What’s next in retail: A fresh look at the venerable loyalty program.

Dan Hoedeman VP Engagement

What’s next in retail: A fresh look at the venerable loyalty program.

The first in a series that looks at the future of retail from the perspective of things marketers can do to make an impact in 2020.

Retail is in a time of aggressive change.

Because of this, there is intense pressure on traditional physical retailers, who to face the Amazon behemoth, DTC upstarts, and a broad change in general shopping behaviors. This has driven people to look forward, to what’s next. There are new opportunities at the intersection of digital and physical shopping, but for the marketer looking for an edge it’s important to watch where the competitors are going, and where they aren’t.

The relentless focus on a tech-enabled integrated experience opens up opportunities to find an unexpected advantage by reinventing the venerable old institutions of retail.

Like the loyalty program.

The typical retail loyalty program is broken.

The typical retail program is a passive discount. Imagine yourself at checkout at a grocery store or a clothing retailer. Your goods are getting scanned and maybe the checkout person asks if you’re in the loyalty program. You give them your card or phone number and maybe get a 2% discount (you won’t know for sure until you see the receipt) or perhaps some points that go to an account that you’re not really sure how to check.

We’ve all been there.

This experience does nothing to achieve the goals of a loyalty program: customer retention, customer engagement, and increasing visits/items purchased. It just gives a small discount to someone who was going to shop at your store anyway, and it does it in a way they barely notice!

Go beyond the discount.

Rewarding loyal customers is a good thing, but the risk with discounts is that it takes an emotional connection and makes it transactional. You can’t buy love. 

We can solve for this by applying human nature, taking a behavioral economics point of view and building the program around benefits of psychological value that don’t cost anything (or cost very little).

For example, I have three growing, ravenous boys in my house. I am a heavy, heavy grocery shopper. I am loyalty program member but if a competitor opened up closer to my house, I would go there—the small discount on purchase isn’t sticky. But, imagine if there was a dedicated checkout lane for loyalty program members? Or special parking spots. In both basic examples, there is no real cost beyond signage but a huge psychological benefit, and a much improved customer experience. 

There is an opportunity for retailers to take their loyalty program beyond the discount to deliver rewards that have motivating psychological value.

Don’t be afraid to segment (a little).

Loyalty programs have to be clear, consistent, and transparent.

But there is a difference between someone who buys one thing over eight visits and someone who buys eight things in a single visit. Airlines understand this. Their response is instructive because they have created a single program that serves two distinct segments.

Miles are a great incentive for infrequent flyers, especially coupled with a branded credit card, as people use the program to save for a trip. Regular flyers, on the other hand, get benefits of strong psychological value: early boarding, free checked bags, and the chance to get an upgrade. They get the miles, too, but anyone who has wandered around an airport gate during boarding of a flight full of business travelers has overheard people comparing, discussing, and celebrating their status and its benefits. Powerful stuff. Segmenting benefits across different user types—within the same program—is what gives airline loyalty programs their potency.

Retailers need to think the same way. To go back to the grocery example, my needs as a head-of-a-household purchaser differ from my needs when I was a single guy, but there is no reason a well-crafted loyalty program can’t meet both.

The power is in the (messaging) system.

It’s not much of a loyalty program if you don’t remember you’re part of it until you turn up at the cash register.

In fact, that is the worst possible outcome. The discount is supposed to be an incentive to choose a specific store, but the shopper gets it after they have made their choice. That’s not a loyalty program anymore. It’s not even a coupon that a shopper consciously grabs and takes into a particular store. It’s a margin giveaway. And they won’t even thank you for it (because they won’t remember it).

The answer is to get more aggressive in communicating the program. This doesn’t mean an email program that bombards people’s inboxes with sales. It means a thoughtful, systematized, ongoing messaging program that hits key objectives to keep the program top-of-mind, remind members of the value they are getting, give them special offers (there is nothing wrong with discounts as long as they are used at the right point in the user journey), and encourage actions that help the retailer’s bottom line. 

The key is building a system. It’s important to think about the program as a whole, maximizing program yield vs the yield of each individual communication separately (and doing it across more channels than just email). It’s smart business and it’s smart human nature: the system approach makes program members feel like they are part of something more than a couponing group. 

The overlooked is the opportunity.

Loyalty has been overlooked. The action, the growth, the feeling of future, is in other places. And yet, because the focus is elsewhere—and because most retailers have a program of sorts already and a large pool of people to start with—there is huge opportunity for an ambitious marketer looking to make an impact.