Why brands need to revise their loyalty programs now
Raj Nijjer
January 31, 2019

There was a time when running a loyalty program was simple: any business from a hotel chain to a wellness center could offer a reward, in the form of a discount on a product or service, to a return shopper who completes a prespecified number of transactions.

But it’s not that simple anymore.

Even though 71% of consumers want discounts in exchange for loyalty, they also demonstrate a substantial willingness to accept higher prices: 39.4% say consumers are willing to spend more on a product for brands they love -- even if presented with a lower cost alternative.

A Prime misstep

While repeat purchases remain the obvious end goal for all brands, in this age of on-demand and uber-availability, brands can no longer settle for the typical loyalty program because Amazon Prime has upped the ante. Today, over 100 million shoppers are subscribed to Prime, and that number is expected to double within the decade, according to Citigroup.

For most brands with relatively limited product offerings, simply providing a bargain as a reward to customers who sign up for membership in a loyalty program becomes reductive in the long term. Focusing solely on transactions fails to capitalize on other aspects of the experience that makes engagements with a brand more meaningful for customers and potentially more viable for the business. 

Winning a head-to-head against Amazon Prime requires rethinking the nature of how customer relationships form and are maintained.

Personalization at the core

Just as every customer has individual expectations and demands, companies have to take into account that the days of loyalty programs where “one size fits all” and “set it and forget it” are over. Personalization greatly depends on developing a deeper understanding of customers.

If a shopper is coming directly through the website or app, it’s safe to say they’ve made up their minds to buy something. Being able to pick up from where they left off last and offer quick recommendations will likely satisfy that consumer.

But let’s say a customer arrives after looking at several videos on Instagram or YouTube offering style tips. This person might be in research mode and not prepared to make a final purchase. In that case, showing this individual careful guidance will hold their attention. Now when this consumer returns, it’s reasonable to expect a sale.

Introducing three new approaches to loyalty

Understanding engagement at every level is essential for personalizing your loyalty program and ensuring long-term customer relationships.

Who are your best customers? Are they simply the ones who purchase often, or generate the most revenue? Is there value to a customer who follows you on social media? How about those who refer your company to friends? Or always leaves a review, or posts photos and videos of themselves with your product?

Asking these questions expands the definition of brand engagement beyond the purchase. At the heart of these factors is a fundamental trust in a brand’s value based on past experience. And that value can be added to (or, conversely subtracted) according to these three ways that brands might approach to cultivating shopper loyalty:

  • Transactional: The traditional rewards concept, starting with deals and discounts
  • Functional: Built on engendering a consumer’s habit and satisfying convenience, this is the first pillar in a foundation of personalized service
  • Emotional: A deep connection based on the brand’s identification fitting consumers’ intrinsic set of lifestyle values and aspirational choices; price doesn’t enter into it. Even convenience can be thrown out the window when the bond between consumer and company are so linked as in the case of Apple or Nike fans.

Higher customer acquisition costs raise loyalty stakes for D2C brands

Tying loyalty programs to transactions from repeat customers is crucial as the competition for new direct online sales becomes more intense. But there are many more important touchpoints that need to be checked off along the customer journey toward lasting brand loyalty to achieve greater ROI.

The latest developments in customer loyalty programs track the trends impacting the wider retail landscape. Even as retail institutions from Sears to Saks shutter, digital-natives turn to pop-up shops and niche-oriented outlets. These new physical showrooms are designed to entertain and inspire. The bottom line is that these stores emphasized product clarity, visual dynamics and interactivity that play well in social media feeds, and they provide enhanced convenience.

Those tactics by established retailers have followed the lead taken by innovative rivals like Amazon, on the larger end of the spectrum, and niche direct-to-consumer brands like Warby Parker, Glossier and (Walmart-owned) Bonobos. The ability of successful e-commerce upstarts to transfer their brands into physical extensions, whether temporary or permanent locations, shows that direct engagement is now one of the most important factors in building a committed customer base. 

However, when it comes to satisfying the demand for greater convenience and scale as they seek to expand from online and offline, D2C companies risk diminishing one of their most valuable loyalty assets: the emotional connection with customers based on the development of a distinct business persona.

Who owns this relationship?

An enterprise can’t have loyalty without a clear brand identity. But in order to grow and adapt to an ever-evolving shopper landscape, it often helps to harness the halo effect offered by a recognized brand partner. Whether sharing resources or simply opening new avenues for bringing distinct audiences together, finding complements can be a win for all sides.

But the wins are rarely of equal size. The same is true when it comes to the bearing the burdens when the alliance concludes. Therefore, it pays to be aware of potential negative implications to retail alliances and to enter into them with a clear idea of what you expect to gain and what you expect to pay.

For an established retail brand, the decision of crafting “stores within a store” has become another popular way of quickly establishing new customer connections. Generally, opening space to an upstart can provide an instant brand refresh and inspire new shoppers to walk through the doors or click on a site. For the e-commerce D2C player, the retailer’s offer of shared space and mainstream validation can rapidly accelerate its growth. There are rewards on both sides that can be quite favorable toward building and maintaining customer relationships.

But loyalty, unlike the space in a store, is difficult to share. Having a well-thought out analytics program in place to capture the levels of engagement, the sources of discovery and to track whether visitors to the retail collaboration were converted into repeat-shopper activity will help you determine if your brand became the beneficiary of a shared space or if you’re actually giving up the reins of your relationship with your customer.

 

As VP of Marketing, Raj Nijjer oversees Marketing at Yotpo, a leading Commerce Marketing Cloud in New York.

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