Discounts are a dime a dozen and I don’t need your loyalty program to find a way to pay less.

The biggest change in loyalty programs does need to be subtle. Loyalty needs to become more personalized and almost invisible with most of the interaction becoming private between brands and select customers. Remember, it’s not about you, it’s about me.

Loyalty programs continue to be attacked these days. I think change is about to happen as I see more and more retailers moving away from just only loyalty card holders get the sale prices. A lot of supermarkets are now offering lower prices at the gas pump for their loyal shoppers and that seems to be a real plus for them. Specialty apparel retailers are now offering a lifetime discount once a shopper spends a significant amount at full retail prices. My best discovery was a local department store chain in New York City. Century 21 stores provide a red carpet special checkout lane for the VIP Loyalty card holders. The real target is to know the customer, by name, by what they like and dislike, and to show them we care about them and want to please them each time they shop at one of our stores. This may be a way to balance the online shopping experience with the in-store shopping by offering better loyalty rewards when purchased in the store. I know… Read more »

Some good food for thought in the article and I agree that general hard discount programs are likely to slowly fade away as more sophisticated, targeted, and personal programs take root. At the basic level, loyalty programs need to continually change in order to make loyal customers feel special and incent non-loyal customers to become loyal in order to feel special as well. It also strikes me that American Airlines, although the vanguard in the past, needs to do some work to refresh their own loyalty program.

Loyalty is a two way street. If you want me to be loyal to you, then be loyal to me. Know that I am an individual with specific tastes and concerns.

When you send me a message, it should be something that is not broadcast to everyone in the program, but something that analysis of my purchase data indicates would be of interest to me. Less frequent, but more meaningful contact works better than a message a day or a week.

Many American retailers missed the boat with frequent shopper programs. The original concept was based on knowing, rewarding and communicating with your customers. Instead, most programs are simply tier pricing with newspaper circulars. The mass market advertising budget was to pay for the frequent shopper program. It is time for a change. Social media or one to one communication is evolving at a fast rate. What was originally envisioned is what is happening today. Customers need to segment into buying patterns, not social-demographic classifications. Then establish frequent two way communication tied to targeted rewards.

Loyalty programs need to have meaning in consumers’ lives. Points at the bottom of a cash register receipt don’t cut it with consumers. Rewards need to be immediate and have emotional significance, whether a discount or a different benefit. This means that retailers need to understand individual consumers, a proposition that can be expensive. Few retailers have the deep pockets necessary to make this happen. So while we talk about the need for personalized programs, the reality is frequently different.

David’s correct. Most current “loyalty” programs give customers a way to pay less than the artificially jacked-up prices that others pay.

I’d like to see a program that allows me to state my preferences (skinny black pants?), then informs me when they come into the store. No need for discounts — just personal communication between the brand and the customer.

Frank Dell is right about the original strategies of loyalty programs in the food industry. As a resource fortunate to be involved in the development of some programs which still exist today, I watched the original enthusiasm get dampened by fears of privacy issues. I was once told by a retailer whose program I helped develop that I could not deliver a free market basket analysis for them because they needed to be able to tell shoppers that no one looks at the purchase data. So the very vocal minority won that round and retailers shirked from the opportunity to learn about their customers. There is another reward that could still be tapped more often — time. Programs can save shoppers both money and time. Frank Riso’s Red Carpet lane is one example of how to do this in-store. Alice.com exists primarily because of this time-saving reward. Let the paranoids shop undercover. I want my store to keep my pantry stocked with the things that I always use. I’m pretty sure I’m not the only… Read more »

No matter what the vehicle, there are only four objectives for promotion programs: attract new shoppers, get current shoppers to buy more categories, get current shoppers to buy higher gross margin items, discourage current shoppers from going to a competitor. When you consider how frequent shopper programs address these objectives you first realize the contradiction in attracting and retaining customers. On one hand, a retailer who becomes noted for an aggressive frequent shopper program may drive away experimenters who might not try them because the shopper doesn’t have a card. On the other hand, accumulated points programs are the modern “continuity program” which will cause current customers to think twice before jumping ship. As far as directing existing customers to new categories and high gross margin products, these two objectives are best met by tactical targeting. Tactical targeting directs shopper specific discounts to impact shopper decision making. I agree that there are many untapped opportunities within today’s frequent shopper programs. Social media offers the opportunity to “target strangers.” Even though we may not know who… Read more »

