Are You Loyal to Them: Evolving Retailers’ Customer Loyalty Programs

Loyalty programs have come a long way in recent decades. In their early years, they were little more than simple, dubious rewarding schemes. At worst, customers sacrificed their hard-earned dollars for a cheap glass or other trinket they neither needed nor wanted. At best, a company account paid for the trinket and the superfluous gift was “free.” However, whether free or at a cost, the item rarely drove loyalty as it offered little value to the customer’s life.

Airline loyalty programs were among the first to evolve their approach to driving loyalty, replacing catalogs of redeemable trash with free flights and hotel stays. These were of much greater value to customers, but were severely compromised by blackout days and airlines somewhat limited schedules. This idea of driving loyalty by giving customers more of what they want has been extended to traditional forms of retail. For example, it’s not uncommon for a grocery store to offer a free coffee as an added value — although often in the undesirable form of a coupon.

Leveraging Customer Data
To better drive loyalty, retailers needed to better understand their customers. The industry took a major step forward in the late 1990s and 2000s as smart retailers began realizing the value in collecting longitudinal customer data. They could now get to know the regular users of their loyalty cards not only by understanding the value of a shopper over time through frequency of visits and size of basket, but also by observing lifestyle changes such as beginning to buy baby or pet products. The strategic benefit was huge as retailers gained a better understanding of their customer base.

In addition, a well-executed program could rely on the same old coupons — just targeted with insight. Some retailers, such as Kroger, leveraged this new-found intimacy to give customers targeted discounts on items they already used or were quite likely to try, not just those they hoped customers might buy. Advanced analytics focused on understanding the most valuable customers enabled combinations of offers so relevant that 50 percent redemption rates were often achieved. With communication and product offers personalized at a micro level, retailers generated great campaign return on investment.

Understanding Customer Experience and the Imperative of Retailer Loyalty
For the first time in mass retailing, retailers were equipped with enough information about customers — both strategic segments and individuals — to take loyalty to a new level. Rather than a customer's loyalty to a company, it became about the retailer demonstrating loyalty to its customer. Once that mind-set was adopted, it led to a real focus on the overall customer experience — not just what the shopper buys, but the ease, relevance, orchestration and empathy of the whole experience.

This realization is even more fundamental for high-value, high-consideration purchases (e.g., cars, appliances), where the path to purchase is more convoluted, with multiple digital and physical touchpoints. Customers shop less frequently, so retailers need to quickly show an understanding of their preferences, needs and values. The retailer gets fewer opportunities to be loyal and must provide the right experience the first time.

Even with relatively low-ticket items, savvy retailers like Starbucks demonstrate that every element of the customer engagement can be integrated to create a pleasing and relevant multichannel experience. Not only does Starbucks provide payment, rewards and location services on the same mobile platform, but it also continues enhancing the connected experience — most recently by providing free wireless powermat phone charging at tables.

As businesses examine their customer experience and maximize the potential of customer loyalty, they should consider the following advice:

• Start with the right mind-set — what can you do for your customer rather than what they can do for you.
• Relentlessly develop insight to understand your most valuable customers. Use that insight to develop both strategic and tactical programs, remembering that lifetime value is key.
• Think beyond rewards programs. Engagement and experience is more holistic and provides significantly more opportunity for differentiation.
• Ask yourself whether your customer will smile to themselves when they get your reward. Show you care with true surprise-and-delight offers.

Regardless of the retail sector or positioning, businesses owe their valuable customers a great experience. Loyalty or engagement platforms can be a fundamental part of that experience, remembering that their most valuable role is providing the insight for retailers to demonstrate loyalty to their customers.

Toby Hawkes is a consultant with the North Highland Company, a global consulting firm. He has over 20 years of experience driving strategic change, growth and improvement programs, focusing on the retail and consumer products industries.