In a perfect world, a business cultivates loyal customers who drive sales along with bottom-line gains. They love the brand and serve as dedicated evangelists. Over the years, CMOs have turned to a variety of tools, technologies, and strategies to boost loyalty--including taking a more personalized approach to customer relationships, sending out promotions and offers to increase interaction points, and operating loyalty and rewards programs.
As Emily Collins, an analyst with Forrester Research, put it: “Loyalty is at the foundation of a successful business and brand.”
But as every CMO knows, the real world of marketing is fraught with challenges. Many of the traditional approaches marketers have used aren’t particularly effective in the digital age. Worse, rewards and loyalty programs have become increasingly costly, complicated, and, in many cases, ineffective.
“The notion that by providing a customer with a reward they will automatically stick with the company is fundamentally flawed,” stated Jonathan Copulsky, chief brand officer at consulting firm Deloitte, in an interview with CMO.com. “It’s a much more complicated situation.”
To be sure, consumers shop at grocery stores they dislike and use loyalty cards simply because they deliver discounts. They fly a particular airline regularly--and accrue miles--because it offers the most convenient routing, or they’re the only viable option for a particularly city. And they visit a restaurant and pull out their rewards cards even if they aren’t thrilled with the food or service simply because it’s near and convenient. While businesses, and marketing executives, may measure customer loyalty based on transactions, the reality is that looks can be deceiving.
As a result, some now question the value of incentives and loyalty programs--particularly in certain industries, such as retail and restaurants. With the ability to collect data about customers and their behaviors--and use increasingly sophisticated analytics tools to spot new areas for marketing--there’s a growing opportunity to take marketing, branding, and loyalty to a place where it hasn’t previously visited.
The end goal, Collins told CMO.com, is to become “a loyalty company rather than just another company with a loyalty program.” That means moving beyond a discrete marketing program that attempts to drive transactional activity and adopting a more holistic enterprise approach.
Dollars And Sense
The idea of using a loyalty program to drive purchasing behavior goes back nearly a century. In the 1930s, stores began handing customers S&H Green Stamps, which could be redeemed for goods and merchandise from a catalog and stores. In 1981, American Airlines launched the first modern rewards program, AAdvantage, with a virtual currency based on miles flown. That spawned an array of other frequent flyer programs and rippled into the hotel industry, out to retailers and restaurants, and even financial institutions. Today, more than 90 percent of consumers belong to at least one loyalty program, and many exceed a dozen programs.
Some of these programs benefit businesses. What’s more, many of them offer a convenient way to capture valuable customer data. However, at the same time, many programs fall short of their objectives. Customers who initiate a high transaction volume aren’t necessarily loyal--and they may not represent the most profitable customers. In addition, the notion of loyalty is undergoing profound changes as a result of social media and new ways to measure influence, clout, and reputation. In some cases, customers who aren’t the biggest buyers of a product or brand may represent greater value to a company because they serve as ardent brand ambassadors and post at social media sites and elsewhere.
In reality, consumer behavior is extremely fickle, said Jeff Nicholson, vice president of marketing at Kitewheel, a data analytics marketing agency and service provider that focuses on building touch points. When Kitewheel recently examined the customer journey, it found that 47 percent of consumers, even if they prefer a specific brand, will move on to another company or brand if they can’t quickly find a product.
“The thing that keeps a person coming back is the experience. A point here and a point there does not win them over,” he told CMO.com. “You really have to demonstrate to a consumer why you have value and put the concept into practice.”
At the center of this equation is the fact that consumers increasingly view loyalty as a two-way street, Nicholson said. Moreover, as rewards and loyalty programs evolved from punch cards to magstripe cards and then smartphone apps, there has been a growing desire for personalization, contextual offers and promotions, and receiving something that actually represents value.
“Mobile phones and real-time analytics allow businesses to react and act in the moment,” Nicholson said. “They allow a company to be a lot smarter about how, when, and where it serves up an offer--and provide something that matters to the consumer while increasing loyalty and sales.”
Because today’s consumers have more choices than ever, Forrester’s Collins added, CMOs and other business leaders must recognize that market dynamics and power have shifted away from them. The public now has quick, easy access to an endless array of online retailers, apps that provide ratings and pricing, a growing level of customization, immediate product availability, and access to social media sites. “Consumers don’t have to be loyal to a particular company. The traditional lock-in mechanisms aren’t as effective,” she noted.
However, that doesn’t mean loyalty programs are on the endangered list. Said Collins: “For many companies, they serve a very important purpose of identifying customers and gaining key insights. But rewards programs need to move beyond the traditional approach of ‘buy 10 and get one free.’ There’s a need to tighten the relationship and improve the engagement level.”
An ongoing problem for marketers is that businesses and consumers aren’t in sync about the concept of loyalty. A business may offer new users a sign-up promotion that’s a far sweeter deal than what loyal, long-time customers receive--even with rewards. Or they may carpet-bomb coupons and promotions that tilt the business equation from value and quality toward commodity pricing. These companies may train consumers to seek out the least expensive provider and switch companies whenever they get a better deal.
