“U.S. Internet users belong to more than 13 loyalty programs, on average, according to brand loyalty data analyzed by eMarketer. But only 50% of users are active members.” 1
In Retail, few issues differentiate the winners from the losers more clearly than successful loyalty and rewards programs. Perennial winners at Retail loyalty programs, such as Kroger and Nordstrom’s, build their entire business model around leveraging loyalty data to meet and exceed the needs of loyal (and profitable) consumers.
But most loyalty programs fail because they lack vision or provide “blind rewards.” They function as un-targeted coupon and rewards dispensing efforts with only marginal benefits to consumer – and at a significant cost to retailers.
So how do you transform your loyalty program from a cost to a revenue generator?
Benefits from an effective loyalty program
Leveraging program consumer data to build an integrated customer relationship is key here. A good loyalty program should provide retailers with the best possible data on individual consumers, their buying habits and transactions, and the promotions they appreciate. This insight is crucial to building a successful consumer-focused omnichannel retail experience. You can then design your loyalty program around individual consumers and your brand promise.
Four key questions a winning loyalty program must answer:
1. Who are your customers?
Simply put, most retailers and CPG Companies don’t know who their consumers really are! Yet a good loyalty program with active consumers should be the best sources of live information on individual consumers, their transaction history, their likes and dislikes, reviews, and responses to promotions.
Loyalty programs should help retailers to:
- Understand and identify the individual consumer who buys at their store
- Define where to locate stores and what format fits their consumer base
- Identify the demographic segment and the “life-stage” of the consumer
Case: Nordstrom Rewards Program 2
Nordstrom, a perennial winner at customer loyalty and retention, does three things differently based on knowledge of individual consumers. Nordstrom:
- Targets individual customers based on their annual spend and lifetime value while offering meaningful and appropriate rewards, such as $100 of free tailoring.
- Keeps the program aspirational with tiered benefits like concierge services to the highest spend levels – so that members aspire to get to the next level by increasing spending.
- Segments rewards and points earned by channel and store format – for example Nordstrom Rack has more points per dollar spend – which gives Nordstrom the ability to further differentiate their program and increase the engagement and loyalty of their customers.
2. What do they buy?
Consumers really don’t buy products – they buy solutions. This may include recipes for dinner or a home entertainment system bought online, in-store or via mobile device. Regrettably, retailers are still stuck organizing category data around “products” versus solutions.
A loyalty card-based program that captures consumer purchase transactions should do two things:
- Define solutions and merchandise assortment to be carried by store. For example, a convenience store with student shoppers in a university town will have needs that differ dramatically from a downtown business district or a suburban location with younger families.
- Use purchase transaction data to pinpoint opportunities to up-sell and grow your consumer relationships. For example, if Joe is a frequent buyer of electronics and video games it would help to offer him coupons targeted at the upcoming release of new game titles he may like. He may also be due for an upgrade to the new version of the Xbox.
Case: Lawson Loyalty Program 3
Japanese convenient store retailer Lawson, with 12,500 stores, uses its loyalty program “Ponta” which has 64 million members to identify the buying behavior and purchase frequency of individual customers per neighborhood store, and also to determine the lost opportunity of potential customers who shopped with the competition. In 2014, sales to Ponta members represented roughly 50% of Lawson’s total sales and the program provides insights into store design, location, as well as what products and services fit each store’s local demographics.
3. How do they buy and which channels do they use?
Consumers want to be treated as individuals and responded to consistently – regardless of channel. Having a consistent view of and delivering a seamless experience to your customers across all touch-points in-store, online, via kiosks, mobile, digital and social media is the original premise of omnichannel and it has become an even more important strategy in today’s competitive market.
A loyalty program should provide data on individual consumers to track and respond to every point of interaction along the “path to purchase,” including:
- Targeted communications that positively influence consumers’ pre-purchase research and decisions
- Relevant offers and coupons at the point of purchase whether in-store or online
- Post-purchase targeted responses to online reviews or calls into the customer service center
4. What targeted promotions incentivize them to buy?
The data you collect from loyalty programs should provide insights to drive better consumer messaging and promotional decisions. Personalized promotions at the individual level drive returns here. Mining your data and building models based on consumer transaction data and marrying them with demographic, geospatial, and social media data is important to returns.
Case: Kroger Loyalty Program 4
Kroger, the largest traditional U.S. grocery retailer, logs 97% of transactions on loyalty cards. It calls the 11 million pieces of direct mail it sends to customers each quarter “snowflakes” because they are designed and targeted at individual consumers and no two are the same. The redemption rate is over 70% within six weeks of the mailing. These targeted consumer coupons generate over $10 billion in sales annually.
Not bad considering that the non-targeted free standing insert (FSI) coupons in your Sunday newspaper rarely have redemption rates that exceed 2%. Given these numbers – the business case for a successful loyalty programs is clear. So why do most loyalty programs in Retail fail to generate consumer interest, or for that matter, loyalty?
In my next post I will focus on leveraging data and devising solutions for a profitable loyalty program as well as the hurdles retailers encounter on the way. In the meantime …
Please be sure to read my other articles in this series:
1. Big Data, Little Insight: Challenges for the Retail and Consumer Industries
2. Removing Roadblocks to Omnichannel 360 in Retail
3. Consumer 360: Reaching Each Consumer With a One-in-a-Billion Message
4. Retailers: Are You Meeting the Needs of Digital Consumers
5. Why do Retailers Miss Out on E-Commerce Opportunities?
6. Reinventing Your Retail Loyalty Program to Win
7. Build Better Retail Loyalty Programs With NoSQL
1. Ad Age, June 17, 2015
2. Luxury Daily, New York
3. Lawson’s 2014 Annual Report
4. Forbes Magazine