Why The Future of Loyalty Is Not A Loyalty Program

future of loyalty

Ninety percent of all sentiment on social media around loyalty programs is negative, according to a recent CapGemini study.   Combine that reality with the fact that most households are in 15+ legacy loyalty programs already and the tectonic shifts in how consumers are shopping and purchasing today, and it’s clear every company must rethink customer loyalty.

The first place to start is the idea that only certain customers are part of a loyalty program.  Let’s just throw that idea out right away.  Grocery stores and credit cards are outliers, but in general, loyalty programs only get ~20-25% customer participation.  Brands are thus ignoring 75% of their customers with loyalty and appreciation messaging.  A decade ago, you weren’t able to get customer data without a program card tradeoff, but today, consumers are more willing to share an email or mobile number if they believe their overall experience with that company will improve – from top to bottom.  That’s the trade they want to make, not the old trade of some impossible to follow points system for their personal info.

If you are stuck in a loyalty program mindset, you are thinking about points and tiers and scoreboards and offers.  It’s confusing to consumers.  It’s frankly confusing to companies trying to keep it all straight.  “What did we promise 12 months ago to people who moved from silver to gold – can we still deliver that profitably?”  You can read the research on this question, but the average modern consumer doesn’t enjoy this game.  The people who do are the ones trying to game your points/tiers/offers game, and that’s not the type of loyalty you are trying to encourage.  Average consumers value “likeability” and “trust” when deciding to be loyal to a brand, not cards and rewards.  Millenials, in particular, are more interested in being loyal (almost 2x as much) than the rest of shoppers, but they specifically value better service and personalization.  Loyalty programs are an expensive, time consuming artifice that obscure the real path to customer loyalty.   Here’s what we think is a better way forward.

First, all customers are in.  Yes, they have to share some information so you can identify them, and opt-in to receive messages, but we all know that’s a growing percentage of your audience and far higher than 25%.  For digital first companies, it’s likely 95%+.  Next, get rid of all the cards, and membership numbers and outwardly facing tiers and reward packages.  It’s time to have a mature relationship with your customers, not the one you have with your kids to get them to eat vegetables (I once placed mini oreos in between rows of peas for my 6 year old.  It taught the wrong lesson).

Second, develop a new culture and mentality around loyalty that is simpler, but can get buy-in across your company and with those on the front lines of your customer touchpoints.  You are trying to encourage loyalty, that’s the primary goal, and so every positive experience moment is a win and every negative one is a loss.  Really, the only scoreboard should be inside your own operation counting all the positive and negative “moments” at each touchpoint and on each customer’s journey.  Loyalty will manifest itself in many positive ways for your organization – through additional spend by a customer, through positive word of mouth, or online reviews.  You do have to treat your best customers better than everyone else – give them early looks, better customer care, special offers.  And you want to encourage newer customers to come back, and so, sure, they need occasional incentives and perks.  But we must break the offer cycle – like the mini oreos – these are a quick win but are undermining the long term goal of a mature relationship built on trust and likeability.

Finally, you need to create your own segments/tiers for your team to group customers so you can better personalize their experiences.   These groupings are going to differ brand by brand, but the philosophy should be the same. You want to build a living, breathing customer understanding-loyalty feedback loop.  Historically, companies did customer segmentations every few years.  They did a lot of research, created a report, people put it on the shelf in their office, and then 3 years later they did another one.  The modern, mobile, digital customer behavior broke that model.  Brands need to be following customers constantly, hearing from them, trying different engagement approaches, new products, revenue models.  Agility and finger-on-the-pulse trumps everything.  The only way companies can do that is to segment and find similarities, and more realistically, focus on the most loyal or most likely to be loyal ones.  You can’t serve all masters, and we all know mass marketing is on the extinction list.

In short, the loyalty program is dead, but loyalty is ready to be on the rise – especially among the next generation of shoppers.  But you have to rethink and retool – what better time than January.

More to come on this blog on the customer understanding-loyalty feedback loop.  For now, drop us a note if you are interested in learning more about how we help companies modernize customer loyalty.

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