By Zach Woith, VP Loyalty Strategy at 500friends, a Merkle Company
To keep customers coming back, many companies have implemented customer loyalty programs based on transactions with promotions and discounts, and others have instituted programs based only on gamification and engagement. Although both structures have seen success in the past, they have been predicated and built on a brand-led choice, rather than from the customer perspective. Loyalty design was assumed to be a brand’s choice, and success was independent of that design. Today, a number of new programs have appeared with a clear idea of a customer-centric loyalty approach; one that combines customer excitement with a use of relevant transactional opportunities. This discovery of the right program structure has over time become based upon an understanding of relevancy to the customers and financial sense to the brand. In this article, I cover the journey taken by many of those in the loyalty marketing function, as well as programs in three different industries that are leading the way with this new approach.
What was Loyalty Marketing 1.0?
History has been full of transactional loyalty programs. From green stamps to copper tokens to punch cards and box tops, pre-21st century had a number of schemes designed to induce a customer and increase his or her likelihood to purchase again and again. These programs did drive customers to come back, but it became apparent that this was a functional tool, much like coupons sent to existing customers, which did not increase affinity to the brand or reinforce their brand differentiation.
The last decade brought excitement around digital gamification with “badges” and “stickers,” prolific in newly created engagement programs. Their premise was enticing and built on the idea of garnishing excitement. While there has been success in some of these programs, many fail to drive enrollment or participation, and are quickly unraveled. In many cases, the reason for failure is that the structure was not the right fit, as the brand hoped to create excitement for its product through such a program, even though little existed at the time of launch or the program was not built on existing excitement. For example, no matter how hard a tax preparation company strives to create an engagement-based loyalty program, the results may pale in comparison to that of a sports engagement program for a leading NFL team. Unfortunately, loyalty can only augment and enhance excitement, not fabricate it from nothing.
“No matter how hard a tax preparation company strives to create an engagement-based loyalty program, the results may pale in comparison to that of a sports engagement program for a leading NFL team.”
This brief critique of both structures should not be interpreted as a flaw in the design, but instead one of its application. It is the use of these structures as a base with possible enhancements and customer validation that embodies loyalty marketing 2.0. For a great number of brands, both engagement and transactional loyalty can be brought together, layered in with partnership opportunities to connect to other programs, all with the aim of creating a structure that provides relevancy and excitement. In order to fully understand what programs should look like, extensive research needs to be applied on existing customer behavior and then aligned with the brand’s specific business objectives.
Industry Best Practice Examples
Below, I demonstrate the use of loyalty marketing 2.0 with real-life programs in the marketplace. These programs are good examples of successes for each company with loyalty visions that keep the customer in mind.
Starwood Preferred Guest has been one of the most effective programs in the travel sector. Like others in the space, the program has a transactional base featuring points per dollar spent and an ability to use points at hotels across their portfolio. Tiers add value and provide bonus opportunities, as well as improved service, access to upgraded room types, and the convenience of knowing that you have an ambassador available upon request. The program also allows for more flexible point earning for expenditure with Delta Airlines, and even Uber. Now, weary business travelers have an opportunity to earn double points by staying loyal to not only Starwood, but also its partners. United Airlines’ MileagePlus is another program pushing to find ways to tailor its program to members. It has created opportunities to earn points from eating at leading restaurants while travelling, as well as bid for unique events through point auctions. These are tied to their current sponsorship opportunities, and given their affiliation with the PGA tour, it is unsurprising to see access to their suite at The Barclay as one option.
Credit Card Providers
For credit card providers, successful programs tend to be larger, more established, and able to expand their offering due to their large scale and clout. Both Chase’s Ultimate Rewards and American Express’s Membership Rewards have ensured that their programs offer the greatest flexibility for their customers by being able to transfer points across airlines and hotels. Chase realized that its cards could be attractive to travelers and introduced bonus earning opportunities for travel expenses on their Chase Sapphire Preferred card. Additionally, Chase introduced a bonus for booking travel with points, lifting its funding rate and offering another credible points usage opportunity. Membership rewards recently integrated with Amazon via API to ensure that members could have their points balance offered as a payment option on a checkout page, which made points claiming even more convenient.
In retail, the opportunity to move beyond the purchase is more apparent. Programs in the running and fitness space have shown great promise with brands like New Balance’s MyNB and Nike’s Nike Plus, showing success with their approaches. New Balance uses a transactional base and features a partnership with a workout app, opportunities to engage with athletes, and rewards that include a race bib for one of their sponsored races. This engagement structure is tailored to their athletic customer base while building excitement around program and product usage. Nike’s approach has been focused even more on workouts, access to products, and online content just for signing up for the program.
As we have seen, innovation in loyalty marketing has been more of a mentality switch, with increased investment in program design. Brands have applied loyalty to deliver a brand’s objective in a customer-centric way, ensuring relevancy and excitement for the customer. This has transformed into a rich web of partnerships between programs, engagement/transaction hybrids, and experiential rewards, all with the lens of delivering the right program for the member. Successful brands with loyalty programs exist across travel companies, credit card providers, and retail brands, and all of them share one thing in common: their continued desire to offer more relevant programs for their members. As we once heard Henry Ford say, it is “the customer who pays the wages.” Loyalty marketing initiatives should continue to keep this in mind as they design the next generation of programs.