Is personalization the new loyalty?

Photo - RetailWire
Jan 19, 2018

Rick Ferguson, CLMP

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.

After all the hand-wringing over the gap between customer expectations of personalized experience versus the capacity to deliver, it’s both heartening and vexing to hear Neiman Marcus’ VP of customer insight and analytics, Jeff Rosenfeld, call personalization “the new loyalty.”

“Great personalization helps drives a virtuous cycle of loyalty in which the customer is engaged, provides data that improves the personalization further, which increases customer engagement, and so on,” Mr. Rosenfeld told CMO.

He’s also right in describing the traditional model of “spend-and-earn” loyalty programs as outdated in an era in which customers expect tailored experiences across every channel.

Mr. Rosenfeld added, “Traditional loyalty programs have gotten a bit stale. … Personalization improves the experience by making the entire journey, from initial exploration through post purchase, much easier. We like to call it ‘friction reduction.’”

Friction reduction to improve the customer experience: yes, please!

Yet without inferring too much, we could extrapolate this line of thinking to conclude that, once AI and machine learning are able to deliver personalization to every customer at scale, a formal loyalty program is no longer needed. Time is the new loyalty currency.

Yet the three foundational relationship elements in building loyalty are: Trust, Commitment and Reciprocity.

Personalization holds strong potential to engender commitment as well as trust — absent the security breaches.

Personalization alone, however, does not foster reciprocity. By providing the same level of personalization to every customer, you spread the cost of that personalization across your entire customer base, from your most valuable to your least valuable customers. If high-value or high-potential customers don’t perceive they’re getting something “extra” for their loyal behavior, there’s no incentive for them to change their behavior by buying more, shopping more often, and referring their friends — and all you’ve accomplished with your personalization efforts is to raise your cost of doing business.

For strong relationships to form, your best customers — those with the most current or potential value — must see reciprocity for their behavior in the form of economic rewards and recognition of their status as high-value customers.

DISCUSSION QUESTIONS: Will advanced personalization replace or complement traditional “spend-and-earn” loyalty programs at retail? How do you view the pros and cons of personalization as a tool to encourage loyalty behaviors?

Please practice The RetailWire Golden Rule when submitting your comments.
"Personalization can be a game-changer, but most retailers haven’t sufficiently integrated systems to be able to do it."
"In the rush to automate personalization and loyalty programs many forget the very foundation of personalization is people. "
"The problem is, people are still not comfortable with providing enough information for retailers to create great personalization."

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23 Comments on "Is personalization the new loyalty?"

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Phil Chang
Phil Chang
Retail Influencer, Speaker and Consultant
2 years 2 days ago

While personalization will help to retain customers and is the current “thing” to do, loyalty isn’t earned through a tool. Loyalty programs, don’t actually inspire loyalty — they are a factor in decision making. When retailers make customer-centric decisions, that inspires loyalty.

Points programs and personalization are just tools to help the consumer feel at home in your store. My advice to retailers is to make sure that tools stay nimble and useful as tools. Don’t let it take over everything you do — recognize when it stops being useful as a tool and move on!

Lyle Bunn (Ph.D. Hon)

Personalization is becoming cost-effective as it is driven by technology, but much can be gained by simply making the shopping experience a human one in which customer needs are served as the top priority. Information, interaction, discoveries and the sharing the life experience go far in generating traffic and conversion.

Chris Petersen, PhD.

Personalization is currently a “Holy Grail” in retail. It can be a major differentiator in customer experience and levels of service, especially online. It can also be incredibly expensive in terms of infrastructure, CRM, AI etc.

In the rush to automate personalization and loyalty programs many forget the very foundation of personalization is people. Friendly, helpful staff in-store who call me by name trump all of the automated friction reducers and AI online.

Phil Masiello

Personalization is a tool to engage and build loyalty or retention. Retention of customers is not something a retailer can get by giving away points or incentives. Those are short-term rewards. Loyalty to a brand is earned by providing value to the customer. Personalization is a big part of this value equation.

A retailer needs to know and understand their customers in order to build true value. Once they know who their customer is, they can build the right processes that engage and retain their loyalty.

Anne Howe

I don’t think time will be the new currency in loyalty programs. Newer, more personalized programs will complement — but not fully replace — spend-and-earn programs, mainly because the customer has been trained for too long to expect an economic benefit. Even shoppers who don’t need a discount still expect one in exchange for their regular patronage.

