The Loyalty Card Conundrum
By Al McClain
So here’s the thing about
loyalty – it’s whatever the individual shopper/consumer wants it
to be, not a marketer’s program. One person is loyal due to personalized
service, another likes the one free after ten purchases deal, while someone
else wants to accumulate points. The problem seems to be that at least
some marketers are more in love with putting together programs and setting
rules than they are in really connecting with their customers.Â
Citibank and American
Airlines have a program, for example, where one can earn 20,000 AAdvantage miles
for doing the following:
- Open a checking account with
at least $1,000 by 6-30-09; - Make one direct deposit or
pay two electronic bills or make five qualifying non PIN-based purchase
transactions with their debit card per month for twelve consecutive months; - Remember to register for the
program using a special code; - Wait up to 120 days from completing
all the activity to receive the miles.Â
Meanwhile, speaker after
speaker at last week’s Loyalty Expo advised marketers to “simplify,” “connect
with consumers” and “keep it real.” With the above example,
we can see why that advice is necessary.
BrandMIND noted
that households have an average of 14 loyalty cards yet a Colloquy presenter
said that only 6.2 of those 14 memberships are active. In other words,
consumers have a lot of loyalty cards and can’t keep up with them all.
Yet, here’s the program that started it all in 1981 making consumers jump
through nearly impossible hoops to claim their award.Â
For the 80 million 12-to-31
year olds classified as Millenials, programs like the above example make even less
sense. Panelists at a session on “Building Engagement with Millenials” said that this group is very connected with
friends and family, relying heavily on word-of-mouth for everything. Millennials want instant gratification – they prefer
instant cash back (who doesn’t) versus mileage rewards that take a long
time to accumulate.
Many would argue that consumers, if left to their own devices, would
really prefer to just have better prices than wade through piles of special
offers and loyalty program rules. (Can anyone say Wal-Mart or Southwest Airlines?)
But, since there can be only one low price leader for any given type of business,
everybody else needs to think about what else will work best and perhaps
try the following tips:
- Keep loyalty programs and special
offers simple enough that harried consumers can figure them out easily
and quickly. - Don’t try to trick consumers
with onerous rules and regulations – you’ll get trashed via social
media. - Personalize offers enough so
that shoppers will know you are on the same page with them, but not so
much that they think you are snooping on them or trying to be their “friend”. - Think about what you offer
from the perspective of consumers who are going through tough times more
often than not, and are continuously bombarded by
“deals” from marketers of all sizes and stripes.
Discussion Questions:
What do you think are the main problems with customer rewards programs?
Where are the biggest opportunities?
Too many loyalty programs are really “lock in” programs–attempts to make it difficult for consumers to defect. Today’s consumer (and especially “millenials”) are used to pursuing the best product, the best price, *and* the best format. The mostly unfulfilled promise of loyalty is marketing that meets the unique needs of each consumer. But, the stale excuse that personalization and micro-marketing are too expensive is no longer accurate or sufficient. Chains that ignore customers’ uniqueness fail. However, retailers who can achieve that level of personalization–appropriately and cost-effectively–will build a long-term sustainable advantage.
Al covered many of the big challenges facing loyalty program managers. The crux of the problem: these programs are not mass marketing tools, but are often approached that way. The buttons that work to build loyalty differ by consumer segment, as Al mentioned.
For one program to work, it needs to be operated as several mini-programs. I think the airline example is incomplete–don’t they have a completely different and very easy way for newcomers to sign up, for example? (Airport kiosks with immediate freebies). I’m not saying that the full range of segments is targeted appropriately. Not sure anyone is doing that well. Maybe someone could post more on this….
As a shopper, I always prefer simple. Complicated doesn’t work because I have WAY too many things to do and will simply not take the time to sort through multiple complex programs. I use four different types of stores and a farmer’s market each week for the family’s food needs.
Campbell’s and Kroger changed the Labels for Education program to an e-labels program this year that allowed shoppers to sign up online, designate a school, attach it to their Kroger card and then resume normal shopping patterns. Qualified items accrue, and points go to the school without further ado.
Saves time for parents, grandparents, as well as school volunteers and administrators. And everyone can see the tangible benefit in equipment/supplies.
Simple. Smart. Transparent. Convenient. Effective.
