Are Retailers Changing Their Loyalty Marketing Stripes?
We recently attended CRMC in Chicago and were struck by how the conversation has shifted on a number of fronts. While there was a notable theme around the basic fundamentals of CRM, and a not so inconspicuous lack of shiny bright objects (i.e., Facebook, Groupon, etc.) compared to recent years, more than ever there was increased discussion around the importance and usage of non-points-based loyalty programs and benefits.
This is something we’ve been writing about and working on with our clients for quite some time (see our blog post from last year, "The Revolution Will Not Be Televised"), and it’s highly refreshing to hear a few leading brands discuss loyalty and CRM initiatives built on elements of recognition, soft benefits and a better customer experience. In essence, their focus is shifting away from the traditional points-based, frequent flyer model to making the customer value proposition more focused on the experience and delivering benefits differentially (i.e., not to every customer or even to every customer segment).
We heard from global retailers including IKEA, whose IKEA Family program provides members with relevant offers and content as well as in-store experience offers for food and family fun.
Cabela’s shared how it changed the way it does business internally, socializing customer insights from loyalty and CRM to educate executives throughout the organization, thus arming them with the right knowledge to improve how they operate.
Both retailer examples provided key lessons to CRMC attendees — whether you use the rich data derived from loyalty programs for marketing or operational purposes, the benefit is in using the data.
Despite the success of IKEA and Cabela’s, other chains including Shaw’s and Jewel-Osco are abandoning loyalty programs to focus on lower prices and away from personalized, targeted marketing.
So who’s right? In our opinion, it is IKEA and Cabela’s who are fundamentally changing their strategic marketing approach to a customer-centric and experiential model rather than relying on traditional, mass-marketing loyalty and CRM approaches.
Discussion Questions
Do you think the shift in loyalty programs away from points, rewards and discounts to soft benefits, experiences and relevance is a positive or negative for retailers? Do you think the shift represents a long-term trend or is it the flavor of the day?
I must be enrolled in about 50 loyalty programs — airlines, hotels, car rentals, parking lots, retail store, coffee shops, restaurants, and credit cards. Money talks, so the ones that pay in cash are simple and clear. Gift cards and free trips, rooms, meals and cars are nice, but are not always immediate.
My dad had the best loyalty program back in the 70s. If he knew you were a good customer, he’d be the first to visit you in the hospital, attend your funeral, loan you $20 when you were short on cash, or even come change your tire when you had flat. It wasn’t about keeping score.
Loyalty programs for retailers have become part of the basic marketing model. It is the cost of doing business. The retailer stands out not because of its loyalty program, but perhaps because it doesn’t have one. When customers belong to an average of over 20 programs and “participate” in almost 10, the loyalty program is no more a determinant. The loyalty program is ignored and the key fob is pulled out at the checkout for whichever store it might be.
To contradict the article, retailer programs are not of the “frequent flyer” model. My frequent flyer programs give me upgrades. I can fly business or first class for the price of coach…to me a big deal. When vacationing, I only use my miles to move up in the plane. Unless a retailer is going to give me a Mercedes shopping cart, I am not sure what they can offer of value other than discounts. Maybe an “in-store experience for food and family fun” just doesn’t turn me on?
My recommendation, keep the loyalty program, it gives the retailer rich data. But don’t spend a lot of time thinking about it.
Most retail loyalty programs are stale, garnering little enthusiasm from consumers other than the ability to deliver a lower price on some items at the time of purchase. Programs that offer better in-store experiences or other soft benefits are welcome, provided they are easy to understand and offer rewards without large amounts of purchases.
Over time, many retailers will offer a blended approach that combines discounts, cash rewards and experiences. Each retailer needs to customize its reward program to fit its brand personality. Some may find that reward programs do not offer an ROI consistent with the cost of the program and may drop it entirely.
Loyalty programs, like all things retail, are evolving. Their evolution is being driven by new customer touch point technology, enhanced access to consumer data, and finally and most importantly the imperatives of the consumer themselves.
With that backdrop it is understandable how consumers, who are now being inundated with new programs, mobile applications, and daily email blasts, are screaming for simplicity.
It will be interesting to see how retailers and their technology partners react to this outcry. Certainly, one approach is Albertsons’s move to abandon their card program and move to simple EDLP or some iteration thereof. This move has its own risks as their fate is now in the hands of how competitive on “pure price” they can actually be, now being stripped of any means to communicate to shoppers on other levels.
No matter what, loyalty programs are going to have to work harder in delivering value and do so with consistency and speed. The consumer has more options than ever and will quickly abandon a complex, difficult-to-redeem points program in favor of something simple that delivers value every time they shop.
