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Rethinking Rewards: Loyalty In An Omnichannel Age

by Mercedes M. Cardona
Contributing Writer

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Article Highlights:

  • Shopper rewards programs are getting a makeover for the era of omnichannel retail.
  • Loyalty programs will remain important as long as the reward is worthwhile to the consumer.
  • Marketers can segment their data by purchase behavior and relate it to a location based on GPS data.

When the nation’s top merchants gathered recently for the National Retail Federation’s annual meeting, one idea ran through all of the discussions on store operations, marketing, and merchandising: how to gain a share of the customer’s wallet.

“The consumer has never been more fluid,” said Marshal Cohen, chief industry analyst at NPD Group, at the meeting. The recession taught shoppers to do more with less, but now it takes more than pricing a product right to get them to buy. “It’s about getting your voice heard,” Cohen said.

In other words, it’s all about how to build customer loyalty during a time when showrooming and comparison-shopping engines are turning stores into commodities. But the market already is flooded with loyalty programs, and they are losing their meaning in a crowded field. That’s why insiders say loyalty programs have to evolve beyond collecting emails and phone numbers and sending shoppers coupons.

“We’re all going to decide what brands we want, and that’s going to be the challenge,” said Michael Klein, director, industry strategy-retail of Adobe (’s corporate parent). Shoppers will patronize five or six key brands in the future, so building loyalty becomes crucial, he told

As a result, shopper rewards programs--which have been around since the days of the Main Street general store--are getting a makeover for the era of omnichannel retail, industry experts say. The key to their evolution is making them part of every aspect of retail, not just to grow transaction volume. That means collecting member data that’s useful and leveraging it in every aspect of store operations and marketing, from analyzing store traffic patterns to testing new product.

‘Loyalty Program’ Is A Misnomer
Loyalty programs go back to the early merchant “green stamps” in the 1890s, and had their next big evolutionary leap in the 1980s with the arrival of airline frequent-flyer programs. But rewards programs have exploded among retailers in the past decade: The most commonly cited statistic, from Colloquy, says each U.S. household belongs to 18 programs on average, a growth rate of 25 percent in five years.

“We’re beyond swamped,” said Alison Paul, vice chairman and U.S. head of retail at Deloitte, in an interview with “It’s really not loyalty. It’s another key fob; it’s another card in your wallet.”

Deloitte recently completed a study of travel-based loyalty programs that concluded they are not having much of an effect. Paul said the same could apply to retail, for which Deloitte is considering a similar study.

“Even calling them loyalty programs is a misnomer,” she said. “They’re almost like gym memberships.” She cited another piece of Colloquy data that states there are more than 2 billion names in loyalty databases, but only about half of them are active members. That’s a lot of shoppers who joined and didn’t use their memberships, just like the gym, she said.

Kurt Heinemann, CMO of Monetate, an online marketing technology vendor, noted even Apple’s Passbook app for the iPhone is offering shoppers help to keep track of all their loyalty program balances.

“If you have an app to solve it, you’ve got a problem,” Heinemann told

In a way, loyalty programs have become table stakes for retailers as much as they are for airlines and hotels, experts said. A survey  by retail researchers Edgell Knowledge Network found retail loyalty programs are not driving sales as much as retailers think, but merchants still expect the percent of sales revenue from loyalty program members to grow from 40 percent to 58 percent in the next three years.

“It’s not something they necessarily use to their advantage, but it’s something they have to have,” said Nikoleta Panteeva, senior retail analyst at market researcher IBISWorld. The saturation has reduced their importance, particularly among programs that have been around for a while, such as grocery store and drugstore programs, she said.

“Whether you go to Ralphs or Albertsons, you’re likely to get the same prices,” she told “There’s really no draw.”

Loyalty programs will remain important as long as the reward is worthwhile to the consumer, NPD’s Cohen said at the NRF meeting. A reward isn’t meaningful if it’s a discount coupon for use at a later date; it doesn’t force a customer to come back when she or she doesn’t want to, he said. Convenience is very important to shoppers now, so it becomes a key factor to the success of a program, he explained.