And 100% shopper-centric.
The biggest problem is that there are just too many of them and everyone has them–even coffee shops. I have a glove box full of punch cards. I have a key ring full of grocery store cards. I’ve got a frequent travel account for just about every major airline, hotel chain, and car rental.
With credit cards it gets more complicated. Need to use AMEX to get 5% rebates at gas, grocery and drug stores. Discover to get promotional 5% on travel, Capital One for foreign travel, airline Mastercard for all the rest.
What motivates me to use one more than another pretty much comes down to showing me the money. When it comes to retail, show me how I can get a better deal with the loyalty card instead of going to Wal-Mart and Aldi. I want to see quick returns. I’m getting regular $25 gift cards in the mail from one hotel chain, usually after every couple of stays. Keep in touch with me not by sending junk mail, but by giving me gift cards and free tickets. Otherwise I would prefer to shop, stay, or fly at no hassle providers who offer rock bottom prices and no loyalty programs. Sometimes simply offering the best price and service is the best loyalty program.
Having worked with dozens of companies implementing loyalty programs, I can tell you it’s pretty sad that most companies, big and small, have no clue what their clients want.
I have found that a simple loyalty program is well received, but is not a replacement to high prices or poor service. As for instant gratification, for many clients, that can be as simple as a rubber stamp getting them one step closer to that free gift card.
As much as a survey might make it sound like younger shoppers want the reward right away, the fact is they really don’t mind waiting. What they don’t want is to have to work at it.
In the end, the programs that will be the most successful are those that are built around the concept of CUSTOMER loyalty rather that CORPORATE gain.
Great tips on loyalty programs and particularly “Keep it simple.” Nothing demonstrates that better in my opinion than Canadian Tire’s “Canadian Tire Money” loyalty program. I experienced it first hand while in Toronto last week. Established in 1957 and still going strong, CTM puts physical, spendable notes in your hand every time you check out. The “currency” resembles real Canadian bills in look and feel and having them pressed into your hand upon checkout is instant gratification at its best. You feel like whipping around and spending them.
Sometimes the more high tech and automated loyalty programs are, the more they kill the buzz. I’ll add a rule “Make it tangible.”
Just one simple thought…get rid of the need to carry around a card! I don’t want another plastic card or key fob to lug around. If you can’t track me in your system, forget about it. There are a lot more sophisticated things that retailers could do to make their programs more successful, but couldn’t they start with this one, simple step?
Al, your posting invites us to discuss the biggest opportunities with customer rewards programs. Beyond the excellent ideas you listed, one more opportunity is to give a sense of prestige to customers who participate. That works best with multi-step programs, in which a member can move from silver to gold status, for example, by increasing the total amount and/or the frequency of purchases. Once you have the multi-step program in place, the staff member, whether at the hardware store checkout counter or at the airline check-in counter, should be sure to say to the customer something like, “Thanks for being a gold step member.”
How many consumers belong to a supermarket loyalty/rewards program? I would expect that the answer is the majority of people do, not because they are loyal to that particular supermarket chain, but because it is the only way they can currently access its specials. There is little if any effort to use the data to provide a particular shopper with something extra. It’s become a reusable coupon. They do not engender loyalty.
It you want a loyalty program to do something for you as a retailer, it has to do something for your customers. As the article points out, that may be different for different people. Personally, I like collecting miles that I can then use to provide trips to my children and grandchildren. I would also like if the providers of the various other programs I belong to sent me special offers on the items I do purchase most often, but they don’t. Perhaps I belong to the wrong programs.
I think “loyalty program” is misnamed. Perhaps that’s why such programs are so hard to execute. It’s not a customer loyalty program–it’s a customer DELIGHT program. I know, hokey, but stick with me for a second. All of RSR’s research has shown that loyalty is an end, not a means to an end. But retailers have a bad tendency to act as if they can “buy” a customer’s loyalty with a loyalty program–and those are the ones with positive aims. The Citibank/AA example only proves that there are also people in it with ulterior motives that ultimately are pretty transparent to the public.
By focusing on delight, retailers can change the equation. A loyalty program should be a vehicle for delivering offers, perks, specials, etc. that delight that individual customers. If you consistently delight a customer, then loyalty will follow.
