty not through price discounts but by rewarding “greater spend,” such as providing a cheese board for free based on how much cheese you buy etc. Harmon’s Supermarket in Salt Lake (and actually now Safeway) rewards people with free items depending on how much they spend in a given period, in addition to the various buy 10 get 1 free aspects for coffee, sandwiches, bread, etc., built into their loyalty card program. They are set up to provide more reward based on how much you buy, which is different from typical price based specials, which they do too.

Paco Underhill
BrainTrust

In the modern tradeoff between time and money — which do we choose? What if rather than discounting there were member only check-out? At a Japanese department store I visited years ago, they had a members lounge — drinks, a place to park your husband, private bathrooms and private fashion shows. Membership was either bought, awarded based on sales volume, or if you signed up the store’s branded credit card. Let’s get past buy one get one free.

Kenneth Leung
BrainTrust

There is a difference between reward and loyalty from my POV. When you are doing rewards to drive repeat purchases, that’s not loyalty, that’s called discounting. Driving true loyalty to the brand is to get the customer to repeat purchase and advocate, WITHOUT having to continuous scale rewards to get them to do so. Retailers who want loyalty need to invest in the product offering and customer experience, and points program give you that extra push when needed.

Cate Trotter
BrainTrust

Surely the first question for any brand that has returning, high-value customers is why do they come back? What do you get so right that they want to return? It’s probably not because of your loyalty programme. Maybe it’s your assortment or experience or customer service or something else. That’s the thing you want to be tapping into.

That said I think we all like to be rewarded — we like it when brands recognise us. Loyalty programmes are a great way to say that you appreciate the customer. Making them more about the things your customer already loves, rather than a single discount or freebie, seems logical. What you need to do is find the value you offer. Amazon Prime offers convenience first and foremost — all the extra media is a bonus. Making your customers feel part of the club – whether that’s through exclusive products or services, a high touch experience, early access, meeting ambassadors or designers, etc is how you get them to start paying to be loyal.

Dave Nixon
BrainTrust

Yes, retailers (and brands in general) SHOULD tier their loyalty programs depending on various factors of “loyalty.” But buying 9 for 1 is not a loyalty play as much as it is an incentive/offer or marketing play.
The key to a great loyalty program is to leverage Customer Lifetime Value, and that is not always measured in revenue. Value can be defined in other ways like referral and affiliate marketing, repeatability, engagement, etc.

It’s time to build a customer advocacy program as the next phase of loyalty programs for the very best customers as the premium top tier level of loyalty.

wpDiscuz
Braintrust
"No matter how great a loyalty program might be in concept, no retailers will ever achieve success unless they “wow” their customers with products, prices, and service."
"Surely the first question for any brand that has returning, high-value customers is why do they come back? What do you get so right that they want to return?"
"Trust (the marker of what I call true human loyalty) is highest when interests are aligned at a fundamental level — so fundamental that you don’t have to think about it..."

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