You don’t need a loyalty program?

Quantium’s Bernard Wilson addresses the relevance of loyalty programs.

By Bernard Wilson

In some circles it’s become fashionable to be critical of loyalty programs – Aldi even launched a brand campaign trying to positively differentiate itself for not having one.

But on the ground, more and more retailers are launching loyalty programs in response to the combined trends of ever-increasing customer choice and ever-increasing customer expectations.

Who’s right?

In a world of revenue headwinds and margin constriction, retailers need to be pragmatic, realistic and flexible when it comes to loyalty. They need to focus on what is required organisationally to acquire and retain the most valuable customers whilst maintaining the fine balance of maximising short term returns whilst also building for the longer term. In some, but not all cases, that will involve a loyalty program; but perhaps not the program you thought.

Here are 10 perspectives on how to get the most out of any burgeoning loyalty strategy.

  1. Loyalty programs aren’t a waste of time (rational or not)

Here’s the problem – it could be rationally correct that they are. But human beings aren’t rational. And there is no denying that customers increasingly expect to be rewarded for their loyalty to a brand or a company, or that Australians love a loyalty program.

According to research, 9 in 10 Australians have a loyalty card in their wallet, and the average Australian belongs to 6.1 loyalty programs.

In fact, research shows that about 10% of people cite emotional reasons for joining loyalty programs. So don’t over-think it. Loyalty is a dynamic and a conversation that Australian retailers can’t afford to discount.

  1. You can engender customer loyalty without a “program”

Recent Deutsche Bank research suggests loyalty programs are the fourth most important thing to customers in deciding which grocery store they shop, after location, value and range. So as a grocer, unless you’re competitive on value and range, having a world class loyalty probably program isn’t going to save the day.

There are, of course, rare businesses that have created a product or experience so differentiated – that forge such a strong emotional connection – that they don’t need to do a loyalty “program”. Rare is the key word here; remember that Nike and Coke both have loyalty programs.

So if you think you can be Apple and you can deliver the product and the service to engender that kind of loyalty without a program, that’s great – but if you’re not certain that’s you, you should (subject to what follows) be considering a loyalty program.

  1. A loyalty program won’t create customer loyalty out of thin air

Be realistic. A loyalty program cannot overcome inadequacies across controllable key drivers of customer choice in price, range, service and quality. An authentic customer:brand connection will do far more for customer loyalty than a standalone program.

Don’t waste time and money on a loyalty program unless you have exhausted all opportunities to optimise your existing customer experience.

  1. A loyalty program should be designed around unique customer:retailer needs

Loyalty programs are part of the established landscape in Australian retail, customers are developing increasingly heightened expectations and, in response, programs are also improving earn rate, simplicity and use of technology.

But whilst the bar is only getting higher and regardless of the competition, your loyalty program still needs its own, unique purpose.

And whilst the ‘why’ may be more ephemeral, the objective point is always to acquire and retain your most valuable customers. So, before you establish an always-on earn, copy your competitor or get daunted by hyper-personalisation, mobile-centricity, gamification or crypto-loyalty – isolate what, exactly, would best acquire and retain those customers. Retailer’s customers aren’t the same, and so no two loyalty programs need to be the same; figure out your own customer’s needs and build specifically to match those.

  1. A loyalty program does not need to contain above the line give-back

Let’s take a simple example: most Australian loyalty programs have an always-on give-back, but there are notable examples, including Dan Murphy’s (Australia’s seventh biggest retailer), that don’t. Do you need one?

Not necessarily. What do your customers want? Focus on how your loyalty program could proactively deal with existing customer pain points across the business, or what your customers may want from your loyalty program. And before you establish an above the line give-back, remember:

First, it’s a big commitment, and once it’s on, it’s on (and hard to turn off).

Second, an above the line earn offers everyone the same thing. Isn’t your loyalty program meant to prioritise your most valuable customers?

Finally, marketing and data technology has reached the point where you can now use below the line channels to communicate individually and directly with members and tailor their earn – giving your more valuable members more value back, whether that be monetary or through increased personalisation.

  1. A program’s CVP must be simple and communicated as often as possible

Once you’ve figured out your unique customer value proposition (CVP), make it simple and communicate it as often as possible. Your customers are busy and they have a lot on their minds. Don’t assume that just because you know the value offered by your loyalty program, they will. Your program will only drive a behavioural change, and therefore profit, if they do understand and accept your value proposition, so make sure you take every possible opportunity to remind them of it.

  1. To deliver a return, a loyalty program needs to be organisationally enabled

Before you move to update or implement any loyalty program you need to build a clear, upfront understanding within the business as to the required commitment – in terms of resources, potential for internal disruption and whether it is aligned with key stakeholders’ existing KPIs.

If your program can generate this understanding and subsequent internal support, it will be more likely to succeed, sooner.

Even then, unless the organisation has the necessary cultural enablers to deliver value from the program, including a customer-first mentality and the capacity to properly invest in long-term customer value (occasionally at the expense of short-term margin), then it may never live up to its potential.

  1. A loyalty program should evolve: it doesn’t need to be perfect at launch

Find the component parts that best meet your short-term risk-return threshold, and deploy them first, maximising any ability to test and learn. Use the value gained from those components to build the internal case and, potentially fund further investment in the program.

Just make sure that your strategy has the capacity to evolve along with your customers and technology to ensure that whilst you land immediate value, you ensure that you maintain consistency of customer experience as you evolve your proposition (and limit the risk of inefficient or wasteful technology investment).

  1. Be wary of building everything yourself

A loyalty program requires lots of technology across digital, data and marketing as well as customer experience and offer management.

And whilst technology has heightened customer expectations of loyalty programs, it has also given rise to countless companies whose core strength is to enable retailers to deliver to those expectations.

Part of delivering quickly and efficiently is cleverly identifying where seeking external support could help meet your needs faster and more cheaply. Gather a team of people who understand the technology and, critically, who are enablers; and ask them to help you solve what is effectively a business problem, not a technology problem.

  1. Measurement is (almost) everything

Everything is measurable, and there should be mutual understanding across the business from the very beginning as to what your loyalty program will achieve and according to what timeframe.

Don’t be afraid – if you deliver a proposition that aligns with your valuable customer expectations, you will drive short-term profitability and long-term lifetime value.

Macy’s revamped its Star Rewards program in 2017 in a bid to stem its shopper defection. In its FY18 results it identified the revamp as a key contributor to sales performance; in particular, increased loyalty, penetration and most valuable (platinum) members spend up 10%. Macy’s delivered comparable sales growth of 2% in FY18, after a decline of 1.9% in FY17, and has issued FY19 guidance around 1% comparable sales growth.

Ultimately the aspiration of and accountability for every retail loyalty program must be to become a profit centre. But if you don’t measure it, you can’t show it.

 

If you’re thinking about a new or updated loyalty program:

First, form a deep understanding of what your customers need from you – a loyalty program may be a component part, but it will only be a component part. Prioritise loyalty accordingly.

Second, tailor your loyalty proposition to your unique customers.

Third and finally, get moving but ensure you have quantifiable performance measures to assess along the way.

I have confidence that if you weave those perspectives into your strategy and planning, you’ll generate customer and business success over the longer term.

At Quantium, we have over 17 years’ in data science and AI, whether you are just starting out or advanced on your personalisation journey, we’d be delighted to speak with you.

 

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