Customer Loyalty Programs in the Digital Age

On the 22nd of February 2016, Starbucks announced that it was planning to make significant changes to its popular loyalty program. In the weeks and months that followed, even as the company rolled out its revised program, it faced intense criticism from customers and disappointing quarterly results on Wall Street1. Negative press notwithstanding, it was clear that Starbucks was doing something right. The company’s loyalty program was not ignored, like most programs are, but instead it carried influence and created an impact. 

Customer loyalty programs have been in existence for almost as long as there has been ‘buying and selling’. Experts opine that early loyalty schemes probably involved copper tokens in the early 1800s. Even as loyalty programs changed shape and form over the years, brands continue to struggle to deliver value and drive customer engagement. Consider these statistics; though specific to retail customers, they point to a disturbing trend. 

1. 42% of all retailers’ customers are members of their loyalty program. However, 58% of all loyalty program members are inactive.2 

2. 33% of loyalty members also shop at a competitor’s store3 

3. 44% of shoppers say it’s easy to switch loyalty programs4 

4. 71% of shoppers claim loyalty programs do not engender loyalty

The Cost of Loyalty Programs

In the US alone, companies spend a staggering $2 billion on loyalty programs every year6 with little or no significant returns. As CXOs focus on driving growth by squeezing maximum value out of each $ spend, many are questioning whether loyalty programs have a place in their arsenal of tools at all. The truth is that companies today, either B2B or B2C, can’t afford to ignore the massive competitive advantage that a well-developed customer loyalty program offers. Experts suggest that acquiring new customers is 5x to 25x more expensive than retaining existing ones7; that increasing customer retention rates by 5% increases profits by 25% to 95%; and that loyalty program members generate 12-18%8 incremental revenue per year, compared with non-members.9 

So how do brands build trust, drive engagement and create value for their most prized customers in today’s fast-paced, tech-driven world?

 The Language of Loyalty

Shep Hyken, New York Times best-selling author says, “There is a big difference between a satisfied customer and a loyal customer.” Good loyalty programs are fueled by both emotions and financial rewards. 

Starbucks, for example, uses its tiered program to reward customers by blending convenience with value. Customers receive a free beverage during their birthday month. Customers can use the Starbucks mobile app to view their points, pre-order and pay for their beverage and even add their favorite songs to the café playlist. Amazon Prime is another example of a loyalty program that delivers immense value to customers. When it first started, Prime offered priority and free shipping. Today Prime customers have access to a whole gamut of benefits, including television shows, movies, music and books at their fingertips. 

Beyond Transactions 

Many loyalty programs only consider points garnered based on the volume or value of a customer’s purchase. Research shows that 77% of such programs fail in the first two years.10 Companies need to broaden their reward programs to include points that can be earned when customers submit reviews, respond to surveys, check in at stores, sign up for newsletters or refer friends and family. 

The Customer Experience 

With competition in the loyalty industry at its peak today, customers need to want to spend time engaging with a brand. Creating innovative experiences that remain true to the brand is one way to engage customers. Air Canada, in its ‘Earn your wings’ campaign, introduced gamification to its reward program. Flyers earned badges when they completed specific ‘challenges’, which were redeemable in air miles. The campaign was a fun way to engage customers and was extremely successful (560% ROI11). Fun is an important loyalty driver when it comes to millennials. Over 60% of millennials are looking for loyalty programs that are easy, useful and fun.12

Personalization 

According to research, 57% of shoppers receive digital retailer offers for items they have not, and will not buy.13 Brands have more access to customer data today than ever before. Using analytics, brands can create an entirely customized rewards program based on individual customer preferences, history, location and more.

Technology Enablement 

Loyalty programs have moved beyond paper and plastic to mobile apps. Customers want a seamless cross-channel experience, where they can view and redeem their points across multiple channels. With technology, brands can do that and much more. 

Brands can use mobile apps to facilitate self-service. The Hilton hotel enables their most loyal customers to book and check-in to their rooms and even enter their rooms using their mobile app, all without having to approach their front desk. This makes it easy and convenient. 

Virtual reality enables customers to ‘try before they buy’. Brands can tie this into their loyalty program so that their loyal customers have a richer experience when shopping with the brand. In Europe, several retailers provide nutrition or sourcing information on their products through apps or augmented reality. 

Social listening can help brands understand customer’s needs. Starbucks uses geo-targeting well when it prompts its customers to enter a store that is close to where the customer is located. Brands are still coming to terms with how to engage with customers using wearable tech. For brands in the fitness and healthcare industry, wearable tech offers immense potential to increase engagement with valued customers. 

Brands can also utilize chat bots, gamification, social badging, and the internet of things (like Amazon’s dash buttons) to make engagement easier and more convenient. 

We believe the loyalty program of the future is one where the customer and the brand sit down and craft a personalized loyalty program based off a menu of exciting components. We believe the loyalty program of the future offers more relevant, personal and rewarding brand experiences. We believe the loyalty program of the future is here already. Go forth and conquer! 

 Reference: 

1. How Starbucks’ Loyalty Program Change Sent Customers Away 

2. The 2015 Colloquy Census Report 

3. Loyalty and Licentiousness in Today’s Shopper Landscape by Kantar Retail

4. Bond Brand Loyalty 2015 Loyalty Report 

5.  Loyalty and Licentiousness in Today’s Shopper Landscape by Kantar Retail 

6. Gallup, “Making Loyalty Programs Work: Companies must first fully engage customers and activate their participants”, October 2011 

7. The Value of Keeping the Right Customers 

8. Research by Frederick Reichheld of Bain & Company (the inventor of the net promoter score 

9. Customer Loyalty in Retail: Retail Trends, Challenges and Benchmarks 

10. Entrepreneur, “How Rewards Are Running Loyalty Programs Into the Ground”, April 2014 

11. Spafax.com, “Air Canada Earn Your Wings Wins COLLOQUY Recognizes Award”, June 2014 

12. Millennials and The Digital Age of Loyalty Programs 

13. Survey Analysis: Growing Customer Loyalty Through Digital Engagement by Gartner