First, we should not call these cards “loyalty cards.” Refer to them as frequent shopper cards or continuity of purchase cards, but they have little to do with customer loyalty. The concept of loyalty should be reserved for your family, country, alma mater, etc. In addition, the fact that households average double digit cards suggests little in the way of loyalty.
Imagine your spouse or significant other’s surprise at discovering pictures of individuals other than your friends and family in your wallet. It would hardly conjure up an image of loyalty.
Second, if you want to insure continuity of purchase and minimize store or brand switching, I suggest that you concentrate on customer needs that would maintain purchases at a single store. The frozen turkey at Thanksgiving is hardly unique or even desired. For example, what problems might a “loyalty card” ameliorate for a food shoppers? We know that speed of check-out is an important attribute for food shopping. Why not have a special line, like Disney’s Fast Pass, in which an individual would be guaranteed a reasonable time and dedicated lane for check-out? Even the airlines, with all of their customer service inadequacies, recognize the value of dedicated frequent flyer telephone numbers and check-in lines. In almost every other business you can make a reservation or appointment for something, e.g., round of golf, dinner, doctor, etc. Why couldn’t a frequent shopper be recognized as such and be given something that the shopper really values, namely, time savings?
Third, the real purpose of “frequent shopper” programs is to create a barrier against “brand-switching.” In other words, the program should be designed such that a customer has so much invested with the card provider that thoughts of switching are discouraged. This is the acid test. Does your program, whatever you may label it, have such a hold on the customer?
I think Nikki Baird is half right: loyalty is an end. But it shouldn’t be a program for delivering offers, discounts, etc. If you want my loyalty you’ll do this consistently: have product in stock when you say it’ll be in stock–I don’t want to make two trips and rainchecks don’t cut it; have staff who can give straight answers about products, offers, service–I don’t want to guess and most times, my mind’s made up about what I want to purchase in your store; don’t try to sway me because a product offers a higher commission to you–I want what I want and you better be really knowledgeable if you’re going to make me change my mind; have a reasonable return policy–most people won’t try to swindle you and sometimes, stuff happens; be honest with me–don’t dole out the BS to sway me, customers are the most informed they’ve ever been these days; have enough staff to service demand–I don’t want to wait all day to give you money to buy things in your store; have a clean store, have staff who at least look like they care…loyalty is simple, really.
Retailers that have loyalty programs have a huge asset that most do not take full advantage of. As Al mentioned in his article, keeping offers simple and not tricky is key to building your loyalty user base, but then what? Retailers need to mine the loyalty data to better understand their consumer and offer them more of what they want and need.
Some years ago our team began evangelizing our concept of CMR (Customer-Managed Relationships) as the natural evolution of CRM (Customer Relationship Management or Customer Relationship Marketing). It’s nice to see our idea finally being embraced–if not yet implemented in any real way. Evidently evolution really does move glacially.
Capital One TV commercials encourage consumers to personalize their credit card design, giving the illusion that they are somehow in control. Never mind small considerations like interest rates, billing cycles, etc. Loyalty cards have long done the same, providing the appearance of personalization without the substance to back it up.
Loyalty suppliers must be the change agents to drive retailer adoption of improved programs. Retailer resistance remains the central bugaboo for change in the loyalty bidness, because they’ve already spent millions erecting their monument-like legacy programs featuring control rather than flexibility. Will they need to spend millions more on modifications that clearly make sense, or even begin again from scratch? The suppliers–not the sponsors–of loyalty programs need to step up their educational efforts. Here are three recommendations: 1.) When they go to market with new, refreshed programs for existing retailer customers, they need to arm themselves with credible ROI scenarios for their sales presentations, given that there are no examples or case histories to provide learning. The metrics will be scrutinized. 2.) Consumer research is also key, especially if conducted among the retailer’s own customer base. 3.) New software needs to be offered as an affordable integration rather than an expensive replacement.
I belong to just three customer rewards programs–two of which are credit cards and the third a local specialty grocer. I’ve found with my Citibank and American Express programs, both offer a broad selection of merchandise, gift cards, travel discounts, etc. through their respective redemption web sites.
Both sites are easy to navigate and points redemption is simple and straightforward. However, neither company has personalized the reward experience based on past purchase and travel history–an area of missed opportunity to enhance my loyalty toward their cards.