When Kitewheel examined companies and their customers, it found that 73 percent of consumers felt loyalty programs “should be a way for brands to show how loyal they are to them as customers.” Yet, at the same time, 66 percent of executives stated that loyalty programs are a place for customers to show how loyal they are to a business. The challenge isn’t easily solved, Nicholson and others said, and may require fundamentally rethinking marketing from the ground up.
A first step, Collins said, is to begin to approach things from a customer life-cycle point of view. “Most loyalty programs focus heavily on the buy and sell sides and reward customers with points, miles, or some other type of currency,” she said. “The process starts with a purchase, and the company believes it suddenly has an opportunity to establish loyalty.”
Within this scenario, businesses tend to reward high-transaction customers through discounts, freebies, and sometimes a preferred level of service and support. However, some companies are now expanding rewards to include social media posts, exploring or trying new products, or posting reviews. Still others are using gamification techniques. These, Collins said, deliver benefits but they aren’t the complete answer.
“It’s less about trying to own the moment than capitalizing on borrowed moments and looking for a way to deliver value,” she stated.
For example, Sephora lets customers scan barcodes and view customer ratings, reviews, and comments. Starbucks--which is now testing mobile ordering through its app--ties together the entire consumer cycle, including payments and points, in a single space. It also delivers content and media. As a result, customers spend $5 for a product that’s often viewed as a commodity and available elsewhere for less than $1. Meanwhile, Panera allows customers to use its app to order from a table and have the food delivered a few minutes later. It also offers mobile ordering, and customers can receive the food up at a rapid pickup kiosk.
Today, it’s critical to view loyalty programs in a fundamentally different way, said Michael Harrison, executive vice president and chief strategy officer at Ansira, an engagement marketing firm that has worked with Chili’s, Dominos, Purina, Nestle, and Panera. “While the tried-and-true loyalty programs of the past may still work with airlines and hotels, programs must be viewed more in the context of data capture, understanding your customer, and how you can use the data to drive personalization and contextual relevance,” he told CMO.com. “That, in turn, leads to loyalty and brand advocacy.”
At Chili’s, for example, Ansira is working to rewire and reinvent touch points by having beacons recognize a customer and systems remember past purchases, popular items, and preferences. Predictive models help guide guests through ordering, and deliver incentives that boost sales but also benefit the customer.
“We’re finding that consumers are less interested in reward points than ease, simplicity, and a brand to understand them,” Harrison said. “The goal is to make it extremely easy to interact with the brand--and drive the relationship rather than the transaction.”
Among other things, this may translate into a restaurant designing private or custom menus for consumers, using surprise-and-delight tactics to award a free appetizer or dinner, and plugging in analytics to enable real-time scoring of guests. The latter makes it possible to understand purchase histories and behavioral patterns in deeper and broader ways.
“If a restaurant delivers an offer but it’s at the wrong time of the day, it may be the right offer at the wrong time,” Harrison said. “The aim is to understand what a consumer wants and when they can use it. When a retailer or restaurant can adapt in real time, they are much more likely to succeed.”
A focus on data is on the menu at Grill Concepts, a Los Angeles-based company that operates four different restaurant brands at 30 locations in California, Oregon, Washington, and Texas. For years, the company offered customers a preferred guest card.
“It was a loyalty program with no tracking functionality,” said Tammy Billings, vice president of marketing.
Essentially, the company used the program to send direct mail pieces and e-mail offers and certificates on a birthday or an anniversary. “There was no way to know who was actually redeeming them, and we had very little information about how effective the program was,” Billings told CMO.com.
The company turned to an analytics and customer relationship solution from Fishbowl to reinvent the program. Rather than using magstripe cards or an app, the firm uses customer data from credit-card transactions and other sources to generate more tailored and customized offers for customers. In fact, the company now has data to analyze visit patterns and adapt offers to increase the odds of the next visit occurring sooner. As a result, redemption rates are up and check averages have increased.
“The biggest challenge has been to convince the executive team that we don’t need a points program to interact with customers,” Billings said.
Although loyalty rates and the design and effectiveness of programs vary across industries, a common denominator exists. “A loyalty strategy or program shouldn’t be designed to simply reward customers for doing business. It should significantly change the way business takes place, Deloitte’s Copulsky said. “Today’s technology, including smartphones, offers unprecedented opportunities to interact and deliver value. But you really have to understand behavior and opportunities.”
This means tying systems together to create alignment across all customer-facing touch points and introducing true differentiation and value.
Businesses must move beyond Loyalty 1.0 and embrace a broader perspective: Loyalty 2.0, Collins added. It’s all about impacting and influencing the relationship at every stage of the life cycle.
“It may be valuable to operate a rewards program; it may not be valuable,” she said. “The thing that’s critical is an ability to collect data and analyze it so that you can begin to recognize customers, gain deep insights, and engage them more effectively. This is ultimately what keeps them coming back and doing business with you year after year.”