With rising prices, consumers are shifting their behavior by delaying or canceling purchases, buying in bulk, and switching brands. Amidst this movement and change, retailers are jostling for consumers’ attention and loyalty.
One of the tried and tested strategies that retailers use during periods of consumer shifts and economic difficulties are customer loyalty programs. Not only can these programs improve retention, but it makes strategic business sense when you consider that improving customer retention rates by just 5% can improve profits by up to 95%. Further, there’s the 80/20 rule, whereby 80% of a company’s future revenue comes from just 20% of its existing customers.
Moreover, loyalty programs can help differentiate retailers from competitors. Whether or not that differentiation is a positive or negative lies with the design and roll out of the program.
In this article, we review loyalty programs, and we analyze the strengths and weaknesses of different programs in order to remark on how retailers can be more successful in future endeavors to acquire and keep customers.
What are customer loyalty programs?
Loyalty programs vary considerably in their design and offerings. Some are pay-to-play, such as Amazon Prime or Walmart’s new Walmart+ program, while others are free, such as IKEA Family. Some use points while others use discounts. Some have community aspects and others don’t. At the end of the day, different retailers will undertake different programs in order to achieve their specific goals and remain within their branding.
Some examples of loyalty programs include:
- Referrals where consumers receive some benefit if a friend registers or makes a purchase;
- Membership access where consumers immediately get free perks from signing up;
- Card-linked offers where consumers can redeem digital offers directly to linked debit or credit cards at purchase;
- Cashback offers where consumers redeem a percentage of the money they spend;
- And more.
Many times, loyalty programs are equated with points programs, whereby customers gain points by making purchases, and dedicate those points to discounts or other benefits. Points programs have worked well for some brands, such as Starbucks. However, it has proved problematic for others because unused points become accumulated liabilities, and trying to get rid of those points can be difficult (as in the infamous case of LoyaltyOne).
Cashback offers, on the other hand, do not carry any liabilities for retailers. They also resonate with consumers since they’re tangible. Moreover, cashback rewards are frictionless and can instantly influence behavior through real time notifications, whereas points require the additional step of redeeming. Finally, cashback rewards can be designed to drive specific business goals, such as spend amount or purchase frequency.
What makes a loyalty program successful?
Not all loyalty programs are created equal. In fact, a Capgemini study found that 53% of consumers abandoned at least one loyalty program in the past year. The top two reasons were a lack of reward relevance, flexibility and value; and a lack of seamless multi-channel experience. This means that for loyalty programs to be successful, they should fulfill the following requirements.
Relevant and valuable to the end consumer
Retailers need to clearly articulate the value-add of their program for consumers. This determination will vary based on the retailer, the brand and the key objectives of the program. However, retailers must keep in mind that most customers want to save money, either through discounts or special offers and rewards.
There are other motivations, such as earning VIP status or gaining social recognition, but these are better suited for niche interests and communities.
Further, are your rewards of interest to the customer? If not, users can become frustrated to find their diligent points gathering was of little value.
Once the customer understands the program’s benefits and registers, the program must be designed to be as painless as possible to use. Rules and guidelines should be simple and easy to understand, and there shouldn’t be many steps involved. Customer service should also be knowledgeable and able to answer customer questions and resolve any issues.
Of particular importance is points and rewards redemption. A poor redemption experience can ruin a customer’s impression of the loyalty program by fostering feelings of being cheated or lied to by the brand. Therefore, it is crucial that redemption be as effortless as registering.
Nowadays, many loyalty programs have web logins, apps and digital cards, with individual accounts and dashboards that track points and redemption. By expanding to multiple channels, these programs make it easier for customers to participate.
Having multiple channels also means enjoying multiple points of customer engagement, including in-app messaging, allowing retailers to court customer loyalty further.
With the digitalization of commerce, it is becoming key for retailers to offer mobile experiences that have standout features. Gamification and fun experiences, as well as integrations with popular apps, such as Messenger and WhatsApp, differentiate superior programs.
Supporting your favorite causes
Thus far, we’ve discussed the business of customer acquisition and retention, but equally important is the ability for retailers to share their mission with customers. By doing so, retailers can build an interactive community rather than the usual transactional relationship between business and consumer.
Customer loyalty programs can play a pivotal role in fostering a sense of connection with a brand or a brand that supports a cause. In fact, 89% of Americans are willing to switch brands in order to support a cause and 76% admire companies that support causes more.
Loyalty programs can be great places for retailers and brands to explain which causes they support and how the customer can join their efforts.
Loyalty programs can hold the key for retailers looking for new and dynamic ways to engage and retain customers. However, it is crucial that retailers design a program that is beneficial to and easy for customers to use. Otherwise, customers are more than willing to head for the doors.
Olive and the new age of loyalty
Retailers and brands all yearn to develop meaningful relationships with their customers. Sadly, these efforts oftentimes produce clunky software, difficult-to-navigate rewards and just plain don't produce the value that customers are seeking.
The success of a loyalty program, or any other customer-facing program, lies in its user design. Make it easy and enjoyable for your customer. Give them the value you know you can provide and they will be remain loyal to you.
Olive wants to help you help your customers.
We offer easy-to-embed rounding, matching, contribution and rewards features to your offerings so that your customers can reach their financial goals, and in turn, so can you.
To learn more about how Olive works, reach out to us today.