So some retailers have begun adding features to their loyalty programs to make them more relevant, such as priority checkout lines, higher rewards for more frequent users, or added gamification features to increase engagement. Panteeva noted that small businesses are finding an advantage in tying loyalty programs to social media and location-based marketing, offering rewards for check-ins and reviews on social media networks, such as Yelp.

Mobile Turns Loyalty On Its Head
Technology is driving a new series of changes that are making rewards programs less about driving transactions--or collecting lists of emails and phone numbers--and more about tools to engage customers in conversations about what works now and what the store’s best customers will want in the future.              

Loyalty programs are changing into real relationship builders, said Jon Stine, director of Cisco’s Internet Business Solutions group, in an interview with He noted a recent study asking shoppers at the point of sale what they would want a brand to offer them. The top answer was help in using loyalty reward points: “Be a partner with me, instead of playing hide-and-seek,” he summed up.


As mobile communications become more sophisticated, retailers are finding new ways to apply technology, such as near field communications, to building traffic and consumer loyalty. For example, Adobe’s Klein noted the Express apparel chain now has a feature in its mobile app that can push a discount code good for that day to a shopper whose phone comes within a certain distance of a store.

“The mobile phone itself is starting to define how those programs are starting to mature,” said Susannah Sulsar, director of CRM at independent ad agency Barkley, which works with retailers including Payless ShoeSource and Helzberg Diamonds.

Sulsar noted grocery store chain Meijer has an app that sends coupons for the store’s mPerks program to shoppers who build a grocery list online and gives them the location of the items in the store. Marketers such as Best Buy and North Face are dabbling in geofencing offers to smartphone users in-store, but the next generation under development will be even more specific, sending offers based on the shopper’s location inside the store, she told

“Mobile and technology are turning loyalty on its head,” Deloitte’s Paul said.

Brick-and-mortar retailers now have the ability to link the marketing information in loyalty programs with other data--such as transactions, store traffic pulled from smartphones, and social media conversations--just as the online retailers have been able to do.

“When you look at what the pure-play online folks know about us and suggest we should buy based on our behavior in the past, everybody is going to have to do that,” Paul said.

Stine said Cisco is having conversations with retailers about making loyalty programs work better at a brick-and-mortar point of sale, That’s the next evolution of the programs: “Amazon has it figured out; let’s bring that into the store,” he said.

Loyalty Must Break Data Silos
There are tools and processing power already available to turn data into insights that retailers can use to take action, said Rod Witmond, VP of marketing at Cardlytics, a marketing and analytics platform that partners with major banks to analyze purchase behavior. Marketers can segment their data by purchase behavior, rather than demographics, and relate it to a location based on GPS data, he told Cardlytics is even looking into serving reward offers linked to an individual product code, he added.

Such specific data can give retailers a much better view of customers and enable more predictive modeling, insiders said. But it poses several challenges to retailers that will need to break down a lot of silos in their company structures and attract talent to make the new practices work, according to experts.

“I think that’s something that’s evolving. It takes time,” said Gaurav Pant, research director for Edgell Knowledge Network, in an interview with The Edgell study found retailers have begun leveraging data to create better segmentation strategies and customer engagement, especially among the more frequent customers.

“The argument was: ‘These are the customers that we know the best … I have years of data, what they bought, when they bought,’” Pant said. “I know these customers better than other people. If I focus my attentions and strategies, I can get better share of wallet.”

Target is an interesting example, Pant said. It has tied its REDcard reward program to its store credit card, which gives it a trove of transaction-based data.

“You have deep, deep customer data at this level,” Pant said.

The tools to apply that data in retail operations are here, she said. The challenge is for retailers to change they way they operate marketing, merchandising, and store operations in order to bring together multiple data sets, she added.

Right now, retailers are siloed--marketing may own the loyalty database, but merchandising has the product information and store operations and cash register data, she explained.

“And none of these people are talking to each other,” Paul said. “To bring it together, retailers have to break bad habits.”

Additionally, retailers will have to recruit more people into their technology ranks, Paul said. The analytics tools that will enable predictive modeling with this data require talent that would otherwise go to other industries, such as banking.

“Those folks are really sophisticated data users who can architect those programs,” she said. “The tools are there. The really big challenge is hiring that talent and attracting them to retail.”