Loyalty marketing is at a crossroads

Discussion
Photo: Getty Images/LeoPatrizi
Jun 09, 2020
Phil Rubin

The practice of customer loyalty marketing needs to evolve even faster post-COVID-19.

Most loyalty programs, which are largely transactional, are insufficient to help brands emerge. Our research shows fewer than 25 percent of consumers are currently “very satisfied” with loyalty programs. That represents a 44 percent drop from pre-COVID ratings, which were already too low.

Consumer shopping habits, changed by the virus outbreak, could represent a huge opportunity or stumbling block for retailers. Sixty-five percent say how brands respond to the crisis will have a “huge” impact on their purchase intent and 37 percent have already made a change.

I think of loyalty marketing as paying attention to customers and acting accordingly. Puzzling, however, is that many brands still engage in actions clearly not in the interest of their customers. Many companies that haven’t “gotten it” up until now may be falling farther off course as consumer expectations continue to increase and interests change quickly in light of today’s financial and shopping realities.

Today, tangible value matters as 53 percent of consumers see savings as more important in light of COVID-19. But emotion will increasingly rule, meaning tangible value needs to be presented with non-transactional loyalty drivers including:

  1. Recognizing customers;
  2. Informing them;
  3. Saving them time;
  4. Providing access (to what?).

It’s also critical to understand that customers are loyal to brands, not marketing programs. Most loyalty marketers have focused solely on transactional value as a lead and not on the brand. If it doesn’t resonate emotionally with customers — and employees — it by definition isn’t loyalty.

In a COVID and post-virus world, the emotional relevance of a brand is and will be intrinsically tied to trust. American Express is a great example as its “powerful backing” brand positioning expresses its loyalty to its cardmembers. It also backs them should a disputed charge arise. Amex charges cardmembers more than its competitors and this is where emotional value trumps transactional value (i.e., competing on price).

The “person” in personalization means brands need to recognize customers as humans, not transactions. Today, more than ever, brands need to demonstrate to all their stakeholders that we are all, indeed, in this together.

The need for stakeholder buy-in is particularly true for vendor partnerships. Done collaboratively, these relationships amplify brand values, such as Walmart’s partnership with NextDoor on a new program — “Neighbors helping Neighbors” — that aims to make it easier for people in local communities to help one another as they deal with the coronavirus outbreak.

DISCUSSION QUESTIONS: Do you think consumers are primarily interested in loyalty programs that emphasize transactional values at the present moment? Will this remain the case as states reopen and the coronavirus pandemic eventually ends?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"A customer choice in your direction has to be earned over and over in each present moment."
"Nike already had an emotional connection with their consumer and there’s every indication that the connection has grown in 2020."
"I think that if you asked consumers why they choose one loyalty program over another they will give you a “what’s in it for me?” answer. "

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21 Comments on "Loyalty marketing is at a crossroads"


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Suresh Chaganti
BrainTrust

Loyalty is a result of the overall actions of the brand, not just an attractive loyalty program.

Brands that excel in customer service and customer-friendly policies engender loyalty even if they don’t have any specific loyalty program.

That said, the transactional loyalty programs certainly can be helped with a retake. Rule-based loyalty tiers and targeting is going to miss a bunch of opportunities. Brands can recognize VIP customers and influencers early and engaging them.

Bob Phibbs
BrainTrust

Retail loyalty still revolves around discount in exchange for your information – let’s be clear. I’m a member of United’s 1K loyalty program. I got to the Palm Springs airport last year to find 10 minutes later they canceled my flight to Denver. I went to the agent, she took a few minutes and then said, “Follow me.” We went to the curb where she hailed a cab, handed him a voucher, and told him to drive me to LAX – three hours away and handed me my new flight tickets. What mattered to me, and what has earned my unabashed loyalty, is they realized getting me there was all that mattered. And they fulfilled it without any fuss. Until retailers move away from “all they want is discounts” they’ll fail to inspire the true loyalty that I have for this airline.

Suresh Chaganti
BrainTrust

Great anecdote. A very powerful reminder of what brands need and how it will affect their customers.

Ian Percy
BrainTrust

A superb experience for you Bob, and a great story you’ll tell audiences for a long time as you should. But as we both know far too well, for every heroic story like this there are a thousand “United broke my guitar” stories. It just seems to me that only when you have unabashed loyalty after they break your guitar should it be called true loyalty!

Bob Phibbs
BrainTrust

Well, since his song, Dave Carroll has been in great demand as a speaker on customer service. My guess is he’s fairly loyal. 🙂

Kathleen Fischer
BrainTrust

Consumers want something valuable in exchange for their loyalty and want confirmation that the brand they are loyal to is worth the commitment. In our current environment and going forward, this is going to be even more critical to consumers as the emotional value may be more important than transactional value.

Georganne Bender
BrainTrust

Customers are loyal to brands for a number of reasons, including service levels, attentive associates, ease of shopping, and brand values – what the company stands for. But actual loyalty programs come into play, too.

I think that if you asked consumers why they choose one loyalty program over another they will give you a “what’s in it for me?” answer. American Express and Southwest Airlines offer both: strong values and easy to understand rewards programs. Ulta has a good one, too. The more complicated the loyalty program the less interested customers will be.

Lauren Goldberg
BrainTrust

This is a great point. I’ve done considerable research on loyalty programs and one thing that rises to the top is simplicity. You shouldn’t need a PhD to understand what the value proposition is!

Georganne Bender
BrainTrust

Exactly!

Bob Amster
BrainTrust

Transactional value is a temporary interest. Special treatment, some exclusivity will return as as the emotional value items. Whether retailers realized it or not, the pandemic offered them a unique opportunity to impress and please their customers with something extra, or practical under the conditions. Taking advantage of that unsolicited opportunity to please and go the extra hundred feet (not mile) will have gained the retailers that executed to the opportunity more loyalty that most loyalty programs.