Gib Bassett
One way is to view personalization as an analytics use case that could feature spend/earn rewards as a factor in driving a consumer to buy. Most progressive retail and brand execs would like NOT to give away value in return for sales volume because it hurts margins and creates the perception of price as the main decision factor. If growth were the trade-off, that would be fine, but growth is challenged. The way around this is to gear your marketing and consumer relationships more around value and content — like the form of life-stage marketing you see from P&G. Exclusivity is an important concept but to make it about monetary rewards only is a mistake. It’s got to include other dimensions your consumer may care about, like events, new product trials, special content and more. And don’t worry necessarily about the cost of these programs — because what they do is help insulate you from price pressure and reinforce the value of your brand experience. To know this with confidence and to scale it to… Read more »
Gene Detroyer

“Cheers”, where everybody knows your name. It is that simple.

You go to your favorite bar and before you get to your seat, your drink is waiting for you. What other loyalty incentive can another place offer you to make you switch?

Granted this is a little more complex, but the phenomenon is the same. “Spend and earn” have become so ubiquitous that nobody pays attention to them. “I will get my points wherever I shop.” “I just pull out the right loyalty card (or enter my phone number) to get my discount.”

Brandon Rael

Personalization and enhanced loyalty programs are all the rage now, but only really serve as tools to help improve the customer experience. True retail and consumer relationships are built over time, by providing an outstanding in-store and online experience.

When your overall strategies are focused on the customer, then personalization and loyalty programs will help drive sustainable relationships.

Tools and technology are there and critical for any retailer navigating our digital revolution. The NRF just showcased plenty of use cases in which personalization and a robust loyalty program help to drive business. However, as we all can recognize, getting the brick-and-mortar experience right, complementing it with a robust digital platform, having that in-person interaction with knowledgeable sales associates and keeping a laser focus on your customer remains the same as it did during the glory days of Selfridges.

Paula Rosenblum

I don’t think personalization and loyalty are interchangeable at all. “Spend and earn” is one thing, “offer me something I might want to spend money on at all” is quite another. You might get to loyalty through personalization … maybe … or you might not get the opportunity to personalize without loyalty. I think retailers really have to be wary of shoppers feeling like their privacy has been invaded.

I do think the generic “race to the bottom” is over, but until and unless each retailer has a completely unique offering (unlikely), loyalty will remain an ephemeral, fragile thing.

Cathy Hotka

Personalization can be a game-changer, but most retailers haven’t sufficiently integrated systems to be able to do it. Those who are further ahead (DSW comes to mind) will be able to deliver experiences that others can’t touch, further widening the gap between the leaders and laggards.

Ralph Jacobson

We should be wary of any tool being the sole or main driver of loyalty to any brand, be it retail or CPG. We have found that there are many sources of loyalty that can be both internal and external to the brand in question. I am a huge advocate of true personalization augmented by machine learning. And, the latest tools really provide that. I don’t see any real cons to implementing a real-time personalization capability both online and in-store. However, there are so many other aspects that drive long-term connections for shoppers that brands must take into consideration.

Stuart Jackson
Will personalization replace “spend and save”? Yes, definitely, in the long term but not yet. According to Nielsen, only Finland beats the U.K. for the number of shoppers who have a loyalty card – or several; they are big business here but really only in the food and pharmacy sectors. Fashion has largely ditched its cards because of the growth in online shopping, and eventually this will happen across the board. Some people have always been immune to physical loyalty cards, and so they’re not as effective as they might be. The problem is, people are still not comfortable with providing enough information for retailers to create great personalization. But I think this will change and retailers can push this evolution along by targeting the customers who have a higher propensity to buy, and really making sure that every communication is personalized and varied too, from regular email newsletters with offers to free samples and tailored direct mail. When customers start to see the rewards for handing over their information they’ll start doing it for… Read more »
Ryan Mathews

Let me respectfully disagree with the article which states, “If high-value or high-potential customers don’t perceive they’re getting something ‘extra’ for their loyal behavior, there’s no incentive for them to change their behavior by buying more, shopping more often, and referring their friends — and all you’ve accomplished with your personalization efforts is to raise your cost of doing business.”

This is confusing personalization with rewards, customer acquisition, buying business or whatever. If a retailer has a truly personalized relationship with me they will be giving me what I uniquely want, so why should I care what somebody else is getting? Personalization is about building relationships first and hoping they lead to transactions. Most loyalty programs are about encouraging transactions first and hoping they lead to relationships or pretending they are relationships. It’s an apples and oranges question.

