Innovating Brand Loyalty Programs

Chris WrenAugust 9, 201813296 min

Never forget that the digital revolution is changing the way customers buy and the way brands sell. So, it’s no surprise that loyalty programs are evolving to differentiate. The old-fashioned approach of one-size-fits-all incentives, paper (or digital) coupons and classic points and rewards systems are simply too basic to meet the needs of a more savvy and busy consumer.

But that doesn’t diminish the importance of a strong loyalty program. According to research by IRI Worldwide, in 2017 74% of consumers chose a store based on a strong loyalty or discount program. This holds true across the generations as 79% of millennials and generation Xers want a “strong loyalty or discount program,” as do 74% of baby boomers. But rewards programs can be expensive, especially for brands that operate on high volume and thin margins.

Quoted in JWT Intelligence report, Bryan Roberts, insights director at loyalty marketing company TCC Global, says that “particularly when margins are so wafer-thin, retailers, I think, are looking to try and minimize the cost of the rewards they’re giving to shoppers. And we’ve seen that a number of retailers have dialed back some of the regular rewards they’ve been giving out.” In the UK, recent changes to simplify Tesco’s pioneering Clubcard program set off outrage among customers when they made all partner redeemable points worth 3x their value, when previously some had been worth 4x. Even airline programs are seeing higher fees imposed to redeem that “free” flight.

The data that loyalty programs provides brands is valuable and can provide granular understanding of what consumers actually want. But as revealed by several recent scandals and breeches, there’s understandable customer concerns about what data is being collected and how it is being used. Too often, this data is used minimally, and in transactional ways, which just adds to the noise. Coupons come to us in email, SMS and via apps. Sometimes they are based on customer preferences or location, but many times they’re just blasted out because it’s very cheap to execute.

The opportunity for brands is to pursue emotional loyalty, not transactional. Bryan Roberts says that when shoppers are asked what drives emotional loyalty, they point out two primary drivers, “the in-store experience—is it nice, is it better, is it friendlier? And how much the retailer cares. Not just about the individuals as shoppers, but also do they care about healthy eating, do they care about the environment, do they care about suppliers, about employees? So there is a real emotional driver to loyalty.”

The smartest brands innovating in this space are succeeding because they have imagination and creativity around what is possible, rather than trying to bolt-on a veneer of tech to something that’s been around for a while. Here are three important trends to pay attention to:

Smartphones, Not Loyalty Cards

It’s 2018, so I wince a little every time I write or say the words around ‘how important the smartphone is’, but this is an important point. “It’s the final stages of loyalty cards, but not of loyalty schemes,” Martin Lewis, founder of the Money Saving Expert website, in January 2018. “The idea that it’s a piece of plastic, and that you get points back and vouchers, is going to go.”

Starbucks is a perfect example. In a Forbes article, Shep Hyken says, “The Starbucks app is the perfect example of this. In addition to a rewards program, the customer can use the app to place an order, pay for the order and even access streamed music. As members earn stars toward rewards in the My Starbucks Rewards program, they can redeem the rewards in real time. The app reinforces the Starbucks brand as a lifestyle enhancement.” Starbucks notes that its Mobile Order and Pay represents 11% of all its transactions in the US.

In Europe, mobile wallet Yoyo combines contactless payments with automated loyalty points and digital receipt collections. The app can trigger personalized offers based on geolocation and can work with brands that want to partner with Yoyo or power their existing app through Yoyo. Unlike American Express’ Plenti program which ultimately failed, Yoyo is interesting because it can tie in with the payment experience.

Membership Has Its Privileges

Could there be any better loyalty program than one customers are willing to pay to join? Amazon’s Prime program has around 80 million members paying about $100 a year to qualify for two-day shipping, Prime Video streaming and access to Prime books. There’s other benefits too. Because the customer has invested, it increases their propensity to purchase because they want to feel like they are getting the most value. They’ve even launched a business product which is essentially Prime for B2B. And brands have taken notice.

While it’s in beta testing right now, Bed Bath and Beyond is playing around with a premium loyalty program, costing $29 per year. On a 2016 earnings call, CEO Steven Temares said, “The coupon is clearly and has been strongly associated with us. But really…we are working on becoming a lot more intelligent about our marketing and making it much more personalized.” They are hopeful this shift will reduce their reliance on discounting, and the need for their famous 20% off paper coupons.

Exclusive Experiences

According to 2017 research from Eventbrite, 75% of millennials value experiences over things. I consider millennials to be a mindset rather than a demographic, and some brands, especially those in lifestyle and travel, are offering some very cool activations. In 2017, Marriott created an immersive experience at the Coachella music festival in Palm Springs, California.

Members of the loyalty program could use points to bid on the chance to sleep in one of eight luxurious safari tents. One of the tents was inspired by Moxy, which is Marriott’s millennial focused brand, and served as a preview for their Time Square location, which opened later that year. Vicki Poulos, senior global brand director of Moxy Hotels, noted at the time that Moxy appeals to the brand’s target guests “by creating fun and relevant experiences. Our activation at Coachella allowed us to bring the fun directly to a captive audience.”

They’ve since expanded their Moments experiential platform, which features “once-in-a-lifetime events only available to members using points. Those include the Moments Live series, a partnership with Universal Music Group and LITV Entertainment Group, which offers experiences such as VIP access to Keith Urban’s tour, and VIP access to music and culinary events in Napa Valley.

What Else?

On the horizon is even smarter personalization and more anticipatory programs. Many brands are sitting on vast quantities of data and missing major opportunities. According to 2017 research by Deloitte, 44% of consumers would like the option of personalized rewards based on their purchase history. But if marketing and purchasing sit in two different databases, and the data is not clean, no amount of AI or machine learning is going to help. This is one area where brands need to get comfortable embracing something basic and unexciting. As Bryan Roberts says, “Before they start running with stuff like AI or blockchain, I think a number of retailers would be better advised to start walking with basic data analysis to make sure communications are remotely relevant… a lot of them are making some quite fundamental mistakes and struggling to capitalize on the data they already have.”

As you think about brand loyalty and whether or not to create, update or refresh your current rewards program, there’s only one rule to follow: Build everything around the customer. Be clear on what loyalty to your brand feels like. Is it great value, is it exclusive deals, invitation-only experiences, or something else? Ensure it’s digital revolution ready.

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