Photo: RetailWire
Simple answers to fix retail’s loyalty marketing mess
Through a special arrangement, presented here for discussion is a summary of a current article from The Wise Marketer, a website and newsletter serving the global loyalty industry.
As I continue to observe loyalty programs across multiple sectors, time and again I see failures that can readily be solved.
Out-of-control deal loyalty: Too often we see retailers giving away discounts, dollar savings the same week or over the same timeframe that loyalty points or program currency are offered. Use your value proposition wisely. Work ahead and more effectively with your merchant planning and analysis team for well-coordinated promotional planning.
Can’t find the loyalty program: Where is it? In the footer of your website? Seriously? Fight back with the e-commerce team and get your program some prominent real estate.
Advertised it, but forgot to support it: A loyalty agency builds a program, informs and integrates it at the floor level, yet nothing is found on the brand website, nor the mobile app.
Stop harassing me: Before launching a loyalty program, a planning process is needed to figure out the sequencing of e-mail communications — member vs. non-member, transactional thank you’s, welcome messages, and promotional and partner messaging. An ESP (email service provider) can act as “traffic cop” so that the e-commerce business doesn’t double up on store marketing’s efforts in any given week. For brands with multiple entities, a member might receive 10 or more e-mails in a given week.
Where is the insight?: The number one complaint from members? You know me and you aren’t showing me that. Start digging into the data from square one. Refresh the look/feel of your creative to match what you know or believe you know about your program members.
Innovation, what’s that? For a loyalty program to survive, it is essential to innovate. Explore new partnerships. Try different tactics.
Financial modeling: Wow, you say I forgot all about that tricky model we built to justify the program business case? It all starts with accountability.
Discussion Questions
DISCUSSION QUESTIONS: What do see as some common shortcomings in the execution of loyalty programs? Would you add any to those cited in the article?
Poll
BrainTrust
Michael Terpkosh
President, City Square Partners LLC
Nikki Baird
VP of Strategy, Aptos
The biggest issue with traditional retail loyalty programs is that they are “programs” and not fully integrated into the business and the consumer experience. This means they are run separately and seen as discount programs or worse, as e-mail offer programs only. We must strike the term “loyalty” from our lexicon. No one says “I want to be more loyal to a retailer” today — especially because of discounts and offers. Instead, they always weigh the overall costs and benefits of shopping and make a decision on where to shop. Retailers need to stop making the decision to start a “loyalty program” and instead make the decision to better know their shoppers and offer greater value to them.
The mantra of any customer growth strategy is to treat different customers differently and efforts must be aligned around winning, growing and keeping the customers with the greatest current and future lifetime customer value.
The shortcomings I typically see are two-fold. First, there is not enough differentiation among the offers in terms of customer needs and value and the offers rely too heavily on discounting. This is more akin to bribery than loyalty, where you spend more time chasing promiscuous shoppers than those with the propensity to have high CLTV. The second issue is confusing frequency and spend behavior with loyalty. Loyalty is an emotion that is evoked when a retailer gives the customer a remarkable story they can tell about themselves based upon experience. It’s unlikely that accumulating points for a gift card will ever create a memorable program.
Good points by David and Michael but usage of the term “loyalty” isn’t the problem nearly as much as the understanding of what loyalty is, and especially what it means to consumers. In our proprietary research (quantitative), consumers are very clear that they are indeed loyal and likewise they are clear on what it means: a willingness to pay a premium or go out of their way to do business with a brand.
Consider this definition in the context of merchandise commoditization and a total lack of pricing discipline where even Nordstrom now is an everyday promotional retailer.
Loyalty is a function of differentiation both for retailers and their brands but also for customers. Commoditization (and poor) merchandising combined with being overly promotional is not the answer, whether in the form of a “program” or not.
A common shortcoming I see in loyalty programs is when a retailer collects all the loyalty data and — nothing happens! The retailer has huge amounts of customer loyalty data, but does not have the people power or time to do the analytics necessary to gain any actionable insights. If you can’t do the analytics, you can’t customize your loyalty program, know what is working or understand if your spend is worth the investment. A wise man from a syndicated data company once said: “Data that is not actionable is nothing more than overhead.”
Michael, I could not agree more. Data for data’s sake is useless. I would add one more point. Data from loyalty programs give you great insight to people that you already know and have already done business with you. Adding the right 3rd party data can expand the decision power of that data to help you find the customers that look like they should be in your loyalty program, but are not for one reason or another.
