A Gartner consumer survey conducted across 10 countries revealed that 62% of respondents are members of one or more retail loyalty programs. But despite the high percentage of memberships, the participation and offer use remain relatively low. Over one-third of participants across retail sectors report never utilizing the programs in which they are enrolled (a trend most evident in specialty stores, for example sporting, office supply and retail furniture stores where purchases are less frequent).
By way of review, these programs consist of
Loyalty cards Price reductions or special discounts to those that sign up for the retailer’s frequent purchase program.
Award programs Points which can be redeemed for gift cards, rebates or discounts on other merchandise.
Point and partner models Points for purchases which can be redeemed for gifts, savings vouchers and travel (through a network of partners). These programs are popular in the credit card (e.g., Amex) travel and hospitality industries.
But, transaction-based programs often disguise true loyalty
In the U.S. alone, loyalty membership is approaching the 3 billion mark. These programs have also proliferated with little differentiation – causing consumers to pick and choose offers from various retailers. Hence, the original intent of rewarding customers for being loyal to a particular retailer has eroded over time, producing a commoditized landscape for retail loyalty programs. Now, the primary benefit of loyalty programs for retailers — the ability to understand individual customer behavior — is rapidly eroding.
This lack of differentiation between retailer programs has, in some cases, compounded the issue with additional factors, such as complex redemption systems or mixed messages across channels. Both add confusion to the mix and cause customers to disengage. As a result, customers are alienated from the retailer, with retailers unable to build an actionable customer database from loyalty program data.
It is difficult, if not impossible to discern the differences between commoditized retail programs that use price discounts and coupons to encourage repeat purchases. This explosion of programs that look, feel and sound the same has created loyalty fatigue to the point where enrollment is on the decline. Moreover, even many of those that do enroll, fail to participate.
True loyalists bring others with them
Transaction-based programs are also flawed indicators of true loyalty. For example, buyers readily admit they appear loyal to a particular retailer because of convenience, but also admit they would be less-than-enthusiastic in recommending the store to others. Hence, their value to the retailer, as a true loyal customer is limited because they aren’t “bringing others with them.”
The need for change
Retail loyalty managers are starting to fundamentally shift their thinking to evolve loyalty from a program with points and rewards — to an opportunity to grow a long term relationship with customer, not as a member of a mass market segment, but as an individual with unique needs that change over time, due to predictable life events or circumstances that happen unexpectedly.
Hence, personalization that recognizes the buyer as a market of one should be a retailer’s priority investment. Fifty percent of the customers surveyed either agreed or strongly agreed with the following statement: “When I receive personalized offers relevant to an upcoming purchase, I’ve used the offer to purchase the item from the retailer.”
Of the customers who reported receiving personalized offers, 82% said that continued, relevant offers from a retailer would increase their loyalty to that retailer over time.
All of this new evidence doesn’t mean retailers should abandon loyalty programs that reward cusotmers with points, discounts and other quantifable rewards. These programs can work, and in many cases you simply have no choice given your competitive situation (can you imagine if an Airline retracted its mileage points program?). But it does mean retailers need to get more creative in how they view loyalty. As Don Draper said in a recent episode of Mad Men, “it helps to have a good product.”
Look here for other advice on how to innovate your retail loyalty program (Gartner subscription required).