Ian Percy
BrainTrust

This is one of the most insightful articles on the issue of “loyalty” that I’ve read in a long time. Thanks Phil.

This is an old song from me but — loyalty in retail doesn’t exist. There is only transactional value. The question posed to us today is worded correctly with the key phrase being: “at the present moment.” It’s always about the present moment. A customer choice in your direction has to be earned over and over in each present moment.

Cynthia Holcomb
BrainTrust

Retailer loyalty programs are just another thing to juggle for all of us already overburdened consumers. As with airlines, retail customers are likely genuinely loyal to maybe one or two brands. The rest is noise. And with the noise comes the mind game of having to leverage an emotional purchase, like buying a dress or a jacket against a perk or a monetary award. Takes all the fun out shopping. Retailers, know who your customers are and what they like to buy and then slip them a thank you discount coupon or any other means you can dream up to, as they say, delight and surprise your customer. Delight and surprise are emotional responses to your brand. Saddling customers with loyalty program bookkeeping is why loyalty program participation wanes. Post-COVID, human emotion will prevail.

Evan Snively
BrainTrust
In our 2019 consumer study Maritz Motivation found that Mercenary Loyalty (transactional/reward based) was the primary driver of brand loyalty for 48 percent of the population. While this represented the most prevalent mindset, it was a decrease of 7 percent from the previous year, with True Loyalty (emotional/experience based) climbing +8 percent to 38 percent. So setting the stage in that regard, transactionally focused consumers already held the edge, though they were losing ground. Obviously 2020 and 2019 are very different times. As Bob’s story pointed out earlier, even if a customer is initially drawn to a brand for transactional purposes, the higher they climb in a program structure/the more they engage with a brand, the harder it is for the consumer to ignore the relational side of things (and vice versa for the brand if they are to be successful). Because of the pandemic, the frequency with which customers have been able to engage with their favorite brands has taken a hit in many industries, so transactional offers may be necessary to re-invigorate the… Read more »
Suresh Chaganti
BrainTrust

Great insights. Thanks Evan.

Ralph Jacobson
BrainTrust

As I have said for years, the retail industry needs to take guidance from those industries that have truly driven compelling brand loyalty, such as hospitality, airlines and other travel businesses. What makes those programs capture followings, and what can be leveraged in the same way in retail?

David Slavick
Guest

Consumers today are motivated by convenience, safe shopping experiences and quality. They seek dependable service, delivery, and ease of pick-up process. These factors are clearly in response to the pandemic. Getting cost savings or bonus value for purchase is less important in today’s environment. Brand values and messaging to program members is central to success – not transactional relationships. Members expect personalization at the “person” level. Importantly, loyalty is enabled by store associates who are well trained, embrace the brand attitude and deliver outstanding service to valued shoppers every business day.

Martin Mehalchin
BrainTrust

Nike’s unconventional approach to loyalty (Nike Plus is a membership program with no points or rewards) has paid off during this Spring’s crisis. They made the premium workouts on Nike Training Club free for their members and have been giving members unparalleled virtual access to their athletes and other influencers via the member-only communication channels in their app. Nike already had an emotional connection with their consumer and there’s every indication that the connection has grown in 2020.

Jason Goldberg
BrainTrust
Only a small portion of “loyalty” programs actually create any loyalty. There is lots of evidence that basic points for purchase programs are primarily adopted by the most promiscuous value-seeking consumers, who generally participate in every competitors’ program. Customers tell us they have fatigue from too many loyalty programs. Very few retailers leveraged all the customer specific data they collected via loyalty programs to actually make the shopping experience better. And now, in the COVID-19 era, customers want to spend less time at the POS, and certainly don’t want to touch the keypad to type their phone number, or hand a key-fob to a cashier. So I think COVID-19 accelerates the demise of poorly executed loyalty programs. That being said, there is tons of room for retailers to use data to know their customer better, and use that data to win more share of wallet and drive up lifetime customer value. While Prime is a great lock-in for Amazon, one of Amazon’s strongest loyalty pillars is that so much of your purchase history is on… Read more »
Mike Osorio
BrainTrust

The start of any successful loyalty program is the brand and product behind it. Companies that view loyalty programs merely as a traffic driver, “filling the funnel” vs. an opportunity to engage with, service, and add value to loyal customers, are missing the boat. Utilizing technology to identify and engage well with clients online and in-store is important, as is well-trained staff ready and willing to ease the interactions.

James Tenser
BrainTrust

Shoppers don’t feel loyalty until we show them loyalty. Frequent shopper programs that depend heavily on accruing points or discounts may be “sticky” in some ways, but they tend to breed cynical customers who are conscious of the manipulation and easily pried away by the next new offer.

Personalization is the key to delivering value in the form of convenience, experience, service — and yes, price too. Transparency is key. When shoppers can perceive how the game is rigged in their favor, they are more open to form a relationship with a brand.

Phil Rubin
BrainTrust
3 months 11 days ago

Thanks to everyone for the thoughtful comments. It’s interesting to see the general consensus on the shortcoming of loyalty programs, especially in retail. If you have any interest in reading more there’s a white paper on the topic here: https://www.linkedin.com/feed/update/urn:li:activity:6675817415961542656/

wpDiscuz
Braintrust
"A customer choice in your direction has to be earned over and over in each present moment."
"Nike already had an emotional connection with their consumer and there’s every indication that the connection has grown in 2020."
"I think that if you asked consumers why they choose one loyalty program over another they will give you a “what’s in it for me?” answer. "

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