Ironically, it is my local specialty grocer, Plum Market, that does the best job of taking a simple and free rewards program and personalizing it to my preferences. Discounts are offered on products they know I like, and suggestions are offered on new items I may not know about. The program is called “Lucky You” and it shows how a small retailer, with a bit of data mining and strategy, can effectively engage with its customers.
We do a case on loyalty marketing each semester with the students in my Food & CPG Marketing Issues and Strategies class and the discussion always centers on a few key issues with my students:
1) Why do I need to carry a card for every store I visit?
2) Why do I need to risk an invasion of my privacy to save a few dollars on the products I purchase at these stores?
3) I’d rather collect rewards using my debit or credit card and have the freedom to shop where I want when I want.
4) There is a preference for immediate gratification without the complications of redemption.
They do not view these programs as loyalty but more of a marketing gimmick. We need to find a new way to create interest in our products and our stores with these new consumers….
Customer reward programs have certainly taken on a life of their own over the years. If most of us have cards for 4 supermarkets, 8 airlines, and 10 hotel chains, you have to wonder whether the programs are changing behavior, or simply taking credit for behavior that would have taken place without the rewards programs.
If a program is actually able to win and retain customers with more lifetime value than the costs of running and communicating the program–it’s a winner. I’m not sure how many marketers have really done this analysis. I think most marketers at this point would be reluctant to set up test and control groups to learn whether the programs are generating the profits they desire. They would fear the loss of customers in the control group to the competition, and they might fear learning the truth.
If we started from a clean slate, I think we might all agree that you gain loyalty by giving each customer what they want most. It’s a tradeoff process that we all go through (consciously in B-to-B situations, but probably sub-consciously for most retail purchases). We gather input from every interaction and every Touchpoint at which we encounter the brand (from the email we receive, to the service that’s provided, to the mass media advertising messages they put out, to each use of the product, to the rewards we receive, etc.). If when the customer takes that “data” and makes their calculation, and the rewards program benefits helps to carry the customer experience and the level of service provided to a higher value compared to the “costs” (in dollars, time, and inconvenience), then the merchant at least temporarily achieves the behavioral loyalty they desire.
From a consumer perspective, I have come to the conclusion that I need the various “loyalty” cards to keep from getting “screwed” at the check out register. For me there is no “loyalty” involved. It is purely a business decision on how to obtain the retail pricing and “savings” that every customer should be receiving in the first place.
It appears that my friends and family have gravitated to retail outlets whose pricing policies and procedures are simple…a fair price without having to use a calculator on how to get the price. I hate to say it, but we have even shopped at Walmart.
The only card that I carry that I attach “value” to is the Costco card and that is really a membership card that has morphed into a loyalty card.
Want loyalty programs to work? Simply the process, and think like a consumer.
1. Get rid of the cards and fobs and allow the consumer to identify themselves using a cell phone.
2. Ask the consumer to identify themselves when they walk in the door, not when they walk out of the door.
3. If you recognize the customer when they arrive, you can then reward them with customized offers specific to their needs, and their profiles. Loyalty rewards should reward loyalty, not force people to come back another time to be rewarded.
4. Imagine if you had a station of computers, and when the customer identified themselves as a loyal customer, you had a person who was a greeter, greet the person by name. Would that create a better attitude prior to shopping? Everyone wants to be treated like a person.
5. Ask the customer how they want to be rewarded, and then do it again and again. Customizing programs is easy. Having the dedication to execute these customized programs is the tough part.
Loyalty programs need to be re-thought, because the way they are set up now, no one really feels that the loyalty is truly appreciated.
Wow, we seem to have some passion on this topic. Perhaps because we just don’t get “it,” “loyalty” that is, in retail.
Retailer programs started in earnest in the late ’80s. I agree that the far majority of them are nothing more than frequent shopper programs. Don’t be fooled by high penetration of the program. A customer feels compelled to join to ensure they don’t get ripped off otherwise by paying full price. My wife has the cards of all three national grocers in her wallet. Does that indicate any loyalty? When you check out, the cashier tells you how much you saved. I think to myself, “Cool! I would’ve bought those products anyway. Thanks for giving away your revenue and margin for no reason!”
