Features, Strategy & Operations

The Rewards of Loyalty

I remember evenings hunched over the kitchen table with my mother pasting S&H Green Stamps into a passport sized book, ignoring the sickly sweet taste of glue as we anxiously filled enough books to get our “free gift” from the redemption center.

When the day finally came mom handed over three books to the clerk. I was giddy with anticipation. Finally, out came a shiny new shopping cart, which she could have bought at the local hardware store for $4 instead of spending $100 on groceries to get the stamps.

We knew in our heart of hearts that the whole thing was a scam designed to get you to spend more. But it didn’t matter. We were rewarded for our loyalty—part of that elite group who greeted each other with the phrase “what did you get?”

Try that strategy with today’s consumers—particularly millennials—and you’ll crash and burn faster than you can say Plaid Stamps. Their phrase of choice when faced with loyalty programs is simply “why?”

Evolutionary Scale

Thankfully your customer never goes out of style. But has loyalty marketing really evolved with them? American Airlines launched the first modern loyalty program in 1981, which was copied by other airlines, hotels, car rental companies, et al. Today, airlines are more interested in having you squeeze into a seat designed for a three year-old than having your loyalty. And there are some of us that wonder whether many loyalty programs are actually an excuse for customer abuse.

Certainly there are plusses and minuses to consider. Only 12-15 percent of customers are loyal to a single retailer, according to the Center for Retail Management at Northwestern University. However, those shoppers generate 55-70 percent of sales. Additionally, there are over three billion loyalty memberships in the U.S. with the average household participating in 19 different programs. However, nearly 60 percent of those memberships are inactive in any 12-month period.

This indicates that many retailers are bogged down in old white-bread programs that have failed to become more useful, relevant vehicles.

Marketing Ploys

The standard points-for-discounts programs we grew up with are rarely more than a low-level marketing ploys. Then there are the pay-for-play programs where consumers pay for membership and supposedly lower prices. This always sounded a bit like paying protection money to the mob. But who am I to question the likes of Amazon and Costco?

Then we have those programs bordering on the ridiculous. Several years ago one supermarket chain offered shoppers 10 points for every dollar spent. Someone calculated that it would take 2000 points to buy a pound of apples or a loaf of banana bread. Even my less-than-meager math skills found you’d need to spend $200 to get to that level.

The question is what the next generation of loyalty marketing programs will look like in a tech-savvy, multichannel world? For some, the answer has been to switch from programs that only reward purchases to those those rewarding social responsibility programs that offer points for things like energy conservation, exercising or sharing on social media. At the very least this gets rid of the cherry pickers that can turn stores into gigantic loss leaders by gaming the rewards system.

Developing loyalty programs means tracking more than just one consumer purchase. Data will increasingly shape the way you measure loyalty. Marketers—online and brick and mortar—have to track the entire customer journey beginning with the way shoppers discovered your product or store. This means constant attention to social media, mobile, print and any other form of communication your brand uses to gather purchasing as well as behavioral data across all channels in real time in order to provide nearly instant gratification.

Generational Loyalty

This holistic approach also needs to be multi-generational. Much attention has been paid to gaining the loyalty of millennials who have snuggled up to the Internet of Things like it was a warm puppy.

But two other groups are crucial. GenZers, the digital natives who are in their late teens, have a phenomenal $44 billion in spending power. Get them now or you’ll lose them forever. Then we have our aging society of baby boomers and older. They are looking for value in the products they buy. A loyalty program that offers special experiences like a personal shopper or points toward an all-inclusive holiday may encourage them to choose one retailer over another.

This leads us into a discussion of which programs work and why.

A transaction-based points-for-purchase program is not going to cut it for upscale retailers who want stores to be fashionable destinations for the well-heeled. Offering five percent off Chanel is an insult, not an incentive. Try multi-dimensional experiential rewards like tickets to exclusive events or preferential treatment in stores.

Don’t make people wait to redeem rewards either online or in store. This is where instant gratification of the “Now” factor comes into play. Additionally, make rewards transferable to friends and family or towards additional services — and add a little sweetener if the write a nice product review, sign up for your blog or bring in other members.

Who’s Who in Loyalty Programs

Tiered programs seem to touch all the bases. I hate to contradict earlier statements but British Airways Executive Club gives members access to airport lounges around the world. For frequent travelers in first class there is a higher grade of lounge facilities available as well as free upgrades.

Upscale casinos designate guests as silver, gold or platinum members, with special rewards for each class of service, encouraging visitors to push for the next level.

Beauty retailer Sephora is said to have one of the best tiered systems out there through its VIB Rouge and Beauty Insider programs which offer exclusive products to their best shoppers and some additional perks to members like customized beauty profiles and services.

Starbucks has focused its loyalty program on mobile, enabling members to order ahead, jump that interminably slow line and pay directly by phone. But there’s added snob appeal with Starbucks Gold, which gives members a personalized card that can be used in place of the app.

Neiman Marcus’ Incircle is a five-tier aspirational program that rewards customers for their level of loyalty with the highest echelon getting rewards like wardrobe consultants and concierge services.

E.L.F Cosmetics has the Beauty Squad with a three-tiered loyalty program that consists of “Glow Getter,” “Rising Star” and A-Lister” with early access to new products, the chance to vote on new products, personal sale days and full-sized gifts.

Macy’s has reinvented its Star program to make it easier and more appealing. Shoppers using the Macy’s credit card—still a key element—are automatically enrolled in either the Silver, Gold or Platinum level and are automatically upgraded to the next tier when the annual spend reaches the new level. I have yet to meet anyone that doesn’t think free shipping builds loyalty.

Bloomingdale’s Loyalist program offers generous friends and family discounts, special services and flash sales to members.

If you have a loyalty program that’s truly driving sales: Congratulations, you’re in the minority. If you don’t have one yet, think twice or three times on how to develop one. Use it as a competitive edge and create a program based on what your customers actually want, to the extent of customizing the rewards based on the individual. If you have one that’s honestly not pulling its weight, it’s time to stop dancing around the issue.

Think outside the box and build a more robust, customer-centric business. Loyalty is just the beginning.

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