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Three steps to retail loyalty programs that connect with customers

April 21, 2014 by Fred Thompson

We all know that loyalty programs are popular with customers, but when it comes to why a customer shops with a particular brand, the loyalty program is actually fairly far down the list of reasons for why a customer engages.

A recent COLLOQUY survey of more than 3,000 consumers indicates that loyalty programs are not core influencers of shopping behavior when compared with location, experience and customer service. The consumers ranked loyalty programs at the bottom of the list of shopping-decision criteria.

These numbers should not be seen as a failing of loyalty marketing as an engagement vehicle. In fact, this is a strong reminder that loyalty marketing is most effective in capturing a customer who already finds value and utility from your brand. This should serve as a wake-up call on the need for programs to engage customers more deeply than through generic, oversimplified earn-and-burn concepts.

Customers are still highly rewards and discount oriented. About 75 percent of responders indicated they are likely to preplan their shopping trips, and 50 percent report shopping around to get the best deal. The emphasis on value makes it tempting to deploy richer rewards components as an acquisition strategy. And customers will respond — more than 40 percent of customers would be "very likely" to switch to a competitor if it offered a substantial incentive such as a $10 cash coupon on a $50 purchase — or a 20 percent discount.

But this approach will generally not retain customers, since these tactics are more likely to engender short-term "behavioral" loyalty, which is basically purchasing based on price, convenience or habit, but not on brand commitment. This does nothing to reinforce the true reasons a customer engages with a brand, and at worst, can distract from them.

What loyalty marketers should seek is emotional loyalty — loyalty to a brand that transcends convenience, habit, price (within reason) and situational constraints.

Many programs attempt this through some common soft benefits, such as free shipping or a birthday thank you. However, they fall short on introducing benefits that reinforce their brand's distinctive qualities.

A successful loyalty program needs something special, and this is where an initiative's design and execution is crucial. Here are three steps loyalty marketers can take to ensure their programs have a higher chance of resonating deeply with consumers:

1. Clarify the customers' wants and needs:Loyalty programs need to engage consumers emotionally. Establishing which mechanism will accomplish this can be informed by the consumer data collected through the loyalty program and other channels. The data also will help the merchant to continually recognize what is relevant to customers, setting into motion a cycle of shared data and recognition.
2. Map the brand's distinct qualities and customer experience pain points against your program benefits: Categorize what makes the brand unique and special, and develop a customer experience touch-map to ensure understanding of the good and the bad of interacting with the brand. Map the programs' benefits against these two exercises and ask: are the benefits amplifying the brand and/or addressing customer needs?
3. Perform the "blind program" test: Lay out the benefits of the program on a sheet of paper, and then construct a quick list of the key competitors. Now, match the program structure to each competitor. Does it seem aligned to their brands as well? Score the program against each of the competitors' brands based on brand fit. If the program has a series of high scores, the company hasn't pushed it far enough to truly be a brand amplifier.

We don't expect a loyalty program to be the main reason why a customer chooses to shop with you, but when it is well done, it can intensely amplify your brand.

About Fred Thompson

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