Redefine Loyalty Programs Beyond Traditional Offers
Much has been written on the topic of loyalty and the use of promotional offers to both acquire and retain customers. The difficulty with the statistics is that most customers join and stay in a loyalty program because they receive special discounts, coupons, and other offers. For example, Kohl’s loyalty program proudly gives customers a myriad of alternatives for collecting and stacking coupons and discounts on repeat purchases. Customers love this program, and marketers love this program because customers keep coming back. I’d be hard-pressed to believe that Kohl's financial and marketing leadership feel this is an economical and sustainable way to encourage long-term customer loyalty.
Many brands are trying to figure out how to move beyond the points- and discount-based loyalty programs that are so pervasive in today’s retail landscape. Recent data from Wise Marketer indicates that the average U.S. consumer has approximately 13 to 15 different loyalty memberships across different retailers. Brands want to differentiate and figure out how to wean customers off discounts, ongoing deals and promotions. While not all customers are able to wean off coupons, marketers are eager to find a way to customize their loyalty programs such that they can divert as many customer segments away from discounts as possible.
The challenge is to replace discounts for certain customers with other things that those customers value more greatly. Why are marketers looking to create programs that treat each customer the same? What marketers need to do with their loyalty programs is figure out how to treat customers equally but in ways that address the areas customers place maximum value on for themselves. If this sounds expensive, manual and time consuming, it is. However, it’s not as bad as it sounds. Marketers must be thoughtful and take a regimented approach to testing and learning what's going to work for different types of customers. Here are some ideas and recipes to help get the wheels turning.
The first step is acquiring customers. I’m a big fan of using artificial intelligence (AI) to determine optimal offer values for new customers to get them in the door. I’d suggest you chat with your offer management platform provider or other marketing software providers to understand what’s involved. Plastering a 25 percent off coupon on your website for joining your email program is NOT the answer. If you take the time to be thoughtful, you can save a ton of margin dollars and ask finance to reinvest in the loyalty experience itself
The next step involves creating an experience for different types of customers that engender loyalty. I don’t believe a traditional loyalty program creates loyalty. Here are some alternative suggestions: First, analyze the customer base to identify what matters to specific types of customers. For example, do you have particularly price-sensitive customers who want the cheapest price above all else, or do you have customers who value convenience of purchase and returns above all else? If you feel the data analysis will take longer than a couple of weeks due to data hygiene or otherwise, I’d suggest you start with a clean slate and survey your customers to identify themselves with a variety of pre-defined categories. This should give you a rough idea about what people care about and which buckets are biggest. If you want to take an even more progressive approach, don’t provide a list for customers to pick from. Let them fill in the blank with the one to three things they care most about. The trick here is managing customer expectations.
Some of the major buckets are likely to be price, special discounts, convenience, service, product customization, product trainings, in-store demos, specific types of corporate responsibility (e.g., community building, charitable volunteering, sourcing and packaging sustainability), and more. Rest assured, customers will fall into buckets based on a multitude of shared dimensions, ranging from generational to personality types.
The key for a brand is to collect and organize the data, and then to pick a place to start. It can be any place, just start somewhere. My recommendation is to place these categories into a simple 2x2 quadrant labeled for business impact (high/low) and effort/cost (high/low). This will help distill it down further.
My overall point here is loyalty isn’t stimulated by throwing coupons and deals at every customer. That’s the lazy way out and a way to jump-start a “race to the bottom” against the competition. Imagine if all the money saved from ditching most of the 20 percent off loyalty coupons was invested in more bespoke initiatives and experiences that catered to what customers found valuable. Yes, it requires more thought, more planning, and potentially more resources to manage. Technology can only automate this so far, but that’s kind of the point. Nailing customer loyalty is hard, and the bar keeps rising. However, that’s the opportunity for bold and progressive organizations to redefine loyalty beyond promotional discounts and coupons. If executed the right way, companies have a real opportunity to create a sustainable competitive advantage and win the hearts (and wallets) of customers.
Jonathan Treiber is CEO of Revtrax, an offer management platform that works with clients such as Express and Men’s Wearhouse.