Getting with the program

COVER STORY | Getting with the program

Customer loyalty in the digital age

Think loyalty programs are dead? Think again.  Consider that there are currently more loyalty memberships in the United States than there are people in China and India put together. North American wallets are bursting at the seams with cards promising discounts, birthday lattes and cheaper gas. Loyalty programs are assisting retailers in incenting Omnichannel consumer behavior and arming organizations with consumer data and analytics capabilities. Loyalty programs are also driving mobile innovation and attracting the interest of an expanding range of industries and organizations – most notably brands and manufacturers that want to go direct to consumer. They’re even encouraging businesses in different industries to work together to generate member benefits. To the casual observer, it looks like loyalty programs are a huge success. There’s only one problem:

People aren’t using them.

When comprehensive data on loyalty program memberships first emerged in 2000, there were approximately 970 million memberships. By 2013, there were 2.65 billion. While loyalty program sign-ups are booming, the number of active users—measured by use of the program once in the previous 12 months—isn’t growing at the same rate. In fact, participation rates actually dropped between 2010 and 2012. How do we make sense of a rise in membership but a percentage drop in participation?

One might blame evolving customer habits. Maybe loyalty is a thing of the past, washed away by the torrent of choices facing the modern consumer. Perhaps in the Amazon era, convenience is king and brand loyalty little more than an afterthought. Surely that explains falling participation numbers, right?

Wrong. It turns out most consumers—up to 75%, by some estimates—are as loyal as they’ve ever been to an organization in at least one industry. What’s more, 67% will stick with a brand once they know they like it. So what gives?

While consumers haven’t become less loyal to businesses, they have developed higher expectations. Consumers will remain loyal to a brand if they feel like they’re getting something out of the deal that isn’t strictly transactional. Many loyalty programs promote enrollment with the promise of immediate, on-the-spot discounts, but offer little incentive for continued use. They call themselves loyalty programs, but they are available to anyone and offer roughly the same discounts to all members.

Marketers accustomed to measuring a loyalty program’s success through impressive membership numbers miss the point. Effective measurement requires keeping tabs 0n long-term brand experience. The crucial point to remember is that loyalty is a two-way street. Companies must do their part by providing ongoing, tailored offerings based on the needs and interests of individual customers. Understanding the Omnichannel consumers’ path to purchase is critical to understand the role of one’s loyalty program.

Loyalty is all about creating relationships. Consumers are increasingly skeptical of marketing and advertising techniques, and would rather be educated about a product than sold on it. In one survey, Forrester reported that less than 25% of consumers trust advertising, even when they signed up to receive it. Even anonymous online reviews engender more trust than ads. Meanwhile, more than 50% of customers trust product recommendations from friends and family. And 72% cite their own experience as the primary influence on their perceptions of a company. This latter point may seem banal, but it indicates the importance of end-to-end customer experience. First impressions make all the difference and lasting impressions are critical to enduring relationships.

Marketers are trying to get members in the door, but savvy consumers have unparalleled choice in the channels through which to engage businesses. The loss of a captive audience means marketing at consumers is no longer an option. Customers want to build relationships with businesses, and they are inclined to trust their social networks—both online and off—to help them make informed choices.

This speaks to the importance of word of mouth. These days, the reach of a single consumer’s voice is remarkably wide, particularly if a good (or bad) experience gains enough traction to go viral.  Given what we know about brand choice influence—that friends, family and prior experience matter the most—it makes sense to leverage vocal and mobile brand ambassadors for the organization’s ends.

That is what social loyalty is all about. Social loyalty programs dig into purchasing habits and expectations to generate membership rewards and options specifically designed for highly segmented target groups. The result is a degree of engagement that creates two-way relationships between consumers and organizations, relationships that feel individualized and authentic rather than merely transactional.

With social loyalty programs, the inherent “virality” of the digital space is leveraged to create new and loyal customers through the various channels and via the influencers that have the largest, most enduring reach. If marketers know that a given customer is more likely to trust the brand recommendation of a Facebook friend, providing loyalty rewards for sharing product offerings on Facebook makes an automatic—and above all, trustworthy—brand ambassador out of every happily rewarded member.

While these methods certainly spur registration of new members in loyalty programs, they also create reciprocal loyalty relationships between the business and the existing customer.

Big Data provides organizations with the knowledge necessary to micro-segment customers so finely that loyalty programs can offer personally tailored offerings across multiple channels. Once a customer becomes an avid user of a loyalty program, it’s easy to keep the relationship going by using the data collected to recognize the most faithful members and reward the top influencers. Rewards can take many forms, and the more variety, the better. A brand ambassador may be given a unique social media status that comes with its own set of perks, or surprised by unusual and unexpected offers and rewards. Examples include American Express’ Front of the Line access to select concert tickets or Sephora’s Beauty Insider program, which rewards members with products and services that aren’t available to the general public.

Engaging in social communities is about listening and responding to customers’ needs and suggestions. Starbucks has created a digital space for the discussion of product ideas within stores. Mobile payments, splash sticks and cake pops were all ideas that began on My Starbucks Idea, a website that crowd-sources customer ideas and implements those that receive the most public votes. What better way to generate brand loyalty than to integrate Starbucks customers into the creation of the Starbucks experience? Starbucks has proven that loyalty programs can drive real profits is an organization clearly defines the customer journey.

With social loyalty programs, this will increasingly become the norm. The consumer experience becomes cyclical—instead of gathering information and marketing their best guesses about what people want, marketers give consumers the tools to promote brands they like. That organic conversation ultimately influences the ongoing development of the total brand experience.

So, no, loyalty programs are not dead.  They are however, becoming more strategic and innovation in nature.  With the continued development of social media and Big Data, organizations must use the tools at their disposal to look toward customer engagement rather than acquisition, toward the long-term development of existing relationships instead of the short-term benefits of sign-ups. Consumers are making decisions about products and services through engagement and dialogue in mobile and digital environments. Businesses that focus all their attention on the immediate bottom-line benefits of increased membership risk missing out on some truly rewarding conversations with their best customers.

Jennifer Lee is a Partner and the National OmniChannel and Digital Consumer Business leader at Deloitte.