First of all, excellent point of view, Phil. Loyalty is a two-way dialogue to the benefit of both the enterprise and the individual — mutual gain. It does not need to be hard benefits (discounts, two-tier pricing) to be effective. What it does need to incorporate is a commitment by the enterprise to truly embrace 1:1 marketing, customer experience/service and all its component parts.

The days of loyalty driven by a credit card relationship and managed on the back-end of a credit card statement/inserts with dull/boring offers are over. Those who seek to step it up need to start now with an evaluation of their programs and make plans to overhaul what exists today. Those who stand pat with a “me too” program design and weak technology platforms as well as inadequate analytic tools will begin to see lower ROI/EBITDA contribution from their program.

The time is now to engage thought leaders in this space and begin the process to regain competitive advantage.

The key to moving forward is to engage with your customer and to be relevant. It is not about spend and get, but about creating that relationship. How do you know that one of your best customers just walked into your store (or website) and how are you treating them differently? Are they greeted with a personal shopper? Can they print out the last items they purchased and what sizes for which brands fit them best? Do they have a special checkout line or on the fly checkout? The best customers want to be treated differently than the pack, and the pack should see it happening.

I totally agree with the sentiments expressed in this article. I have never perceived the loyalty programs as currently structured, as anything more than a discount-driven continuity of purchase program. Loyalty occurs when companies are loyal to their promises of solving their customers’ problems.

Therefore, going forward we need to listen to our customers and determine which problems or needs we are uniquely positioned to address. Once we know these need states, the opportunities for cultivating a viable (for both parties) long-term relationship present themselves. The key is to focus on the relationship, not the transaction, and get rid of the card. You don’t need a card for any other loyalty arrangement I am aware of, namely, family, nation, church, etc., the real loyalty relationships that count.

One of the benefits cherished by loyal and or large order customers is the coveted “private showing” experience. Retailers wishing to replicate this in the IT industry can and will create sites for these customers to enter and enjoy on an exclusive “made for only you” basis. While the template for this kind of site will require a significant amount of money and resources to build, the clamor to earn and keep membership in the best of these sites will pay well.

Loyalty programs certainly do need to be totally re-structured. We just need to accept that for those who take the first steps toward the “revolution” that Mr. Rubin discusses will not do so without pain. Few loyalty points programs were built with test and control groups, so it’s virtually impossible to tell how much true lift in business they are generating — compared to the cost of promoting and executing the programs. But even if they are now just me-too offerings that produce little real upside, the first major airline, hotel chain or supermarket to back out is the current structure is likely to suffer the consequences. As far as restructuring goes, accept that the goal behind any customer loyalty is actually increasing profits and not managing a democracy where all customers are equal. Consider: 1) Including only the top 20% of customers that generate 80% of the sales in the loyalty program, not everyone, 2) Make the program less about earning points, and more about special care, personal communications and offers, and unexpected rewards,… Read more »

I agree fully with Phil’s 5 tenets of revolutionary loyalty programs. Steve Montgomery adds the concept of “permission marketing,” well described by Seth Godin in a book by the same name. Almost every commenter, using different words, makes the critically important point about true content relevance — the customer’s needs are best based on what they buy, not their address or demographics.

Speaking for the FMCG industry, most senior executives now know that a revolutionary loyalty program delivers a strong competitive advantage. Especially true when the best (most relevantly targeted) programs the retailer AND its vendor partners have to offer are presented, consistently and conveniently, to customers. This approach has been proven conclusively, but mostly in “one-offs.”

Turns out, as Seth wrote, that if customers are seeing real value in the relevance of the communication, few object to the use of their purchase history in the process. And the concerned can opt out.

Glad to hear someone chime in with what we’ve been talking about the past year or two. I fully agree with Phil that the business needs to change and his outline of 5 points of revolutionary loyalty programs is valid.