Todd Trombley

Ryan, I could not agree more. Personalization and rewards often get confused and conjoined and they need to be thought of separately. Marketing folks can concern themselves with the rewards issues. Operations and sales need to be thinking about what personalization looks like during the sale and overall relationship. One of my clients, Harry Rosen, is recognized as a world leader in clientele selling. That selling is all about building relationships and value with customers via personalized application of knowledge. The attractiveness of personalization to customers results in life-long clients with lifetime values in the five- and six-figure range that show brand migration patterns throughout their life cycle.

Cate Trotter
The big problem with spend-and-earn loyalty programs is that just about every retailer has one. If a customer wants to buy something in a store with a program then it’s a bonus, but it’s not necessarily driven them to choose that retailer. The reason they’ve chosen that store in the first place is usually because of some other factor — either that’s the only place they can buy that product or brand, it’s got the best price, the experience is the best, the staff are better, etc. What personalization could do is to help be that driving force — but it’s about finding the right kind of personalization for your customers and brand: is it personalized offers, staff who know the customer inside and out, recommendations based on shopping history or something else? If you can get personalization right without upsetting customers or worrying them around privacy, then there’s every reason they would choose your store over another. In that respect it can feed loyalty, but I think they should be considered as different tools,… Read more »
Peter Luff

“Spend and Earn” loyalty is maturing. This link provides a good summary of the state of play but I don’t see them disappearing. Personalisation is just another tool and this will useful to compliment loyalty cards and other factors. Using tech to enable personalisation — but true personalisation — will come from having great people and we should never lose sight of our people despite all the technology.

Patricia Vekich Waldron

Personalization is the new loyalty, just like price optimization was supposed to be the new promotion engine. Retailers just don’t have the systems and processes to execute.

Shep Hyken

Personalization is not about loyalty. It’s about marketing. And, the best companies recognized that a personalized experience leads to more business. When a customer signs up for a loyalty program you have the ability to learn about that customer, track their buying habits and more. That allows you to create more personalized experiences. Yet don’t confuse the concept of personalization with marketing. They work together, but they are separate.

James Nichols

Retailers need to think of their customers as a heterogeneous group. Some will want points-based-loyalty, others couldn’t be bothered to collect points. To me, personalization is likely to be most value be higher net worth shoppers who will pay for goods tailored specifically to them. Points programs help attract deal-prone shoppers. Nothing wrong with the deal-prone, but they have different motivations.

Ricardo Belmar

A few different concepts are being mixed together here and treated interchangeably when they shouldn’t. Loyalty is one thing, loyalty programs are another. Personalization when done right — which means being relevant to your customer — is a great tool to help foster loyalty but doesn’t necessarily replace your loyalty program. These programs can have many attributes, and while some of the rewards may be of the “spend-and-earn” variety, the best programs today have rewards that favor building experiences for the customer. Those experiences could certainly benefit from personalization as not every customer will pleased with the same reward, but the key to a great loyalty program is more than personalization — it’s a mix of rewards, discounts, experiences, etc.

Most retailers haven’t gotten the personalization tech right just yet but as they improve, I expect we’ll see more differentiated loyalty programs as a result — and they’ll still encourage a little “spend-and-earn.” In the end, retailers need customers that buy, so I don’t see this going away.

Cynthia Holcomb

For the past decade, online retailers — even the most successful — have provided “personalized” product recommendations based on 100s of personalization technologies, which are no more than segmentation plays. They then sit, baffled, as the abandoned carts roll by and their merchandise makes expensive round trips to their customers and back to the warehouse.

By contrast, human-based, individual, one to one personalization requires the sensory matching of an individual customer to an individual product through the lens of human preference. Preference-based personalization recognizes the sensory elements of a product, the elements that make someone “love” a product — increasing the number of items purchased at full price, increasing completed purchases, and reducing returns.

Vahe Katros
Vahe Katros
2 years 1 day ago

Imagine the following message to a shopper:

“We saw you just purchased an item in our Union Square store. If your plans are to drive home now, take 280, there’s an accident on 101.”

Is that personalization? Would I appreciate the heads-up? Just a thought.

Kenneth Leung

Personalization program is a means to the end. The goal is share of wallet of the customer over time. Online personalization is easier and less intrusive, in person personalization in terms of experience is more expensive. Retailers need to balance the personalization efforts to the returns on investment. What works for Amazon online is different than Neiman Marcus across store and web.

"Personalization can be a game-changer, but most retailers haven’t sufficiently integrated systems to be able to do it."
"In the rush to automate personalization and loyalty programs many forget the very foundation of personalization is people. "
"The problem is, people are still not comfortable with providing enough information for retailers to create great personalization."

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