Head of Marketing & PR at Compass Plus
Loyalty programs are nothing new, thought to date back to the late 18th Century in the US where retailers would offer their customers copper tokens with their purchases to be redeemed against a product during a future purchase. Tokens were replaced with stamps in the 19th Century which are still in use today, alongside coupons and other paper receipts.
American Airlines stepped in during the early 1980s to make loyalty altogether more fashionable with frequent flier points, quickly followed by other leading global airline giants lending momentum for large retailers to join the show in the 1990s. Through the nineties into the noughties, loyalty evolved from money-off coupons into targeted campaigns, plastic cards and rules-based points calculation engines. Smaller retailers and independent stores jumped on board and all of a sudden loyalty programs were everywhere. The need to record and understand consumer behaviour led to the big data phenomenon of 2005 which transposed itself into the loyalty market and has only really begun being used to its full potential over the past five years.
This leads us to the ubiquity of loyalty programs available today. No longer just about rewarding repeat spend, these programs have developed into a tool to both drive and incentivise behaviour and are essential for growing and maintaining profit margins. A study by Murphy & Murphy found that a 2% increase in customer retention has the same effect as decreasing costs by 10%, so the importance of having a successful loyalty program in place is not up for dispute.
The modern loyalty program scales across all channels, designed specifically to reward customers for their purchases and encourage repeat business. A successful program should increase customer retention, encourage word-of-mouth referrals, utilise cross-selling opportunities and be of value to the business and customer alike. With a continued emphasis on data capture, the customer rewards experience needs to be personalised to increase spend and help drive certain behaviours, whether utilising a specific channel or buying a certain product. In theory, everyone is a winner and this symbiotic relationship keeps the loyalty engine running.
The problems arise alongside the sheer volume of loyalty programs available today. Can any one customer really be loyal to that many brands at once? Consumers tend to be most loyal to the businesses they interact with the most, their bank, supermarket and coffee house, for example. Can the majority of consumers truly be said to be advocates of every shop they frequent or every organisation they have a loyalty card for? The general consensus is that average household has 23-29 loyalty cards between them, for numerous competing businesses which suggests those enrolled on the most loyalty programs are actually the least loyal.
Today’s consumers are so unattached to brands that according to Nielsen 78% are not loyal to a particular brand and 61% of Americans would switch brands due to price. The exclusivity of yesteryear has evaporated and loyalty rewards are expected as standard. The marketing model that demonstrates the loyalty journey growth from a visitor to a purchaser to a repeat purchaser and brand advocate is no longer relevant.
Loyalty is evolving to encapsulate the globalisation of our modern, digital lives whereby instore beacons enable the promotion of real-time discounts via mobile device, coalition models help non-competing entities share both data and rewards, and companies like Starbucks publicly work hard to make loyalty a customer experience, instead of just another card to carry. With Capgemini reporting that fully engaged customers deliver a 23% premium over the average customer in share of wallet, profitability and revenue, it is not surprising that everyone is jostling to make their loyalty program the most engaging.
With increased data capture comes increased visibility across consumer spending habits and more opportunities to share this data to cross and upsell. Data is seen as gold dust; the key to insight and unlocking value. As programs have become more sophisticated and targeted, consumers actually appear more emotionally disconnected that ever. In a world with too many brands for an individual to truly connect with, what is the future for loyalty?
There is no doubt that the future is personalised and tightly integrated across all payments and media channels; but is this enough to get the consumer on board? According to a recent LoyaltyOne consumer survey, three out of four respondents do not feel they are getting any benefit from sharing their personal information, and 89% of consumers feel the value exchange is not to their advantage. In fact, the amount of communication traffic that data driven loyalty programs generate is one of the most off-putting attributes. The Aimia Institute found that millennials are 44% more likely to permanently disengage with brands if they receive high volumes of mass email communications.
Loyalty needs to be smart to survive. By smart, we are talking about smart data and smartphones. Companies that learn to convert big data to smart data will be those that actually positively differentiate rather than antagonise their customers. Smart data moves away from the quantity of data collected to the quality and is used throughout all customer interactions to offer rewards and services that engage customers on a level where it’s clear their requirements have been understood. Consumers want a seamless, simple experience. The transition of the mobile device into the payments world offers some obvious advantages. No one wants a wallet full to the brim of plastic, and whilst loyalty is predicted to be the main driver of adopting mobile payments apps, this is a space well-worth watching.
Regardless of what the future holds, according to Accenture 46% of consumers are more likely to switch brands than they were 10 years ago, so getting loyalty right should be at the top of everyone’s list.