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5 Loyalty Program Do's and Dont's

Loyalty programs can boost retail efforts but as new brands embrace them, more is learned about their implementation. Sometimes the experience doesn't always jive with the intended outcome, so with every success story, there are loyalty initiatives that fall short of the mark.

Kevin Yeow, president of Americas, ICLP, said successful loyalty programs must include five fundamentals. They are:

  • Having the ability to influence and track positive behavior change (and ROI).

  • Having the ability to differentiate and target members on a segmented basis.

  • Being able to recognize and reward transactional and non-transactional behaviors.

  • Offering rewards that are relevant, achievable with a mix of practical and aspirational options.

  • Capitalizing on unique benefits of each consumer touchpoint.

1. Ability to influence and track positive behavior change (and ROI).

Loyalty programs began with this fundamental goal in mind and it is still critical to success, Yeow said. The ability to influence and track positive behavior change has expanded vastly with the proliferation of available customer data. Twenty years ago, programs were simply rewarding transactions.

The benefit of this approach to the retail consumer: It delivers a fair exchange of value for customer’s loyalty and provides a foundation for building relationships beyond transactions.

The pitfall:Retailers must start with specific goals, correct metrics and a plan to continually evaluate an optimize efforts to be successful. Another risk factor is internal silos. All business stakeholders need to be aligned around the customer needs and be willing to reevaluate internal business processes to ensure accurate tracking and reporting.

Jitendra Gupta, with Punchh, a mobile loyalty insights platform, said there were three ways to evaluate and measure a loyalty program's rich data:

  • Track rewards performance by measuring increased frequency. With the data, businesses can see an increase in frequency associated with program effectiveness. My measuring customers coming back more frequently, you can put a $ amount on the program effectiveness.

  • Measure referrals by tracking which customers are referring their friends and how much are their friends are spending.

  • Measure campaigns and how many new visits and purchases they are driving.

"With an ROI dashboard customers can always know what is working and what is not and course correct on the fly to get the best results," Gupta said.

2. Ability to differentiate and target members on a segmented basis.

While this may sound like a simple idea, it is still a primary challenge for many retailers, Yeow said. They often contend with disparate data sources and a vast quantity of data. The ability to consolidate consumer data, identify meaningful insights that address not just demographic differences but different motivations of your consumers is fundamental to loyalty program success.

"We encourage our clients to adopt a test and learn approach — ensuring each level of consumer insight adds to the ability to better deliver targeted products or service, communications and rewards, Yeow said. "The peak of segmentation is building full customer personas that include attitudes, motivations, social profiles, etc. Having that level of customer profile enables retailers to understand how customer needs may change from by channel or by day. The time-starved office worker mid-week is the same shopper who enjoys leisurely in-store browsing with the family on weekends."

The benefit of this approach to the retail consumer: It feels more relevant and personalized. The customer feels like he matters to that retailer, and that is the beginning of building an emotional connection with your customers. The best examples of segmentation/ personalization enable the customer to manage their own personalization settings for the relationship, Yeow said.

The pitfall: Collecting profile data and not using it to personalize communications and experiences is a missed opportunity. Consumers provide you with their personal information and expect something of value in exchange. If data is collected and perceived to not be used, it erodes consumer trust. That is the opposite of customer loyalty and advocacy.

3. Ability to recognize and reward transactional and non-transactional behaviors.

Rewarding customers for non-transactional behavior has become a minimum expectation. Programs that only recognize transactions feel very one-sided as if customers are valued for profit only, Yeow said. This approach limits the opportunity to build an emotional connection to the brand; limiting the potential. That emotional connection is required to build customer devotion. A customer who feels devotion adds another level of value.

"They are more likely to recommend the product to others, engage with social media efforts and engage with offers," Yeow said. "Social media has provided loyalty marketers with quick, easy and repetitive ways to provide rewards for engagement behavior. Many beauty brands are successfully offering prizes and rewards for engaging with them via Instagram. This is one way to reward non-transactional behavior, increase share of voice and it helps to promote advocacy via one of the largest social platforms."

