Customer Loyalty Isn't Dead; It's Dormant Due to Outdated Programs

Right now, grab your wallet. Dig past the bills, receipts and gum wrappers, and you'll likely stumble upon something you haven't seen in years: customer rewards cards.

Since the ’90s, most every retailer has offered some sort of customer loyalty program. But when was the last time you actually felt, well, rewarded by one? More to the point, when was the last time you actually made a purchase to get that next punch or point?

Old-school loyalty programs are based upon the supposition that either the visual reminder of the card or the promise of a freebie will prompt a purchase. Sure, we can all appreciate a free slushie, but yesterday's programs just don't reflect how today's consumers shop and buy, and they certainly don't engender loyalty.

Move Past the Punch Card

If you're like most modern consumers, you buy based on two things: your online research and your expected brand experience. Two-thirds of consumers research products online before buying, while customer intelligence company Vision Critical projects that the customer experience will succeed product quality and price as the key brand differentiator by 2020.

Of course, a cleaner website with more product details might spur sales. But that second piece of the puzzle — the customer experience — is where customer loyalty programs come into play. The best loyalty programs are, perhaps more accurately, customer experience programs.

How then can your company construct the sort of experiences that encourage loyalty? The answer isn't necessarily to scrap your program's core value proposition — though it's definitely time to toss the punch cards if your business is primed to offer more than points-based rewards.

No, the key to a contemporary loyalty program is to work backward from your business goals to identify experiences that customers will value. For example, if your data indicate that a poor brand image might be standing in the way of sales, you might take a page from REI. Its co-op membership program gives nearly 70 percent of profits to outdoor-related causes. Co-op members also enjoy a host of other benefits tailored to their interests, such as discounted outdoor classes and used gear. No wonder co-op membership has grown by double digits in recent years.

3 Keys to Customer Loyalty

Still not sure how to build a modern-day loyalty program? These three tools are your building blocks:

1. Combined Customer Data

You already have tons of data across your ecosystem, but if you’re like 90 percent of retailers, you aren’t taking advantage of it. No wonder 80 percent of consumers feel like brands don't understand their needs, according to an IBM study. Without the data to understand why and how customers buy, you can't hope to create experiences that keep them coming back.

Immerse yourself in customer data. Combine customer journey, psychographic, transactional and demographic data to guide customer segmentation. And make it a point to do what nearly 70 percent of other businesses aren’t: cull social media data. Paired with transaction and journey data, social information can help you see existing customers in an entirely new light.

2. Experiential Customer Relationship Management

Why aren't retailers taking advantage of their customer data? Business silos deserve much of the blame. Sales data might be sitting in point-of-sale data warehouses, while marketing departments might have information on customer journeys and segmentation, and customer service teams might have still other data on customer feedback.

Without a central repository of up-to-date customer data, it's virtually impossible for CRM to be more than sending a weekly email to subscribers. But remember, brand loyalty hinges upon creating a compelling, cohesive customer experience.

To avoid giving customers the "just a number" treatment, use data to understand the experience that individual users are seeking. Does James want voice integration while his wife, Jane, prefers text-based communications? Your CRM — and, by extension, your loyalty program — should reflect that. Does Julie always shop on her smartphone? Make sure she can check her near-to-tier status and transactions on mobile as well.

3. Meaningful Utility

When American Airlines introduced its AAdvantage program in 1981, earned miles were enough for its frequent fliers. But considering that every airline today offers a similar program, it's no longer a unique value proposition.

To be clear, your loyalty program's unique value propositions need not necessarily replace its core value proposition. American Airlines, for example, didn't eliminate the miles component of its AAdvantage program when it added car rental and retail discounts. To take loyalty programs to the next level, you need to find ways to improve customers’ lives with utilities — services, subscriptions or features — that provide intrinsic value.

How, exactly, can you identify what additional services or perks your customers might want? Look back to your CRM data and think about specific customer segments. If you're Graco and working moms are a third of your market, what value can you provide to them besides stroller discounts? Would an on-demand nanny service get their attention? Or if you're Sam's Club and you're working to woo chefs, could you offer members-only classes on restaurant management?

The truth is that customer loyalty isn't dead; it's dormant. Almost two-thirds of millennial respondents to an Adroit Digital survey say they're as brand loyal or moreso than their baby boomer or Generation X parents. Consumers, especially younger ones, simply don't buy based on emailed coupons or punch cards. The sooner retailers understand that engendering loyalty requires more than merely having a rewards program, the sooner the reawakening of customer loyalty can begin.

Kayla Bond is the director of loyalty and customer relationship management at VML, a digital marketing, advertising and transformation agency.