Blog: Beyond Discounts and Free Products: Getting Real Value From Customer Engagement and Loyalty Programs

March 02, 2017  |  DIEBOLD NIXDORF

Customer engagement and loyalty programs go way back—all the way to the 1700s that is. During the 18th century, American retailers gave copper tokens with purchases that could be redeemed for product on a future purchase. Today’s engagement and loyalty solutions have come a long way, however, research shows that many engagement/loyalty programs are far from optimal.

A 2017 Accenture report describes that while investments in loyalty are booming and most companies are actively involved in setting up loyalty programs, many of them are simply missing the mark. Here are some key consumer data points from the report:

  • 61% of consumers, who are loyalty program members, have switched some or all of their business from one brand or provider to another in the last year.
  • 43% of loyalty program members spend the same or less with a specific brand or provider to which they claim to be loyal to than they do with other brands or providers.
  • 77% of consumers indicated they more easily retract their loyalty from a brand or provider than they did in the past.
  • 23% of consumers respond negatively (or not at all) to a brand’s loyalty efforts. This is particularly the case for younger consumers (think millennials).

Looking at these findings, it seems that consumers tend to be less loyal, switch more easily between brands and require a differentiated approach to really be engaged by a loyalty program. Simply giving a discount or offering a free product is no longer enough to build a lasting relationship with a consumer. And with U.S. companies spending an estimated $2 billion on loyalty programs in 2014, it’s telling that consumers aren’t more engaged, and well, loyal.

So, what should retailers do?

The path to a revitalized engagement/loyalty program: cost, structure, acquisition and personalization
It is clear that retailers must improve the effectiveness of their programs by assessing–and where needed also changing–the strategy of the program itself. Closely related to this, retailers must optimize the implementation and management of loyalty programs. Here are some key questions retailers should ask themselves.

What’s it really cost?
Retailers should start by weeding out the loyalty program elements that have a negative impact on their margins. I know this may sound like an open door, but in reality there is still a lot to be gained here. For example, it is not always clear what the real costs of a loyalty program are. Besides operational costs linked to managing the program, a significant portion of costs are directly linked to the actual discounts or to the rewards given away. Such discounts and giveaways immediately reduce the sales margins for a retailer.

Is the structure working?
Taking a fresh look at how programs are structured is beneficial. Airlines are doing this right now, changing the well-known, 30-year old air miles programs based on number of miles flown to a program based on actual dollars spent. This means that someone who paid higher fares is rewarded most, not someone with the longest flight distances. The goal for these airlines is to attract, serve and retain high-value customers.

How are we acquiring new members?
When revitalizing engagement/loyalty programs, it is critical to leverage the goodwill and word-of-mouth generated by your most loyal members. These “warm” recommendations lower acquisition costs for retailers. Loyalty programs that focus on customer acquisition deliver a much higher ROI long term than more traditional programs that focus on increasing wallet share.

How can we deliver a more personalized experience?
Last but not least, it is good to remember that one size does not fit all when it comes to engagement/loyalty programs. Younger generations hold different values and expect different types of rewards from a loyalty program, than their parents or grandparents expect. Millennials value personalization, innovative experiences, support for good causes and access to truly exclusive offers. In response, they share positive experiences with friends and family much more easily, while using multiple channels doing so, including social media. At the same time, if they are not fully satisfied or their expectations are not met, millennials are also much quicker to switch between providers or brands and often let the world know why they did so.

Considering the above questions will help you identify the strengths and weaknesses of your current program and start the initial improvement journey. While we’ve come far from that initial copper token approach, there is still more work to be done.

This is the first post in a two-part series offering perspective and guidance on how retailers can gain more value from customer engagement and loyalty programs. Check out the second post: 10 Must-Haves When Choosing a Customer Engagement and Loyalty Solution.

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