CM Corner Table: The Value of Loyalty

Loyalty programs have been around for more than 70 years, and more marketers than ever are turning to rewards to retain and reactivate customers. But how can these programs be kept fresh and relevant for users while integrating with results-driven campaigns in other channels?

Chief Marketer staged a “virtual round table” with three leaders from loyalty consulting firms — Kelly Hlavinka, a partner at Colloquy; Luc Bondar, senior vice president of loyalty strategy, Carlson Marketing; and Barry Kirk, director of strategic consulting at Maritz Loyalty Marketing — to find out what's right and wrong with current loyalty programs.

What's the scope of loyalty programs today, and what issues does that raise for marketers?

Hlavinka: Our most recent Loyalty Census found that there were 1.8 billion loyalty members in the U.S. in 2009. The average U.S. household has enrolled in a little over 14 programs across all services. That's a lot of competition for marketers to become the 15th that they sign up for, and a lot of competition for share of mind and of wallet, because the census found that the average household actively participates in only about 6.2 of those programs. Ubiquity of loyalty programs really is raising the bar in terms of how we keep customers engaged and keep programs as effective as they've proven to be.

Kirk: Everybody's slightly desperate to hang on to existing customers and to wake up a vast group of sleeping customers who could be more valuable but have disengaged from the brand. The smart brands are disdaining the allure of the discount and the coupon and trying to be more engaging with the program itself, creating something that's more novel so that when they put it in front of the consumer, they'll pay more attention to it. What loyalty programs really need to do is say, “Pay attention, because I have something brand new here.” That might be mobile, or social, or gaming. But essentially the smart brands are changing the whole proposition for their members and giving them a reason to pay attention.

Bondar: You get loyalty fatigue only when you have irrelevance, or when you have a crappy experience, which a lot of older programs have. But more importantly, a lot of older loyalty programs don't create a terribly relevant customer experience; they're very cookie-cutter. But the programs of today and the future are really built around the ability to create a rich, relevant, personalized customer experience that feels less like advertising or marketing and more like information and value to the customer. Thus they're far less likely to experience fatigue. As loyalty programs improve, we'll see less fatigue — but that puts the onus on marketers to get them right.

Where should discounts and price offers fit into loyalty marketing?

Kirk: In a lot of the programs I'm asked to consult on, marketers start out thinking they need to be more aggressive in offering discounts to loyal consumers. I think most people in the loyalty space would agree that's not the best move. With the rise of so much “social couponing” — just think about Groupon.com and its imitators — that stuff is everywhere now, and essentially it devalues the brand. It's a zero-sum game that you're going to continually have to up the ante on to keep people engaged at that level.

Hlavinka: Consumers say loyalty programs are as important as or more important than ever because they realize the programs can help stretch their budgets. But our retail loyalty index also shows that in this economy, price is affecting how consumers define their loyalties right now. The big question is how long that will last. I'm of the opinion it's a pendulum phenomenon. As the economy improves, the pendulum will swing back, and we don't want to abandon the loyalty elements that will be more sustainable than just a price play — which is easily matched by the competition.

Bondar: It varies by sector. Loyalty in retail is about changing customer behavior, getting them to put one more SKU in their basket. If you're just rewarding shoppers for what they're already doing, you're missing an opportunity.

Kirk: We often define true loyalty as resistance to a competitive offer, which means you don't always go for the lowest price. It's a natural assumption that that's what consumers want most, but findings show the human brain gets just as excited about status opportunities as cash rewards. The message for loyalty programs is that you don't always have to go the discount route. You can create special experiences that confer status on your high-potential customers.

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