There are solutions emerging that are aimed at doing just that…by combining retailer programs and delivering more relevant offers and communications through mobile apps. Most still have much work to do to stay up with the ever-increasing expectations of the shopper.
I have been working on loyalty programs for a little over two years and agree, the trend of offering something more than points is picking up. Consumers want to feel special and soft benefits can accomplish this without jeopardizing your margin. For example, opening 1 hour earlier at certain times through the year to let your best customers in before others to view new merchandise. Maybe you hold a special party for your best customers. I call it the “surprise and delight” effect. Give them the unexpected and it will keep them coming back.
Approaches tend to shift when people find something isn’t working for them. In this case, if Shaw’s and Jewel-Osco are not finding a benefit to loyalty programs, they are right to be flexible enough to try some thing different. Marketing cannot exist in a vacuum of “everyone should be doing this.”
Best practices are great, but there are strategies that will succeed more than others. One brand’s flavor-of-the-day is another’s tried-and-true methodology. Retailers should be open to new and different tactics to achieve results.
As a consumer, I’m not sure I’m “all in” with the move away from points to soft benefits. I’ve yet to find a retailer who knows exactly what soft benefits are of value to me. Make the overall experience terrific—as does Publix—and you can do away with loyalty programs. Have a soft benefits program that dishes out random rewards—as does Panera—and you lose, in my book.
I think the answer to the first question is that that depends on the retailer, what those soft benefits are and how they are received by core customer segments.
I think the answer to the second question depends a great deal on how successfully the first question is addressed.
Simple answer: Give compelling reasons to shop the store. Some formats can get away with no true loyalty program, e.g., offer the lowest prices in town. Others offer discounts with their program, however, that is not a compelling reason to shop that store exclusively. Shoppers simply hold cards for every retailer’s program in that case.
Look at other industries: Airlines, Hospitality, etc. They generate compelling reasons to fly only their airline, stay at only their hotel. Retailers must leverage insights from the best true loyalty programs and implement those best practices in their organizations.
David, our dads were much alike. He did the same when it came to his customers who were also his friends.
As to the loyalty proposition, I too belong to so many it is hard to keep track. What we seem to find is those who give the best, customers return and stick with them. I generally fly a specific airline if it goes where I need to go; rent a car from one company and stay at a specific hotel brand. It has worked well for me because the points are giving me vacation travel with a lower cost involved. I am happy with the point program. It works. I guess I will adjust to what is coming next. Times change and so do we.
I think it’s obvious that many of the benefits that were sold to the retail community as a result of having “loyalty” programs have not panned out. What most of these programs have turned into are disguised revenue generators in that retailers employ the “membership discount” as a means of denying discounts to non members. Many of these programs proved to be little more than “gotcha” marketing. Yes you can get the discount but only if you provide us with a lot of private information and allow us to track your shopping patterns, etc. Additionally, loyalty programs cease to be effective when shoppers are members of every loyalty program from every retailer.
The fact is, most consumers are loyal because of the way they have been treated over time. Consider Publix and Walmart, both very successful retailers, and neither employs a “loyalty program.” I believe both these retailers believe that these programs aren’t really beneficial to their business. I think many other retailers are coming to this conclusion, and I say it’s about time. When has it ever been justified that any consumer pay more for a product because they are not a member of a club operated by a retailer whose clientele is defined ‘the public’?
Retailers have two fundamental objectives:
IF database marketing total costs become a sea anchor on profitability, then they are tossed overboard.
Or as we like to say, “retail ain’t for sissies.”
Hey David L., you couldn’t have said it better.
A loyalty program for an independent is exactly what you said, and just yesterday, I brought a cookie tray and a card over to a customer’s house, where the husband just died, and spent an hour talking to the family. They have been good customers for over 40 years, and they were very glad to see me there. That is how it is done in “Smallville” USA.
In the grocery context, I can’t think of any soft benefits and warm fuzzies that would entice me more than the loyalty card. And, granted, I almost always shop for groceries without regard to the loyalty card offers, but generally get $10 off or so on each trip, so I’ve come to expect it.
But the card doesn’t build loyalty; I must have loyalty cards from 10 different supermarkets, including ones for stores in cities where I travel. It is just the “typical” $10 off I’ve come to expect. But I’ve seen gasoline loyalty cards work wonders here (Vermont, NH) locally, and as I watch Kroger market share in different locations, I believe their gasoline program is a strong competitive weapon. All personal experience, but in these ways, I don’t think I’m unusual.
It really all depends on the retailer, now doesn’t it? In the hotel business, giving away room nights is a powerful pull for my business. Can’t think of too many soft benefits that would do the same thing.
