How to Achieve Success in the Next Generation of Customer Loyalty

byBill Hanifin

Senior Principal Consultant

2700 Old Rosebud Drive, Suite 240 • Lexington, KY 40509www.impact21.com • (859) 219-3040

PART 1 of 2

Loyalty programs have existed from the beginning of modern retail. Yet, there are new and different ways companies are changing loyalty and customer engagement programs.

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A Loyalty Revolution is UnderwayA wave of change is sweeping over the customer loyalty landscape. In fact, we should say it is “waves” of change as the industry is impacted today by influences from brands, the customers they serve, and outside influences from regulatory and accounting bodies. View these forces collectively, and we are witnessing a revolution in customer loyalty.

Marketing executives should be on alert to identify and embrace new opportunities for revenue growth through customer loyalty, while not being deterred from success by the transient elements of uncertainty, disruption and confusion in the marketplace.

History has shown that revolutions can be sparked from the top, fueled by powerful factions with massive resources, or they can spark-up through more humble beginnings. Make no mistake that today’s revolution in customer loyalty is a grass roots, customer-driven revolution. The battle is about customer control, choice, and experience. As a result, there has never been a more important time to reevaluate your loyalty strategy, operating models, and financial goals to make sure you end up on the winning side of this revolution.

Transparent Accessible Brand Reinforcement

Loyalty TruthThe basics of customer loyalty strategy bring undeniable benefits to the brands that plan and execute well. A short list of “Loyalty Truths” makes It clear why companies seeking to advance on the journey of customer-centricity are making a bigger investment in customer engagement and loyalty strategy than ever before:

1. There Is no more efficient way to identify “who” your customers are, which products they are buying, and to learn about their specific preferences, both in the present and looking to the future.

2. Customer data, both personal and transactional, Is the fuel of the new econ-omy. The challenge Is this: the value of customer data has never been higher, and it has never been held at greater risk. A smart approach to customer loyal-ty provides the framework to manage, protect and reap the highest marketing benefit from customer data.

3. Developing, maintaining and growing long term interactive customer rela-tionships remains the highest goal of customer loyalty strategy and is a more efficient use of marketing resource than chasing customers anonymously through advertising.

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4. In a highly pressurized business world where financial responsibility is key to success, loyalty programs provide the financial transparency to accurately measure program Return on Investment and satisfy the needs of executives and stakeholders.

The Evolution of LoyaltyThe customer loyalty journey for most brands started off with a simple premise - reward customers for their patronage and hope they will keep coming back to enjoy an occasional reward. The first generation of customer loyalty programs was brought to market by the airlines and their model was quickly followed by hotel chains, banks and a few retailers.

The “grandfather” brands of customer loyalty include Sheraton (now Starwood and part of Marriott), American Airlines, Citibank, and a smattering of restaurant chains and retailers. Before anyone heard the term “fast follower”, it was a reality in customer loyalty. Within 10 years from the time American Airlines launched its program around 1980, all the major airline carriers in the US had a frequent flyer program. The same can be said for the hospitality industry, and credit cards followed suit with many credit products launched co-branded with retailers.

This first wave of customer loyalty programs met the needs of the four points above. As example, retailers were able to identify their customers for the first time, begin to collect more data to build customer understanding, and put a loyalty offer on the table to keep customers coming back. Financial models were in place to make sure the investment in customer loyalty was paying off.

It didn’t take long after this wide industry adoption that loyalty programs ceased be to innovative. Rather than a ground-breaking strategy to attract, grow and retain customers, loyalty programs were becoming table stakes for most brands. While probably not intentional, many loyalty programs were launched with more focus on the competition than the customer. The lack of program innovation left consumers bored and searching for more.

Brands need to be constantly on watch for changing market conditions or customer demands and be prepared to make subtle changes to their programs to meet those challenges.

With few choices beyond a core model, consumers adopted a mercenary attitude towards loyalty programs. Most consumers thought that signing up for everything and collecting points and miles at every brand available was just like clipping coupons - the more the merrier. The result for brands was that loyalty had ceased to be a competitive differentiator to change customer behavior and risked becoming margin-eroding campaigns.

