An Alternative Currency: The Loyalty Economy
Uncertain and unsteady are two words often used to describe the current state of the U.S. retail industry. This fact is compelling companies to adapt to an ever-changing marketplace in real time, which for some savvy brands has included avoiding spending unnecessary cash on advertising and tapping into one particularly stable marketing effort where they have complete control — their brand loyalty programs.
According to a recent report from Colloquy, there are 48 trillion reward points worth $360 billion sitting idly in customer accounts across the world. In 2016, Starbucks’ loyalty program had $1.2 billion in customer funds among its 12 million members, a number that surpasses some major banks. One extraordinary recent example of creative thinking with loyalty programs was JetBlue selling its loyalty points to Barclays Plc, making it the first company in the United States to raise cash this way.
The bottom line: Brands, particularly in the retail sector, need to start thinking about their loyalty programs as alternative modes of currency that can help to drive overall growth and customer retention.
The best loyalty programs aren’t about accumulating the most points, but rather leveraging the business or brand’s strengths and how it serves its customers best. Credit card issuers that offer loyalty programs are successful because they're financial institutions, however, brands that are known for their dynamic in-store experiences should consider offering a program that enhances that. This strategy has proven successful to help brands build deeper relationships with customers, rather than just promoting further purchases.
There’s no doubt that the pandemic has had an effect on brand loyalty, and will continue to have an effect as the world begins to reopen. Therefore, now isn’t the moment to focus on acquiring new customers. Rather, it’s a time to pay attention to the customer base that already exists. It’s much more cost efficient to retain an existing customer than it is to acquire a new one. Through a loyalty program, you’re avoiding hard costs, such as advertising and public relations, that come with obtaining new customers. Instead, you’re focusing on deepening the mutually beneficial relationship between brand and consumer.
Many brands are turning their unused loyalty points into ways to help the greater community during this time. For example, Southwest Airlines, Starwood Preferred Guest, and American Express are all allowing consumers to easily donate their unused loyalty points and flyer miles to charity in the form of travel credit or cash value.
"Loyalty economies" essentially act as a secondary mode of currency and are adding value to products and services by furthering customer allegiance through soft costs. Companies that have ways for consumers to help support the greater community are seeing the advantages as many reconsider a brand’s role in their lives during this time.
In order for brands to truly leverage the power of their loyalty programs, here are a few important factors to keep in mind:
- Strengthen the relationship. Reward points are great, but the objective should be a deeper relationship rather than another transaction.
- Think outside the box. A reward can be anything as long as it's an authentic offering. Rethink your loyalty program. Treat it like a creative brief. Offer additional services, experiences, opportunities, etc.
- Focus on "superfans." Talk to the superfans of your brand first. They deserve rewards the most, and they will share the most on social media. If you can serve their interests authentically, you can apply those learners concentrically out to the rest of your audiences.
- Quid pro quo. Loyalty programs can be a moment of pure consumer centricity for brands. They're a conduit for one-way generosity without getting muddled in return on investment and sales.
Greg Matson is a partner at Verdes, an innovations and marketing consultancy.