Deliver An Experience That Matters: 3 Steps To Creating Lasting Loyalty In Your Customers

There are 8.5 loyalty program memberships for every man, woman, and child in the U.S. But what do customers really want?

There are many measures of loyalty, but this one may be the most daunting: 2.65 billion.

That is the number of loyalty program memberships existing in the United States today. Put another way, it breaks down to 22 memberships per American household or, when considering the 2012 population of 314 million, almost 8.5 programs for every man, woman, and child in America.

And each one of these programs is vying for that person’s loyalty.

It seems oxymoronic that so many people would carry so many memberships to brands that seek consumer fidelity, but the numbers don’t lie. Rather, the consumers’ interests often lie somewhere outside of loyalty—they are expecting opportunities, not commitment, from many of these brands.

The 2.65 billion figure, which represents a membership growth rate of 27% since 2010, is among many in the 2013 COLLOQUY Loyalty Census, a comprehensive analysis of the loyalty industry sector by sector. Among the other key numbers in the report: Of those 22 household memberships, an average of only 9.5 are active. You can guess what happens with the rest.

These aren’t promising odds, but there are three practical ways for marketers to win the consumer’s interest. To do that, we first need to explore the report’s findings and how loyalty memberships have shifted across and within market sectors.

Challenges in disguise

On its face, a 27% growth rate in any industry should be a welcome development—unless it represents market saturation. In the case of loyalty marketing, such rapid overall growth hints at just that, and likely disguises some underlying weakness in marketing execution and effectiveness.

Among the leading factors that determine a consumer’s activity in one program over another:

  • An expanding number of programs in previously dormant industries
  • cookie-cutter initiatives
  • a lack of a retention strategy
  • consumer concerns about data use.

Let’s walk through each briefly.

Competition

Certain sectors, namely retail, have embraced loyalty programs enthusiastically since 2010. Department stores alone increased program memberships by 70%, to almost 194 million memberships from 114 million, and the restaurant sector leapt 171%, to 26.5 million. Even loyalty stalwarts like financial services have seen notable membership expansion—the sector rose 28% to 548.3 million, from 428.8 memberships in 2010.

This increase in membership is due largely to the creation of new programs, or the revamping of existing ones. But it will cost those that fail to prove their value. For instance, the COLLOQUY Census shows that in the grocery sector, memberships slipped by 1%, and in the fuel retail segment—a relative newcomer—memberships dropped by 21%.

Cookie-cutter programs

The ease with which consumers can join a loyalty program encourages them to access as many as they like. But the features that define one program from another are often difficult to distinguish. If four different merchants offer the same number of points for $100 in spending, then they are basically in the same place as they started, playing catch-up. For instance, memberships among telecom and cable companies rose 34% in 2012, to 2.6 million, but activity rates were low because the organizations did not offer a value proposition that stood out.

In short, consumers who are not wowed by the experience will continue to shop based on price or convenience.

Lack of a retention strategy

Companies may invest billions in new loyalty programs each year, but once the key is turned, many go on autopilot, relying on an established reward-redemption model and blanket communications to maintain membership numbers. Some do less than that—according to a 2011 study by ACI Worldwide, 85% of loyalty program members said they had not received a single message since the day they signed up.

There simply is too much competition to expect traction with an autopilot strategy. Consumers will see through mass messaging as clearly as a "40% off" sign in a competitor’s window.

Concerns about data use

Despite their willingness to own GPS-enabled smartphones and join an average of more than eight loyalty programs each, consumers remain concerned about how their personal information is being used. In fact, 78% of consumers do not feel they receive any benefit from sharing their personal information, according to a 2012 survey of 2,000 American and Canadians, conducted by LoyaltyOne.

Increased connectivity may actually be why consumers have become so aware of how their personal data can be used—and therefore of its inherent value. This awareness further feeds their demand for relevant, personalized experiences.

Measured Success: Three-step solution

Based on these factors, how do marketers maintain their place in the American wallet? To outpace the numbers, I suggest three steps.

1. Deliver an experience that matters

Regardless of the size of the reward, no loyalty program will succeed long-term if the brand experience does not resonate. The data will help to achieve this, if it is used to illuminate the consumer’s preferences, interests, and aspirations contextually, ideally at a moment in time. We don't always have to rely on our own data, or even our own ideas. Marketers should learn from vendors and competitors as well, even partnering when it makes sense. FedEx, for instance, aligned with the NFL to form the successful Game Time rewards program, an initiative that layers FedEx’s own insights with fan data from the NFL, to offer experiences that range from gift cards to game tickets.

2. Play favorites

One purpose of entering into a data exchange with consumers is to parlay those insights into forms of recognition that make them feel special. But be realistic. If a program counts 75 million members, then it will need the requisite resources to make good on that promise. If that’s not feasible, then the brand should refocus the program to cater to a smaller, but more receptive, group of customers. The convenience chain SSA Speedy addresses this challenge by supplementing its offering with subprograms for cigarette, coffee, and even Mountain Dew purchases.

3. Be responsible

Data today is essentially a commodity, but unlike coffee beans and pork bellies, the way it is handled can seriously unhinge a person’s life. Those who collect and manage data have to gain the trust of consumers if they want to remain competitive. There are a few genuine ways of doing this. First I suggest companies give their customers the opportunity to choose how to share their information, and then be clear about how it will be used. CVS/pharmacy, for example, is carefully testing "opt-in" elements that empower members to personalize their ExtraCare memberships to suit their own needs.

Master these three steps, and you should be miles ahead of your competitors. For while there are many measures of loyalty today, and 2.65 billion may be the most eye-catching, the measure that counts most is one—the customer.

[Image: Flickr user Ginnerobot]

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1 Comments

  • C[IQ] Strategies

    Hi Bryan,

    Excellent explanation on the difference between loyalty programs and retention marketing. I would take it a step further and say that communications to administrate the loyalty program aren't sufficient messaging either -- quarterly points statement, for instance.

    For clients that have a loyalty program in place, we plan out additional touches to members that the regular file is receiving. These communications are dynamic and personalized to leverage customer data and ensure engagement, or as you coined in your book, "Emotional Loyalty."

    -Alisa