Let’s expand our minds for just a moment and look outside retail. You wouldn’t fly any other airline because you have the highest status on this particular one, right? You try to stay at the same hotel chain. These programs drive compelling loyalty, to the exclusion of competitors. Why? because they have identified the perks that matter: Status, miles, upgrades.
In the 1980s my alma mater, Jewel Food Stores in Chicago, used to have “Super Teams” at the POS. In addition to the express line, they would have these checkout lanes during peak shopping times. There would be three clerks on each terminal to unload the groceries, scan and tender, and bag the items. Catering to the large orders…that’s right, the loyal shoppers. Why are grocers so interested in catering to the small order/express customer, when those tend to cheery-pick the store anyway? cater to the $150+ customers. THAT’S where the ROI is for providing good service.
Keep programs simple and in perspective to the end user and product offered.
The biggest mistake is to make the rewards so complicated that the consumer misses the value of the program. I believe most loyalty programs have a “bonus” perception rather than a rewards perception by the consumer. In other words, it’s good to get the reward, but it doesn’t drive the consumer to loyalty.
Additionally, make the program easy to follow and constant in the life of the consumer by utilizing social media, widgets, and other online or text functions. And most importantly, tie the programs to a branding function. What is the role of the brand in the consumer’s life? How does a loyalty program enhance that relationship? If the loyalty program is divergent from the brand, then the loyalty program should be scrapped.
Loyalty is bunk. Let’s get that clear once and for all. Major retailer card programs are about the “game” and little else. Shoppers use them so as not to miss out on posted promotions. This hardly creates any form of emotional connection resembling loyalty.
So what are card programs good for? Personalization, perhaps. They are a mechanism that allows shoppers to reveal just enough about their habits and preferences to permit the retailer to customize benefits through communications and rewards. This should be about the retailer exerting itself to show a bit of loyalty TO the shopper, not the other way around.
Moreover, since all shoppers are split shoppers, the transaction data captured from frequent shopper card programs is of relatively limited value to CRM marketers. They reveal only a portion of each household’s shopping behavior. The insights derived from standard RFM (recency-frequency-monetary) analysis are likely to result in misleading signals since their story is full of holes.
My experience with travel reward programs is that they sow ANTI-loyalty with many members, by bombarding us with irrelevant offers (like the credit card offer above), summarily expiring points and miles, and making the reward redemption process excruciating. Yes, I’ve earned a few upgrades and “free” tickets over the years, but I’d give that all up for a more comfortable coach seat.
Great article Al and you’re right–there are a lot of problems with programs today. A big part of the problem is that everyone is looking to figure out the right formula. There were definitely attendees at Loyalty Expo last week looking for the silver bullet and fortunately, there were a number of presenters that reinforced the fact that none exists.
If there are any formulas to follow, they are:
1) You have to do the hard work and create a customer proposition that is unique to and fits with your brand and business model while at the same time being relevant and valuable to your customers; and
2) Loyalty profit = incremental profit margin less program costs.
Programs and “non-programs” fail for a variety of reasons and one that was front and center last week was measurement. Too many marketers don’t know the right metrics or worse, don’t have any real metrics on their initiatives.
The issue of programs being too complex and cumbersome is also front and center. Technology exists to make customer participation less cumbersome than it is today, much as the technology exists to easily version and thus make most customer communications much more relevant. Marketers need to remember this.
Last, loyalty, as Nikki mentions above, is often misconstrued, and is done so in a number of ways. Loyalty is a relative term and varies greatly by category and by brand. For lower involvement categories (e.g., lower emotional or financial or physical involvement), loyalty is really habit. Still for others it is highly emotional (e.g., healthcare, luxury goods and even automotive).
The key to more successful loyalty–or better, customer–marketing starts with not trying to replicate someone else’s approach and focusing on doing the right thing for your brand and business.
Many of the comments above touch on the issue, but few of the loyalty programs in place today actually generate loyalty. The reasons for this are numerous, however I would say the primary one is that companies put these programs in place to improve their sales and earnings with little regard to what customers really want. A good loyalty program is not a mailing list to send out aggravating emails nor a frequent flyer program that no one is able to use because the seat allocations are so meager. A good loyalty program starts with understanding the consumer’s wants and needs. Loyalty is gained through a solid value proposition, not cents off with a loyalty card. A good example of this is Hertz. They know their customer intimately and strive to exceed the customers’ expectations, not through price, but through convenience and service. We all know that price is only one component of a value proposition, and unless you are Walmart, you probably will be undercut by someone else. This is not a winning formula. The focus of loyalty programs should be on providing better value than the competition, and that requires one to know the customer’s desires; sometimes individually.
