Why most retail loyalty programs are failing

| by Jeff Weidauer
Why most retail loyalty programs are failing

Loyalty is a much-used (often abused) word in the world of retail. Merriam-Webster defines loyalty as “a strong feeling of support for someone or something.” Clive Humby, co-founder of customer science company dunnhumby and one of the leading minds on the topic, would likely stress the abused aspect.

Back in October 2014, Mr. Humby delivered a speech suggesting that retailers have forgotten what loyalty is really about. He went on to review a specific retailer program that he called a “waste of time,” concluding that the system was broken.

As much as I respect Mr. Humby for his many accomplishments, we didn’t need him to tell us that the entire loyalty system is a waste of time and money. From the outset, loyalty programs, especially those run by supermarkets in the U.S., have been ill-conceived and poorly run, if loyalty really was the goal.

It isn’t that anyone planned it that way — the initial objective was to create loyalty through the use of shopper data, providing relevant and personal offers to frequent shoppers based on history and analytics. But a couple of things got in the way as programs were launched.

The first problem was getting shoppers to use the cards in the first place. In the 1980s, when the first programs kicked off, a card was the only way to track shopper behavior. From those first cards to the now ubiquitous key tag, the act of being tracked still takes effort from both shopper and retailer. Card use was made a requirement for sale prices to drive use, as the only way to get actionable data was to have a minimum of 70 percent of shoppers use the card every time they shopped. This was the first hole in the dike because for most consumers the card just became a way to get the sale price.

That would have been satisfactory if other benefits had followed, but for most they never did. However, one of the big surprises for retailers was the amount of data they were collecting on shoppers. The average was a gigabyte of data per store per week. Without a clear plan of how to mine that data, and what to look for, much of the budget for loyalty programs ended being spent on storage.

Next was the issue of consumer privacy. Groups such as CASPIAN made a point of demonizing all card programs. The retailer response was often to give a shopper a card without any information tied to it, missing the point entirely. Once a major barrier to loyalty programs those concerns now seem quaint in a world of NSA tracking and GPS-enabled mobile devices. Consumers have overwhelmingly voted in favor of giving up some personal data in exchange for deals. But once again, those deals never materialized for most.

But here is the biggest problem with virtually every loyalty program currently in place: they are focused on driving loyalty via better values for the shopper. That is an admirable goal, but it’s not one that will necessarily increase loyalty. Whether these programs deliver on that goal is beside the point. It’s just buying sales and is only slightly more evolved than a paper coupon.

True loyalty is having people line up to buy your product and pay a premium to do so. There are very few “non-luxury” brands that fit this model, e.g. Apple, Harley-Davidson, and maybe Starbucks. Those are brands that don’t focus exclusively on the high-end market but still sell all they can make at the price they set. That is true loyalty, and it can’t be bought.

I believe that’s what Clive Humby was getting at. Loyalty isn’t a program you execute; it’s a benefit that your true believers offer to you for delivering a superior product and experience that they feel is worth the price.

(Photo by Amanda M.)

Topics: Consumer Behavior, Loyalty Programs, Marketing

Jeff Weidauer
Jeff Weidauer is vice president of marketing and strategy for Vestcom, a provider of integrated shopper marketing solutions. With over 30 years of retail experience, Jeff is a prominent speaker, writer and expert source to retailers, brands and media on shopper marketing and the evolving retail industry. wwwView Jeff Weidauer's profile on LinkedIn

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