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Customer demand for more meaningful relationships with their favorite brands, and loyalty programs that enhance the purchase experience and strengthen the emotional connection with the brand, are driving demand for innovation in customer loyalty. Information transparency and mobile devices have changed the ways consumers make purchase decisions and the old models for customer loyalty are no longer effective. This is the root origin of the current loyalty revolution and the needs of the empowered, digitally-connected consumer must be the source of inspiration for future loyalty strategy.

The reason we include “engagement” in our language today is based on the reality that brands need to build awareness, trust, and demonstrate their commitment to brand promises long before a first purchase is ever made. A new Loyalty Truth of this revolution is that not all engaged customers are anywhere near to be considered “loyal”, while most of the highly valued among your database are in fact, highly engaged. Seeking to establish touchpoints and making relevant connections with customers Is a necessary first step on the customer journey, and therefore loyalty strategy must account for and provide incentive for Interactions much earlier in the customer lifecycle.

3 Pillars of Success in the Loyalty RevolutionTo connect with digitally enabled and tech savvy consumers, loyalty programs need to be transparent, accessible, and include brand reinforcement.

¤ Transparency“Transparency” refers to ease of enrollment and reduction of points of friction that might cause customers to walk away before becoming engaged. POS driven enrollment requiring collection of only a phone number and/or email is increasingly in use. Transparency also refers to the need for your customers to clearly understand program rules. Your brand must communicate the essence of its core loyalty offer in a way that customers can easily process. It should not require a reading of the fine print in your Terms and Conditions to grasp the value available and time needed to achieve rewards.

While transparency is critical to success, some brands can introduce gateways in the enrollment process that work for them but would create friction for others. Requiring the purchase of a gift card, download of a mobile app, and affiliation of personal banking information to play the loyalty game could be a turn off for many customers. However, brands with exceptional brand strength and nearly “cult” followings among customers can use these methods to add stickiness to their loyalty efforts.

Starbucks and Wawa require the purchase of a gift card to enjoy loyalty membership. 7 Eleven and Smoothie King are both app-centric, requiring download of a mobile app to reap loyalty benefits. Cumberland Farms and others who seek reduced merchant processing cost to fund fuel discounts for customers require the connection of personal banking information as part of program enrollment. Each of these brands has the brand power needed to make these tactics work successfully. Just remember that for many others, there may be risk that the consumer will disengage before the enrollment process is complete. Sustaining member engagement and stimulating usage can be a challenge with these approaches.

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¤ AccessibleBeing “Accessible” means that members must vision a path to rewards that is reasonably quick, and rewards must be easy to redeem without confusing conditions or additional fees. Among the findings of the 2018 Maritz | Wise Marketer Loyalty Landscape study, conducted mid-2017 across a sample of 2,093 US consumers, 25% of those surveyed said they “can’t remember the last reward they redeemed for in a loyalty program”. Access to rewards are a contributing factor to the redemption experience.

While there are many consumers who still want to accumulate points or miles in a loyalty program and redeem for a larger prize, the trend in today’s market is towards lower reward thresholds and immediate gratification. Using points like “liquid currency” meets these needs and the ability to apply rewards towards purchases from within your retail store or in the shopping cart of your web site will stimulate redemptions and increase customer engagement with your brand. The ability to exchange points like cash or in exchange for another loyalty currency in another potential enhancement. Today, American Express Membership Rewards members can exchange rewards for Facebook credits, airlines have tested using miles for micro-redemptions in hub airports, and retailers have partnered with compatible brands to swap points across their properties.

Don’t forget that packaging the best of your collective assets can create a strong loyalty offer and generate big shifts in purchase frequency and increased share of wallet. Amazon is the best example of this “packaged loyalty” concept, where they have bundled product choice, competitive prices, personalization, delivery, and payment as benefits of Prime. Those who don’t think Amazon Prime is not a loyalty program are missing the boat. Loyalty is not about the program or the points. It Is all about the creation of the best offer you can Imagine shifting behavior in a profitable manner for your company while creating trust and building stronger relationships with your customers.

¤ Brand Reinforcement“Brand Reinforcement” means that programs can no longer “orbit” around a retailer’s brand, positioned as a promotional “add on.” To be effective, loyalty programs need to reinforce brand promises and work in context of the retailer’s purchase experience, whether in-store, at the pump or online.

