When I ask most people what they think of customer loyalty programs, most immediately mention cards in wallets, or collecting and spending points.
Unfortunately, that’s how most people in the business of retail, financial services or technology see it too:
Loyalty = cards + points.
It’s not, of course. Customer loyalty is earned by a business over time. It’s an emotion that the customer feels when they recall all the interactions they’ve had with that business: positive interactions through its products, with its people or simply being associated with the business’s brand when with friends, family or colleagues.
During the last two decades that perspective diminished as businesses became seduced by technology-based schemes that tried to treat those interactions as transactions that should earn or burn points. Those points have turned into shadow currencies in their own right with whole businesses based on their trade: Aimia (Nectar, Air Miles), Qantas Frequent Flyer (which earns around 30% of Qantas Group’s profit), and American Express Membership Rewards.
This is the world of Loyalty 1.0 and it’s not working for most businesses or the consumer. It’s time to usher in Loyalty 2.0.
Why traditional customer loyalty schemes aren’t working
- Earning points is a transaction, and that creates a transactional – rather than an emotional – relationship between customer and business.
- Consumer expectations about the value they can get from cashing in their points are rarely met.
- Loyalty schemes typically require the customer to invest effort in identifying themselves, e.g. by carrying and presenting a card. The schemes have no visibility of the customers that are not prepared to do this – but don’t you want their loyalty too?
- The likes of Qantas Frequent Flyer’s income are rare: these schemes are usually very costly. Businesses must either invest heavily in order to market and administer their own scheme or they must join an existing scheme and pay approximately 0.5-1% of sales to buy points for their customers.
- Data about customer buying behaviours that could be turned into valuable insight rarely escapes the realm of the loyalty scheme. Whilst the data certainly exists, in most cases the reality is that businesses don’t have the resources to go the extra mile to mine that data for insights.
- If the scheme is being run in-house, it costs so much to administer it that there’s little appetite to spend more money on extracting and using the insights.
- If the scheme is being run externally, the operator typically tries to charge extra for insight.
Loyalty 2.0: Reimagining the customer loyalty program
What if a customer loyalty program…
- …enabled frequent, small, personalised but valued moments of recognition, just as the local cafe owner says ‘Hello’ and knows your name?
- …was so seamless that it didn’t have to be overtly marketed to the customer; the customer may not even know they are interacting with it?
- …was about helping the business make day-to-day decisions, such as knowing which product was most relevant to a customer, or which customers to prioritise after time or investment?
- …could be built from disparate data sets that businesses already had?
- …could provide benefit at a specific customer level (for those that choose to participate) but also work with anonymous customer data to offer a more relevant service to clusters of customers (that may have chosen not to directly participate)?
- …was worth running, even for businesses whose customers are inherently infrequent with their interactions, offer lower value, or who do not deal directly with the end consumer?
Creating Loyalty 2.0
Loyalty schemes were originally envisaged as a way to reward and encourage the customer for repeat business. When this turned into a transactional relationship, the true essence of their nature was lost.
Loyalty 2.0 is about re-evaluating the offering to inspire a genuine relationship with your customer.
Nearly all the technology elements for Loyalty 2.0 exist today. While some businesses are some way down that path already, most still seem to be stuck in the Loyalty 1.0 paradigm and are investing in yesterday’s capabilities.
Mobile phones, for example, can be identified and tracked anonymously through WiFi or Bluetooth pings – even if you do not know who the phone belongs to, you can identify repeat visits of the same ‘phone’ or gain insight from how the ‘phone’ walks around your retail store.
If the customer does want to identify themselves and gives permission, you can use mobile phone tracking or even facial recognition to provide insight and suggested actions to employees that are close by. These employee-customer interactions can be more powerful in generating real loyalty than offers for discounts or points.
Structured data sets such as purchases and marketing lists along with unstructured data flows from social media updates can be linked (using fuzzy logic) to identify common customers or their characteristics. This reduces the need to manually cleanse and explicitly link data sets.
From loyalty to commitment
Once Loyalty 2.0 takes hold, consumers can expect fewer cards in their wallets, fewer marketing emails, and more relevant and meaningful interactions that are worth remembering.
Retail businesses can look forward to building loyalty programs that actually build a loyal relationship and are economical to run.
What’s not to like?
A version of this article first appeared on Richard Blundell’s Business Technology Economics blog.