Each retailer needs to look at what will pull their customers back in time after time and also what they can afford. If the loyalty program is doing little to their repeat business, then don’t give away the farm through points and discounts. Drop the loyalty program or yes, look into soft benefits that don’t cost anything to deliver.
The points and discounts loyalty programs have not created loyalty since they are mostly giving discounts for usage. There are more examples of retailers providing rewards that are not related to price (e.g., tickets to an exclusive concert, a facial) that are things consumers want. The experiments are interesting and if there a documented loyalty increase we will see lots more of them. Keep your eye out for some interesting offers.
This is what true loyalty is all about. Many loyalty programs are actually discount or marketing programs. A true loyalty program engages the customer emotionally and ties them to the business, not the perks.
Not sure there is one answer for all types of retailers, those selling branded, easy to price compare products to a weekly shopper, vs. private label product to a less frequent shopper, will have different approaches. I think though that there is a realization that for the shopper who is visiting a “non weekly trip retailer,” loyalty program can’t just be a race to the bottom of the price/margin equation.
Can you imagine a retailer designing a loyalty program that charges the shopper close to $100 per year to belong, often charges more for a product to a member when in fact you can buy that same product as a non member for less (on their website in fact), and principally offers the benefit of “faster time to consumption” (and some movies). Impossible? Well that’s Amazon Prime, one of the most successful loyalty programs out there. How many other retailers could pull that off?
With new technology, smart chain store businesses can combine the capabilities of online shopping convenience with the instant gratification of using a product immediately. With the advent of mobile, and the emerging capability to send targeted and relevant communications to shoppers, and offer digital in store shopping experience there is a world of new possibility emerging for more engaging loyalty programs.
Building a loyalty program considering only old technology constructs will only yield more of the same usually less than successful, margin eroding programs. Creativity and leveraging new technology can provide for a more “prime” shopper engagement.
Points, rewards and discounts do not equal affective loyalty. They are fairly transparent ploys to influence patronage behavior. Nothing wrong with that, but they have little to do with a customer’s warm feelings toward the organization. In fact, they may cause just the opposite.
The punishment for repeatedly enduring the experience of airline travel is an excruciating redemption process ending with a bad sense of deja vu. I may use the free tickets when I can get them, but please don’t interpret that as loyalty.
In a retail environment, price promotions are used as the incentive to attract card registrations and encourage consistent presentation (aka “check ins”). The goal is to capture and assemble data. In theory, at least, this should lead to better outcomes for the shoppers—price, experience, services, relevance.
Any retailer who can deliver on those outcomes without the artifice of the card program is likely to earn shopper respect and repeat patronage. If I were king of all this, I’d ban the word “loyalty” entirely.
Great discussion today everyone, thanks for weighing in.There’s a common theme in a lot of the comments: that customer experience matters a lot. Tony, the only way you could know to visit the grieving family is to know them and while that’s easy to do as an independent, it’s impossible for Publix to do, yet they still deliver a very good customer experience. At the same time, Publix is embarking on more aggressive couponing.
The overriding value of a published loyalty program for a retailer is to gather insights to identify, differentiate and deliver the most value as possible while still driving profitable growth (IMRetail!). Coupons tend to treat all customers the same and thus are dilutive to best customers who are shopping you anyway.
Last, Al I do agree with you that soft benefits alone, especially in highly competitive and commoditized businesses, are not usually enough. The challenge is not getting into the business of competing on price (which is also a function of rewards and hard benefits).
Again, thanks everyone and have a great weekend!
I couldn’t agree more. Those retailers that are retiring their loyalty programs are missing the true inherent value of these programs—the customer information. Used properly, this data will become a mission critical element of how organizations will reach beyond the pure CRM benefits to fulfill an even more powerful mandate.
Customer information and the insights from proper evaluation of this data becomes the underpinning of operational insights that can truly inspire the development of a differentiated customer experience. That’s where the future winners will focus.
I am not sure that the trend to customer-focused benefits is a long term one, but the trend is a very good thing. By focusing on points programs and discounts, retailers have increased their cost of doing business without gaining customer retention, let alone loyalty. By personalizing benefits to individual customers and focusing on customer experience, retailers like IKEA have the chance to truly alter customer perceptions and behaviors for the long term.
The question is, when the business gets tough, do retailers immediately revert to their old behavior or do they continue to “hammer” at their customers, reinforcing customer experience to earn the benefit over the long term. That is the question that has yet to be answered.
Yes, points are nothing more than confusing. Over 80% of consumers have indicated they don’t want points ,yet we fail to listen. The VOC movement will put an end to not listening to consumers, otherwise they will check out.