The benefit of this approach to the retail consumer: Consumers who are rewarded for all types of interactions feel more like they are participating in a two-way relationship with the retailer and are being recognized for all of their efforts in the relationship.

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The pitfall: The risk is becoming uncompetitive and losing relevance.

4. Offering Relevant Rewards

The most successful loyalty efforts start by understanding the customer base beyond transactions to motivations, lifestyle and ultimately persona. Starting from customer insight enables programs to offer rewards that are relevant and have the ability to inspire that customer. Practical rewards like free shipping are also immediate and tangible. Another practical reward example is Nordstrom offering free alterations. Those examples are relevant, practical and immediate, Yeow said. Millennials and younger are driven by immediacy and instant gratification. Integrating loyalty into point-of-sale provides the ability to reward the customer’s current spend and with real-time connectivity, returning a benefit straight to the customer via their mobile device or even on the POS / receipt itself. This means a retailer can automatically update point balance to deliver the instant gratification and recognition consumers crave for being a member and using the program.

Yeow said successful programs balance practical rewards with aspirational rewards and frequently communicate progress. Offering both practical and aspirational rewards enable retailers to make customers feel like rewards are easily reached and can also be a tool to encourage additional spending. “Spend and get” rewards are typical retail aspirational benefits. Members know when they spend a certain amount, they will receive a discount or cash back coupon. Achievement of a membership tier level can also be the aspiration, providing additional ongoing benefits. Aspirational rewards lead to what we call the “golden moment” when a member claims their reward. Members who’ve claimed that reward, the aspirational one they’ve been working toward, are more likely to become devoted. More likely to tell others. More likely to become a long-term customer.

The benefit of this approach to the retail consumer:The consumer receives rewards that are tailored to their needs, feel within their reach and are received at the right time.

The pitfall: If a consumer is rewarded in a way that is not relevant or poorly timed it is a wasted effort. That consumer will feel like all of the business and personal information they have given has been wasted investment on their part.

5. Capitalizing on unique benefits of each consumer touchpoint.

There have been many recent examples of bringing technology into the store to improve customer experience, Yeow said.

"We now see digital influencing the physical store in many positive ways from interactive mirrors to picking up online purchases in store," he said. "The customer journey is not a straight line. Depending on the product it can take many months and incorporate many channels. The best loyalty offerings provide continuity, are convenient and seamless to the consumer. Apps have emerged as a very strong tool in this area. The Starbucks app is a great example of to use mobile and in-store to create a seamless experience and drive sales."

In store also offers unique opportunities to reward and engage. Sephora has been successful offering unique in store-only benefits for their members. Your program offerings should focus on how to enhance the customer’s journey at each stage in the relevant channel. If you do that, consumers will recognize and reward that value exchange with loyalty that can be cultivated into what we call customer devotion.

The benefit of this approach to the retail consumer:The customer feels rewarded and engaged in the manner that is most aligned with their behavior. It feels simple and seamless to the customer.

The pitfall: Technology for the sake of technology. Loyalty efforts should be driven from the point of trying to solve your customer’s challenges or you are at risk of this pitfall.

"Here is the biggest problem with virtually every loyalty program currently in place: they are focused on driving loyalty via better values for the shopper. That is an admirable goal, but it’s not one that will necessarily increase loyalty. Whether these programs deliver on that goal is beside the point. It’s just buying sales and is only slightly more evolved than a paper coupon," Jeff Weidauer, vice president of marketing and strategy for Vestcom, recently said in a blog on loyalty."

True loyalty is having people line up to buy your product and pay a premium to do so. There are very few 'non-luxury' brands that fit this model, e.g. Apple, Harley-Davidson, and maybe Starbucks. Those are brands that don’t focus exclusively on the high-end market but still sell all they can make at the price they set. That is true loyalty, and it can’t be bought."

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