How To Create Loyalty Programs Consumers Will Actually Get Excited About

Consumers can smell empty rewards points a mile away. Here's how to do loyalty programs that will actually spread some delight.

It is a customer conundrum that can put a marketer at wits’ end: While not all smart shoppers are loyal, all loyal shoppers are savvy.

This is not surprising, considering the technology out there, from smartphones to smarter transaction processing to smart mobile wallets. All of these innovations challenge the competitiveness of the loyalty cards in our wallet. Remember the quaint old days when winning customers required exceptional services and innovative products? Today, with an influx of loyalty programs penetrating almost every industry including health care and utilities, brands find themselves having to compete in completely new areas, from speed of reward redemption to delivering personalized experiences no other brand could promise.

In fact, some could argue that loyalty programs themselves may not generate loyalty at all, but instead condition consumers to game the system, using programs only when they expect to receive an immediate discount or other benefit.

We, as business leaders, have the ability to steer out of this. Think about it.

Consumers rely on a host of mobile apps and digital services to do their comparison-shopping, pricing, and even purchasing. But how informed are our customers, really, when it comes to the guidelines of their loyalty programs? If the average household belongs to 18 loyalty programs but participates in only eight—as COLLOQUY, LoyaltyOne’s research group, has determined—then that household likely is not earning and redeeming at optimum levels.

Customers who feel they are getting the short end of a brand transaction, or value exchange, will not become loyal. But they will become savvy about which programs offer the best returns for their personal information, which deliver on their promise of recognition, and which are easiest to use.

With that in mind, here are six pledges smart marketers can make to win the increasingly savvy consumer:

Play favorites: Quick-witted consumers will analyze where they spend their money and then consolidate as much purchasing as possible under the loyalty programs that yield the most relevant rewards. If they like to travel, for instance, they will buy their groceries, gas, and gadgets with the card that generates miles, so they can earn a trip faster. If they like gaming, they will use the program that can earn them resort nights and VIP treatment. The programs that offer the most options for earning and redeeming tailored rewards, easily, will gain this business. Caesars Entertainment, for instance, has different offer strategies for guests who live close to one of its properties versus those who must fly to its casinos or resorts. It also introduced Total Rewards Member Pricing, enabling loyal members to get better pricing than non-members.

Avoid expiration exasperation: My company has a word to describe once-loyal consumers who have turned against a brand: madvocates. They can be a brand’s worst enemy, because they use word-of-mouth to influence the behavior of others. And few acts will create a madvocate like taking earned points away without any warning. In fact, consumers are learning not only to calculate how long it will take to earn a specific reward, but also taking steps to ensure the points or miles won’t expire before reaching that goal. Since program operators sometimes change their policies regarding expiration, consumers will pay attention to all program communications to avoid being blindsided. Make any such communications clear, and be sure it advises the consumer on how to get the most value from his or her program.

Extend the value with partners: Merchant-loyalty programs that give points to members who shop with a complementary business, such as supermarkets do with gas stations, can result in faster accumulation of points and hence more or bigger rewards. But a smart shopper will figure out that this only works if he or she uses the products and services of each business frequently enough to generate those perks. To create mutual value for the customer, marketers should invest in eye-catching, cross-promotional spending opportunities, such as bonus points for buying certain goods. Kroger, for instance, offered four-times fuel points with the purchase of gift cards during the holiday season.

Look beyond the dollar: Face it, reward points are as ubiquitous as cup holders in minivans, and equally taken for granted. Consumers are pretty much conditioned to accumulate them. But with many credit cards offering just 1 percent to 3 percent back, alert shoppers will quickly determine that non-monetary rewards can be of greater value. Such perks might include gratis apparel alterations, complimentary Wi-Fi, access to airline lounges, and free hotel nights. GameStop’s PowerUp Rewards program, for instance, awarded members with Nascar tickets and access to Comic-Con International. Loyalty programs that balance rewards with such tailored events will stand above others.

Make tiers attainable: Lots of airlines, hotels, and department store chains offer reward programs with silver, gold, and platinum tiers. The higher the tier, the better the perks. This is great aspirational marketing, but the shrewd consumer will ask: Can I achieve that tier ranking at my spending level? Loyalty programs can make it easy to run the math and see what it takes to advance, while offering spending options to get there (two Halston dresses + three Kate Spade bags = one Burberry scarf). In another example, Choice Hotel International in 2011 refreshed its Choice Privilege Elite Tiers, allowing reward nights to count towards Elite status, while lowering qualification for Platinum status. The result: Revenue from Elite members rose by 19 percent.

Don’t be a stranger: Lastly, marketers should make it so consumers can easily stay in touch with their activity and reward options. Smart loyalty members will choose programs that allow them to track point balances and redeem for rewards in ways that are convenient to their lifestyles. If a member stores her shopping lists on her smartphone, for example, she will likely prefer digital rewards to paper coupons.

I am sure the coming years will deliver us a wonder of technologies and services to make consumer activity easier, and smarter. It is the marketer’s job to understand the aspirations and motivations that inform consumer decisions with each. Because no matter the conundrum, the savvy consumer is the smart choice.

—Bryan Pearson is president and CEO of LoyaltyOne and author of The Loyalty Leap: Turning Customer Information Into Customer Intimacy. Follow Bryan’s blog at pearson4loyalty.com.

[Image: Flickr user Elod Beregszaszi]

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3 Comments

  • RTBSocialLLC

    Great piece, Bryan. As you mentioned, I am also sure that in the forthcoming years, we will begin to see emerging technologies make consumer engagement easier, smarter and more streamlined. After reading this article, I thought I'd share a recent blog of mine regarding how NFC technology is set to revolutionize the loyalty landscape. Take a read: http://rtbsocial.tumblr.com/po....

  • Mary Rarick

    I'd add another one: Loyalty plan terms should remain constant for individuals, regardless of what happens down the road. So if I opened a bank account with Hills Bank in 1980 and checks are "free for life" the bank should honor that regardless of the changes they make to the program for newer customers. (Hills Bank does this, by the way.)

  • David Aaron Slavick

    Right on Bryan.  One addition - lack of communication and personal engagement upfront to build an understanding as to the benefits of the program, how it works and how best to take advantage of what the program offers.  Too often Loyalty operators at both the vendor and client level take the identified customer for granted - they enrolled, ok let's start promoting.  Bad idea.  Build an upfront plan for on board, engagement, two-way dialogue - then your program will not be less likely to become one of the "unused".