The 2018 Temkin Experience Ratings ranked Wawa in the top 10 of Its survey which covered 318 brands in 20 categories. Wawa Is a good example of an organization positioning its loyalty program as part of its customer shopping experience, and the blending of rewards with payments brings convenience and savings to Wawa customers.

Loyalty programs offer a great opportunity to communicate with customers and most of the brands mentioned here are leveraging the trusted environment of the loyalty program to listen to customers and learn more about their preference. In a 2015 survey of loyalty program email communications conducted by Hanifin Loyalty, we found that

To be effective, loyalty programs need to reinforce brand promises and work in context of the retailer’s purchase experience, whether in-store, at the pump or online.

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less than 1% of all emails sent to loyalty program members were surveys seeking to better understand the customer. The missed opportunity here should be obvious and a commitment to building a preference profile across your customer base should be a key performance objective of your loyalty strategy.

While the 2015 survey covered just the email channel, today’s approach should be to communicate with customers through an omnichannel approach. Just as customer purchase behaviors vary widely across the customer universe, channel preference Is a unique aspect of customer understanding. Email remains the most effective communication medium, though many customers prefer SMS or push notifications through mobile apps. It Is less Important to debate which channel is best than it Is to make sure that your communication strategy to reinforce your brand spans all channels that can be used in a cost-effective method.

Winning in the Loyalty RevolutionTo drive incremental revenue, it is key to remember that changing consumer behavior is the central goal of any loyalty program. Setting clear objectives, using collected data smartly, and creating a clear measurement plan are the foundations for a successful and sustainable loyalty program.

The focus of the loyalty revolution will be a moving target and a smart leader will take time and invest to reassess objectives, evaluate competition and the current environment, and be willing to make necessary changes. Brands need to be constantly on watch for changing market conditions or customer demands and be prepared to make subtle changes to their programs to meet those challenges. ¢

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About Bill HanifinBill has invested nearly 20 years designing, managing & evaluating customer loyalty and data-driven marketing programs on behalf of leading organizations around the world. His unique background forms the DNA of Hanifin Loyalty, a division of Impact 21, with expertise at the intersection of loyalty marketing, payment systems, and marketing technology.

Bill has successfully executed customer strategies throughout North America & Latin American markets as well as in the EU and Asia Pacific regions. A summary client list includes brands in every customer facing vertical market; Aeroplan, American Express, ArcLight Cinemas, Badgeville, Bright Horizons Family Solutions, Caribbean Airlines, Emerson Ecologics, ExxonMobil, FIS Global, JM Family & Associates, La Quinta Hotels, MasterCard, Phillips 66, Scotiabank, and Visa.

Bill is a co-founder of the Customer Strategy Network, an international consortium of customer loyalty and CRM professionals. This group owns the TheWiseMarketer.com, publishes LoyaltyTruth.com, and operates the Loyalty Academy, an educational program for business people seeking a professional certification in Loyalty Marketing.

About Impact 21Impact 21 is a global consulting, analytics, and services company, focused on end-to-end business and technology services and solutions for the petroleum/convenience, retailing, refining, and foodservice industries. We guide our clients toward solutions that drive success and achieve differentiation in the markets they serve.

By offering a proven business model for integration of business and technology strategies, as well as a world class collaboration, project, and content management solution, we position companies to drive profitability and enhance their customer’s experience.

Our experienced team of industry experts bring real-world solutions to manage and execute initiatives of all sizes and impact. We have a passion for driving business alignment for our clients and bringing thought leadership to all the industries and clients we serve.

Why Impact 21?We have been working with the majority of our clients since our inception and have seen them through many large initiatives and changes. We asked why they chose to work with us in the first place and why they continue to bring us back. Top replies include:

• We are highly experienced as business leaders, retailers, and consultants.

• We are passionate about their business and our own.

• We leverage our vast proprietary research, best practices and learning on all projects.

• We bring thought leadership and benchmarking through our relationships with industry-leading companies and association advocacy.

• We can accelerate their initiatives and ensure alignment through our highly disciplined Collaboration & Project Management Process.

• We are knowledgeable of enabling technologies yet solution and Platform neutral – we consider all options without bias.

• We have long-term relationships with Clients – we are laser focused on results and grow with our clients.

• “What you see is who you get” – Our partners and leadership team are engaged as sponsors and project managers. Everyone is hands-on and work as an extension of our client teams.