Consumer loyalty is, more than ever, a dubious phrase given the competitive environment and the rise of trusted algorithms that steer consumer purchasing and behavior online.
Trends like personalization, omnichannel, customer experience as competitive advantage, and frictionless payment each impact consumers’ expectations and behaviors. Together, these trends have new implications for customer retention and habit. They give rise to the modern loyalty experience.
Roughly 90% of companies currently employ some form of customer engagement or loyalty program. That means the average household in the US is participating in approximately 29 programs. And that number is rising.
Organizations are investing considerable capital in building and maintaining loyalty programs. Together, they are spending billions each year on non-cash incentives. The result is that loyalty members generate between 12 and 18 percent incremental revenue growth per year compared to non-members.
However, customer loyalty isn’t what it used to be. There are some far-reaching indications that many loyalty programs are missing the mark.
A study by Accenture published this year, shows that traditional loyalty programs are delivering less than people realize. 71% of the 25,000 consumers surveyed claim that loyalty programs do not engender loyalty. Not surprisingly, 61% percent of consumers had switched some or all of their business from one brand or provider to another in the last twelve months.
While the statistics on purchase behavior are a little more encouraging, 57% percent spend more on brands or providers to which they are loyal; it still means that 43% spend the same or less than they would otherwise, despite being loyalty members.
The upshot of all of this is that traditional loyalty programs may still have a net-positive economic benefit to a business, but consumer sentiment shows that programs aren’t close to meeting their potential or meeting consumers high (and ever-rising) expectations.
The Forces Shaping Loyalty
The forces setting the new bar of consumer expectation emerged from online commerce: seamless experience, frictionless payment, omnichannel, and personalization.
These forces are pushing different types of brands values together, into the unified experience consumers expect.
While before, there may have been bridges between loyalty, prepaid, and promotions, now they are collapsing into a single thing.
The first trend is seamless experience throughout the customer journey. Seamless experience means that a person has a consistent pre-purchase, purchase, and post-purchase journey across mobile, web, social. And also, in-store.
Frictionless payment incorporates saved credit cards, gift cards, promotions, and more. The company knows who the consumer is and can securely connect payment to an identity, account, or member. This enables consumers to complete payment in as few steps as possible. While it used to be about one-click checkout online or background payment when using Lyft and Uber, frictionless payment now includes things like skip-the-line at Starbucks using points and prepaid value; or scan-and-go at Walmart, and the even the disappearance of checkout with payment into a background experience, as successfully piloted at Amazon Go.
More than just during purchase, omnichannel means a consistent experience pre and post-purchase. Today, omnichannel means web, mobile, brick-and-mortar, with social (Facebook, Twitter, Snap, Instagram) supporting purchases, not conversations. Tomorrow, it will include chatbots, ordering via voice assistants, and AR/VR. Being able to offer consistent payment in an omnichannel world increases the stakes for brands around identity management and security.
Consumers expect that data, which is actively and passively collected, will benefit them through personalized communications, product recommendations, and promotions. 63% of millennials are willing to share data for personalized offers, experiences, and discounts. There are also increasing regulatory and social pressures to manage this data responsibly and transparently, which requires policies and technology improvements across an organization.
The Need to Experiment
Call it branded currency, brand value, or engagement currency, this convergence affects how and when loyalty programs issue, track and redeem value.
In response to consumer expectations and attitudes, business leaders are starting to rethink their loyalty marketing, from their current investment, and core value-proposition, to the program’s impact on overall margin.
But it’s a challenge to make changes because traditional loyalty programs are often costly and time-consuming to shut down or modify. This is why it’s useful to look at startups and other fast-moving, digitally-native companies and their approaches to solving loyalty and retention.
Startups take a more iterative and opportunistic approach by experimenting with a blend of loyalty, prepaid and promotions to innovate and test what works for their customers. Digitally-native companies have a starting set of fundamentals that drive their perspective on loyalty.
First, they’re aware that change is the only constant, so are reticent to roll out large-scale programs that can’t easily change. Instead, they favor campaigns and tactics that they can learn from and optimize.
Second, they approach loyalty from the perspective of the customer experience through pre-purchase, purchase, and post-purchase engagement, looking for solutions that will motivate and retain customers who lack time, attention, and patience. Points accrual for a reward at a later time is not enough to stay competitive. They test targeted offers that feel like surprise and delight and drive a more immediate response.
If the goal of loyalty is to have a preferred and long-lasting customer relationship, businesses need to maintain constant alignment with the consumer through their journey. The impact on loyalty strategies is that they become more dynamic and personalized, the right offer, at the right time, to the right person.
An Example From Lyft
This offer is an excellent example from Lyft of these new trends: $5 off next 10 rides, immediate value, no accrued points.
There is no code to add to checkout or even in the app. It’s part of the value proposition of the email, just click to add to account and the value works when you book a trip. It incentivizes action now and over next month, creating a habit. But, it is also short term so that they can measure results and modify.
The Traits of Modern Loyalty
Modern loyalty comes into view when compared to the foundational loyalty programs that many consumers experience.
First, effective loyalty incorporates multiple types of value. This may include a mix of points, one-time offers, discounts, and targeted promotions to engage customers throughout their journey as well as access to exclusive offers, partnerships, or benefits.
The former Head of Digital Card and Payments at Starbucks, Susie Kroll, recently shared that Starbucks used to tell customers: "Download our app to join our loyalty program." Instead, Susie recalls, what really resonated was the idea of skipping the line at a store: "Download this app, load this card, and skip the line." The customer experience of increased convenience and frictionless payment gave consumers an immediate and concrete benefit, which was a gateway to long-term loyalty.
Modern loyalty works to be more proactive, incentivizing new and better behavior with timely offers, starting early in the funnel of repurchase. Those offers are segmented from a growing base of customer data, not one-size-fits-all. It focuses on the entire customer experience and journey to make loyalty more comprehensive, to include social factors, decision-making process, referrals, and consumer identity. And finally, it is intended to be more dynamic and adaptive to competitive, social and technological factors in real-time.
Questions to Ask
If you want your gift cards to become part of the marketing and loyalty flow in your organization, here are some questions you can start asking to begin charting a course to a modern loyalty experience.
- Do gift cards serve the seamless customer experience?
- How mature is our perspective on identity-based payments?
- Can we make our loyalty experience more dynamic and personalized?
- What pieces of our technology stack will we rely on?
- Is my data available and actionable to other teams?
You can learn more about creating a modern loyalty experience by downloading our whitepaper.
A version of this post was presented by Leif Baradoy, CEO of Lightrail, on April 10th, 2018, at Flourish: The Growth of Branded Currency.