January 22, 2020 Media & Entertainment, CPG, Customer View, Financial Institutions, Loyalty Strategy, Loyalty Trends, Personalization, Retail, Telco, Travel & Hospitality

The Future of Loyalty – The Changing Objectives of Loyalty

Group of marketers discussing customer loyalty

As loyalty continues to change, there are 4 key objectives that make it vital to strategic business growth. The priority of these objectives have changed over the years, but all remain relevant in building 1:1 relationships between consumers and brands.

Behavior Change: From the earliest iterations in the industry, such as Gold Bond Stamps started by Curt Carlson in 1938, loyalty programs were designed to try to create behavior change amongst customers. Whether the purpose was to increase spend, decrease attrition, acquire new customers or encourage more profitable consumer behavior, such as buying with cash rather than credit as in the case with the first-ever trading stamps, loyalty program incentives were effective tools to change customer behavior.  Modern loyalty programs have grown more sophisticated in incentivizing other types of profitable behavior, such as upsell, cross-sell, etc. However, even with this greater complexity of desired outcomes, loyalty programs still center on changing customer behavior – and that’s how brands can justify the expense of giving out rewards.

Data Collection: The second phase of loyalty occurred when brands weren’t sure if the changes in behavior they were creating offset the investment. For example, some of the bigger retailers that already had high market share were incurring high costs by rewarding customers who were already shopping with the brand. These costs were too great without the potential to win significant incremental business. While these large retailers couldn’t make a clear conclusion on ROI, they were able to see the massive amount of data their loyalty programs were generating and as a result, how valuable the insights were from a commercial intelligence perspective that they were able to glean from that data. For example, for a large grocer who may not be sure which products to stock on the aisle, with a loyalty program, they can leverage behavioral data to determine which products are purchased by their high-value customers as well as optimize a variety of other key commercial decisions such as merchandising, assortment, price and promotions. The value of the loyalty program was more in the data collection and intelligence rather than the consumer behavior change.

Direct Communication: The next phase of loyalty programs started being pushed by companies who didn’t have a direct line of communication with their end customers as well as the companies that want to effectively personalize their customer experience. Building a direct line of communication is prevalent in industries like CPG/FMCG, who don’t own the immediate relationship with the consumer. As a result, the loyalty program became a vehicle to create that line of communication in a more efficient and effective way. With a loyalty program, companies can shift away from the traditional mass marketing and advertising channels, where ROI is difficult to measure, and move toward 1-to-1 connections that matter and show a strong return. In this scenario, the program’s value comes from brands spending strategically on their marketing directly to their target consumers rather than investing in costly mass messaging. For those companies seeking an efficient way to personalize, a robust loyalty platform coupled with advanced analytics and machine learning tools centralizes data and builds out a complete, holistic view of the customer that lends itself to individualized customer journeys.

Monetization: These three objectives remain important for loyalty programs, but perhaps the latest evolution in program objectives will prove to be one of the most significant. This phase realizes the potential for a loyalty program to act as a product in and of itself and become a profit center rather than an expense item on the P&L. One of the most recognized examples of this is Amazon, where the revenues from paid loyalty program memberships have driven significant profit to the bottom line in addition to creating behavior change. In the airline world, loyalty programs have turned into one of the largest profit pools and are highly valued by investors due to their stability, growth and low capex requirements. Thinking of the loyalty program as a business line, in addition to a marketing program, creates a completely different mindset that opens new possibilities and a dramatic increase in budget to allocate toward realizing those possibilities. Much of the advancement in the industry has come and will continue to come from loyalty programs that generate real cash and hence have the financial wherewithal to invest in future innovation.

Not all of these objectives are equally important for all loyalty programs, but those programs that are able to maximize value across several or all of these four main objectives generally perform the best. And as the industry continues to move from just making investments in customer satisfaction to increase retention, to introducing multi-faceted strategies, including generating profit from the loyalty product itself, further disruption will occur.

The complete whitepaper is available for download here.

 

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