Another interesting question to consider is where the innovation and change will come from. As Phil, I have heard the jungle drums beating, and most of the drumming has come from forces outside of the traditional loyalty provider set.

There is not only big change afoot from a customer and execution standpoint, but there will also be dis-intermediation of traditional providers as those who know only the points-selling model, may find the transition uncomfortable.

In the world of mass-market retailing, where price is the driver, these so-called loyalty programs will never evolve beyond delivering targeted discounts to drive volume. To suggest that these programs could evolve into something based on a relationship between the retailer and customer is to suggest that the customer ultimately is looking for something more than the lowest price and that the retailer is capable of delivering more. That’s just not the way things are.

In those retailing segments (primarily upper-end specialty and luxury retailing) where value is denominated in something more than just low price, retailers have been building relationships for years. They don’t need formal loyalty programs. The relationships themselves, and the value that customers place on those relationships, creates a loyalty that doesn’t require a program. It’s a way of doing business.

I think Cathy Hotka makes the best point in the discussion so far about what types of things a retailer can actually do that create “real” loyalty. Current programs do little more than train the knowledgeable consumer to be disloyal. The customer grants loyalty by experience and by how the retailer interacts and treats them as a customer. Years ago, a local retailer where my Dad purchased suits used to call him and let him know that they had two or three suits in that he would like. They knew his taste, size, and the last time he purchased. They weren’t phoney calls to build sales. They were real calls with true knowledge and actual product that actually was what he desired. How do I know this? When I became old enough to shop for the same things, the owner did the same for me. His son carried on that traditional shopper connection. While my choice wouldn’t be skinny black pants as Cathy’s would be. My idea of loyalty and how it is created is… Read more »

I actually don’t even call 95% of the programs in retail “loyalty” programs. They are typically mass, untargeted and unwarranted frequent shopper discounts. They are non-differentiating. They are not compelling. My wife has all three major grocer cards in her wallet… not because she is loyal to any of them, but because she simply doesn’t want to get ripped off by not getting the POS discounts.

I think the best loyalty programs out there started in airline and hospitality industries, however, a few great retailers have made their programs work, by building the brand, rather than by discounting the products.

Count me as a skeptic. Any program run by a huge organization that is primarily focussed on the supply chain, both operationally and for profits, is simply not going to engage shoppers. As I often point out, we are dealing with, mostly, self-service businesses, which means the customers serve themselves. This means that retailers’ real skills are in managing the supply chain, facing another direction, rather than managing the shoppers, which is what “loyalty” programs are ostensibly about. NOT!

Good discussion and comments. One challenge that is big for retailers that hasn’t been commented on is the difficulty in aligning objectives and measures across departments to deliver on a loyalty proposition.

If loyalty remains a marketing-only initiative, it won’t get much past a few coupons, some communications, and maybe some digital and social levers.

As many comments suggest, it needs to be able to influence individual customer needs around things like price, product and time, and do so in a personalized way. For this to be possible, loyalty needs to be a strategy not a tactic, and all departments of the business need to be aligned and measured to deliver it.

It is all about the relationship! Thank you Phil for the 5 points and great comments by most. This is the ‘information age’ and those with the best information will win — but only if they USE it, and USE it correctly. This means C-level support and a mindset that makes the customer feel special. Not the shotgun approach that gets me lower prices on select items or is only valid on select days. Can you say “herd the cattle, trade in margin erosion for the customer to give you their proverbial ‘name, rank and email address’? Followed by generic emails, that tell me something I already know (select items on sale), treat me like every other cow in the herd, and do absolutely nothing to make me feel special. Chances are, if product X is on sale at company ABC, it is on sale at company XYZ as well. Ted summed it up referencing Cathy’s comment-some are actually training customers to be disloyal. In my career path, I used to jokingly sum up my… Read more »

Thanks so much to everyone for the thoughtful and insightful comments. We’ve had tremendously positive feedback and as we’ve long espoused loyalty as a brand differentiator and eschewed traditional, tired approaches, it’s welcoming to see so much agreement.