Core Loyalty: Banking and Shopping

Consumer-reward motivation research and analysis we’ve conducted over 15 years yields an instructive pattern. Loyalty program members almost always refer to their account balances by using bank-like metaphors: savings account, trust, accountability.

When program members are ready to spend their reward savings and cash in their figurative certificates of deposit, their expectations change dramatically. They cease to think of the program as a bank and equate the loyalty experience with a shopping trip – and they expect to delight in all the fun, choices and excitement that this metaphor implies.

Loyalty program members generally break down their rewards program expectations into these two simple concepts. How well you understand and leverage these underlying loyalty perceptions can make or break your loyalty marketing efforts.

First, the banking side. Loyalty program members perceive points or miles as another kind of money—an asset with potential buying power. What’s more, you detect a clear difference between gathering and saving. This difference in perception has subtle but profound implications for loyalty marketers.

Savers are keenly engaged. They earn promotional currency actively and with purpose. As they approach a redemption goal, anticipation mounts and inspires increased program activity. After a successful redemption, they might raise their sights to a more aspirational reward, motivating even further engagement.

Gatherers, in contrast, earn currency aimlessly and infrequently. They might have sizable balances, but they aren’t necessarily loyal. Because they don’t perceive value in active program participation, gatherers don’t exhibit the emotional engagement with the brand that savers build through cycles of purposeful earning and redemption.

Your goal, therefore, is to convert program gatherers into program savers by highlighting the potential that lives in a successful reward program and getting them to set a goal. Increase the “wow” factor by helping your customers picture reward redemptions and enticing them with specific goals. To do so, consider these specific tactics:

• Manage earn velocity: Once savers set a reward goal, they’ll track the speed with which they reach it. If they perceive that reaching the reward takes more time or effort than it’s worth, they’ll disengage. Managing your program’s earn velocity—the perceived “time to reward”—therefore becomes critical to customer engagement. In your communications, highlight account balances or progress to the next redemption level. Implement and promote real-time balances on the program Web site. Offer bonus options to fuel earn velocity and enhance the anticipation factor.
• Applaud the work: Would it bother you more to lose $50 that dropped out of the sky or your $50 paycheck? Customers value loyalty rewards precisely because such rewards, “earned” through hard work, have intrinsic value. In your communications, acknowledge this feeling of ownership by recognizing the savers’ commitment to the goal. Avoid the suggestion that rewards are earned randomly in a game of loyalty lotto. And if you must restructure your program at any point to reduce the value of those hard-earned savings accounts, do so with great sensitivity so you don’t lose their trust. Your customers should view loyalty rewards as a sure thing—something they can bank on.
• Recognize good behavior: Promotional currencies have higher perceived value than cold cash. While we often spend our cash on what we need, like food and shelter, we almost always spend points and miles on what we want, like vacations and family gifts. This elevated emotional value explains why cash-back and discount-based loyalty programs have a much lower historical success rate. Discounts and rebates certainly represent value to consumers—at the outset. But cash-based rewards quickly become viewed as entitlements, and whatever competitive differentiation they provide evaporates entirely when your competitor meets or beats your easily copied offer.

Customers who become bankers want reciprocity not only in the form of such economic rewards, but also in the form of emotional recognition. To no one’s surprise, better customers expect better treatment, more access and more privileges-and their hefty account balances are tangible reminders that they’ve earned it. To maximize the emotional benefit of your program, supplement the hard economic benefit of reward earning and redemption with softer recognition elements.

The promotional currency approach allows you to leverage that other embedded consumer loyalty perception: shopping. At this point, loyalty marketers must step out of the role of banker and into the role of dream merchant. To make the transition, try these specific tactics:

• Dial up the relevance: In retail, outside of strict commodity purchases, customers don’t base buying decisions solely on price—the intangible emotional resonance of the product, the experience and the brand are equally important. Just like a good retailer maps customer touch points to create a differentiating in-store and product experience, you must infuse your reward catalog and redemption process with a similar emotional connection that transforms the customer’s perception of a passive bank account into an active dream account.

  Accomplish this transformation by leveraging the richness of the customer data that a loyalty program affords-their demographic profiles, shopping behaviors and lifestyle choices-to dial up program relevance. Tailor a set of reward redemption options that anticipates their needs and wants while reflecting your brand.

• Direct choices: Consumers value choice—but as in most aspects of life, you can experience too much of a good thing. Too much choice requires consumers to create their own relevance. Customers enjoy the freedom to browse a reward catalog at their leisure, yet they also crave guidance in order to exercise that freedom wisely.

  You can streamline redemption choices in two ways. First, offer a range of redemption levels from instant-gratification items to big-ticket dream items; creating the right mix of upper-tier redemptions can be a bit tricky, as you must strike the right balance between aspirational dream rewards and realistic expectations that such long-range goals are achievable. Second, like a true retailer, test the boundaries of customer motivation with such tactics as discounts, volume breaks, bonus offers, bundling, and seasonal price promotions.

• Stage-manage redemptions: Finally, make the redemption experience itself a dream come true. Achievers celebrate achievements, so help the achievers in your program crow about reaching their goals. Although you need an operational focus in managing the redemption process to create executional excellence, make sure that redemption doesn’t feel mechanical, but rather like a high point in the redeemer’s relationship with your brand. Examples might be to create a memorable experience by gift-wrapping the reward in elegant paper and a fat bow, by employing personal home delivery, or even by simply making a congratulatory follow-up phone call.

By encoding your loyalty strategy with these tactics, you ensure that this customer progression—from promise to anticipation to shopping to celebration—resonates at your customers’ emotional core. By building relationships with the bankers and shoppers in your customer file, you’ll unlock the secret to a successful loyalty initiative.

Caroline Papadatos is chief knowledge officer of Alliance Data Loyalty Services and a contributing editor of COLLOQUY.