The problem is they’re not loyalty programs so much as they are a vehicle for driving traffic by offering discounts to known customers. Loyalty is not built on the basis of price. It’s built by creating a memorable customer experience that takes the relationship far beyond pricing, and makes the retailer THE go-to destination in their category or niche.
When crafting loyalty/reward programs (LRPs), the No. 1 priority is to create a program that resonates with the targeted consumer’s needs inside the shopping experience and/or their lifestyles and needs outside the shopping experience. Inside the experience needs could be rewards like special product discounts, access to a personal shopper or free shipping on the consumer’s birthday. Teeing off the consumer’s lifestyle needs outside the shopping experience includes rewards like spa days, funneling cash backs into a retirement savings account, saving for college or access to a professional organizer.
The key here is that the LRP focuses on the consumer’s needs, not the merchant’s needs. Too often, it seems LRPs are crafted with only the retailer’s needs and desires in mind and what they want from consumers or how they want consumers to act. But crafting an LRP from the consumer’s perspective increases the likelihood that the shopper will be engaged, a long-term customer, and an active program member.
A couple additional items: keep the rewards fresh by regularly examining the rewards to ensure they’re kept relevant. And give serious thought to creating multiple LRPs that target various demos, lifestyles and life stages, e.g., Moms, seniors, college students, green consumers, health/wellness shoppers and/or new parents. With more creativity and a decision to put the consumer’s needs first, LRPs can do just what they’re supposed to do: generate loyalty.
Most programs are not about loyalty whatsoever. It is about the retailer’s ability to gather valuable customer data on your purchasing behavior. From this, they should be able to improve how they do business. What do middle-aged moms, with 2 kids, earning under 50K like to purchase in frozen goods? That’s what the retailer wants to know and in order to get that information they have to pay a price–and that is the so-called ‘loyalty’ program. It should be called the ‘give us personal info so we can track purchase statistics and we’ll give you some rewards for doing so’ program. The problem really comes after this, what do retailers do with this information? Can they as a result provide better service, better product mix, better specials?
And lastly, I agree with Nikki’s comments–retailers should use this information to delight and SURPRISE their customers. If you give a customer a gift or special service out of the blue, unexpected, that will go a lot further than some mundane ‘point accumulating and then get a free box of soap’ program.
Membership in U.S. loyalty rewards programs has reached 1.808 billion, according to the 2009 COLLOQUY Loyalty Census.
The adjusted total represents a 24% growth from the 1.3 billion tally in COLLOQUY’s last loyalty marketing industry census, published two years ago in 2007. The 2009 census covers three industry segments not included in the 2007 version: Car Rentals, Cruise Lines and Mass Merchandisers. If these new industries are removed, the adjusted 2009 U.S. census total stands at 1.673 billion. To properly compute growth trends, COLLOQUY used the adjusted 2009 membership total as its data point.
COLLOQUY’s 2009 updated measurement of the scope of U.S. loyalty marketing shows the average U.S. household has signed up for 14.1 loyalty programs but actively participates in only 6.2 of them. The corresponding numbers in 2007 were 12 and 4.7.
A loyalty marketing program recognizes and rewards the best customers of a business. COLLOQUY’s census tabulates program memberships, not unique individuals. COLLOQUY provides a complete report on the 2009 census in a white paper titled, “The Big Sort: The 2009 COLLOQUY Loyalty Marketing Census.” The paper is available free of charge.
In a key finding from the research released today, COLLOQUY pegs the number of active memberships in U.S. loyalty programs at 792.8 million–a number that the study’s authors characterize as “one of the worst-kept dirty secrets of the industry.”
Definitions of active memberships vary from company to company; but a typical example is a member that has at least one instance of activity, such as earning points on a purchase or redeeming for a reward, within a 12-month period. The 792.8 million number means the rate of active membership is relatively flat at 43.8%, compared to 39.5% in 2007.