Loyalty programs, when executed properly, are a delicate but potent way of building engagement, interest and driving more interactions with consumers. With that said, there has to be an element of seamlessness to it, so the program’s value proposition is purpose-led and ties together with the company’s branding.
The tricky formula to get right is to balance the amount of “friction/reward” for the customer. Retailers and brands want to drive engagement, but without overwhelming the customers with emails, notifications, texts, DMs etc. The right loyalty program should not focus purely on discounts and promotions. Rather it should take more of a gamification strategy such as what Starbucks has been able to accomplish with their mobile app.
Starbucks has very effectively tied their points and loyalty strategies together with their app, where the consumer has control of how and when they choose to redeem their points. This is very similar to what the hotel, airline and credit card industries have achieved with their miles and points programs.
Most loyalty programs are just discount programs. That doesn’t drive retailer loyalty at all. It drives price loyalty. If you combine it with a great customer experience, then you have a chance. But if you take away the perk (buy nine get one free – or some other form of incentive, discount, points, etc.), you have to ask yourself, “Will the customer still come back?”
One of the biggest issues with retail loyalty programs is that they have lost their way. They have forgotten their original purpose of building relationships with their most valued customers. These relationships do not always need to be 100 percent price-driven. For most customers, price is an important part of loyalty but the experience can also be important.
I’ve been recently impressed by the 7-Eleven app and program. On 7-Eleven Day, they create a buzz of interest and new loyalty members with the free Slurpee. Such a promotion can be quite hectic in-store but it creates excitement and fun experiences for anyone that visits that day.
Relationships between retailers and customers are shallow if they are only price-driven. Grocery retailers can take a page from the playbook of 7-Eleven by offering unique food experiences for their most loyal customers or by being able to test a new baked item or invite the most loyal customers to a holiday-themed event. Bottom line, retailers have to inject more fun and experience into the relationship to generate more loyalty.
So many great points here to consider with loyalty programs. I’ll add that there needs to be a compelling, differentiating reason to shop the retailer. Is that reason their loyalty program? It can be, if the program is a lot more than just mass, untargeted discounts given to whomever holds the card. It needs to be personal, at least from the shopper’s perspective. There are great technologies in the marketplace today available to help create that compelling program.
I would add one more: a focus on experiences. This is a little bit different than too much focus on deals. Yes, that happens – loyalty programs become “pay for your data” programs. But loyalty programs don’t have to be about the discount at all. If you can put together fun experiences for your loyalty shoppers, you might spend the same (or less) vs. what you’d spend on a discount, and get so much more. Even something as stupid-simple as little thank you bags of free samples at the register for the top 20 loyalty customers at a store. All you need is a tag for when they swipe their loyalty card, prompting a cashier to hand over a bag and you have instant delight for the customer, a “ooh, wait, why did they get that?” moment for the person behind them in the line – and instant credibility demonstrating that you care about and appreciate your loyalty shoppers. Why oh why are these things so hard and out of reach?!?
Retailers have to remember that loyalty programs are created to reward your CORE customers (the 20% that account for 80% of your sales.) Price discounts are OK, but surprise your core customers with other perks that will be highly valued by them.
Big issue is, many retailers still confuse a reward program with a loyalty program. You can always drive purchase through a rewards program, effectively doing discounts for certain customer segments. What you need is a loyalty program that target rewards and returns on investment on customers to drive purchases without only providing discounts.
I think most retailers have it backwards — loyalty programs should be more about the retailer showing loyalty to the shopper. Too often, this is delivered as a discount on irrelevant products, and doesn’t utilize the data retailers are gathering on individual shoppers to personalize offers. Loyalty requires engagement, and current programs don’t drive engagement. Loyalty in its current format is broken.
David’s points are all valid. The way we encourage our clients to approach it is to think about loyalty as an outcome rather than just a program. If you start from that frame you can steer around the discount trap and focus more on benefits and perks like the ones that Nikki suggests in her comment, or implement a membership model without a points economy like Nike and Lululemon have.
I have always been of the thought process that marketers have gotten loyalty programs backwards. One can be loyal to his or her family, church, Alma Mater, country, etc. However, loyalty to a particular retailer, manufacturer, restaurant or brand makes little intuitive sense. Instead, these marketers need to focus on maintaining the continuity of purchase by their customers. How? Be being loyal to their customers. How? By understanding their various customer needs and delivering on their promises to them. Fairly simple, no need to complicate the process with “loyalty programs” fraught with the problems noted.