Not long ago, retailers deployed loyalty programs as a trusted means to drive growth, helping to increase revenue at a lower marketing cost. They were the retailer’s gift that kept on giving — to customers and, to a greater degree, themselves. But, times have changed. Today, many retailers now report proportionally fewer enrollments and more complaints.
According to the 2017 Colloquy Loyalty Census, consumers are still joining loyalty programs but at a slower rate, often joining only to take advantage of a discount, free shipping or gift-with-purchase offer at the point of sale. The census also showed that 54 percent of loyalty program members are inactive.
The problem with most transactional-based programs is that fewer than half of customers believe retailers reward them for their loyalty, according to a recent Capgemini study on digital customer experience. In fact, only 22 percent of loyalty program members perceive their experience with the brand as being better than that of non-member customers.
In our view, many retailers look at loyalty as purely an equation and therefore get the formula wrong. A loyalty program should be an invitation or precursor to customer intimacy, not a discount program.
Discounts are useful and immediate, but they don’t engender long-term commitment. The good news is that many consumers are willing to engage with the brands and products they love. They have proven to be strong advocates and influencers, and can make you a better retailer if you can effectively communicate with them in a highly personalized way.
Reaping the rewards of loyal brand ambassadors requires a deep understanding of your customer and a commitment to innovate within the customer experience.
A misguided focus on point of sale
Checkout is often the highest point of friction and least desirable stage of the shopping journey. In our research, two of every three consumers see long lines at the register as their main frustration with the in-store experience.
As if waiting in line isn’t bad enough, waiting extra time while those ahead of you at the register are being enrolled in a loyalty program just adds insult to injury. It’s especially annoying for existing loyalty program members.
By itself, point of sale is only one small, often cumbersome, part of the shopper’s journey. This moment in time is far too late in the process to start building loyalty. Once a customer is checking out, she has already become aware of a brand or product, conducted research, considered her purchase options and made a decision to buy.
During each stage, competing retailers have enormous opportunities to woo the customer. Sure, she’s made it this far in the journey, but how many of the total available pool of customers chose a competing product? Capgemini research shows that companies with inferior experiences could concede 10 percent of wallet share to competitors.
A focus on POS also neglects the later stages of the shopping process, which may have more of an effect on loyalty building. For example, after checkout the customer may have the product (or service) delivered, use the product, require alterations, request a return, or recommend the product to others. All of these post-purchase interactions have a major impact on the customers’ likelihood to develop a sincere and lasting loyalty to a brand.
Introducing Loyalty 3.0
Points-based loyalty programs no longer add up for today’s retailers. Where Loyalty 1.0 was built for accumulating reward points, Loyalty 2.0 programs utilized CRM and marketing automation for targeted marketing. Loyalty 3.0 is built on human-centered customer engagement, with interaction as the new transaction.
Fulfilling the promise of Loyalty 3.0 requires retailers to provide both rational and emotional drivers to create human-centered loyalty. Real loyalty stems from understanding and relating to customers as humans, and seeking to engage with them based on their interests, needs and preferences. Customers desire human-style relationships with brands; relationships that are mutually beneficial.
Retail loyalty needs to move from a program-based tactic to a company-wide approach that puts the customer at the heart of the organization, focused on creating lasting relationships. Consider that loyalty 3.0 may not even include an enrollment program. Rather retailers may progressively engage customers with the brand in real-time, informed by their current and historical behaviors and expressed interests.
Loyalty programs should be treated as one of many tools — alongside product, price, customer service and experiences — that help foster customer intimacy wherever customers interact.
Retail executives can be using loyalty program data to learn more about their customers, why they buy what they buy, and what services they value. Yet, only 26 percent of marketers have identified this as a top objective of their loyalty program, according to Forrester.
Loyalty 3.0 is the antithesis of interactions focused on the point of sale. By seeking to truly know their customers and motives, retailers can transform the ways they engage customers and build loyalty.
To create an environment for Loyalty 3.0, a series of new capabilities is needed, including:
- An expanded, enterprise-wide 360-degree view of the customer that includes transactions (e.g. point of sale data), interactions (e.g. call center, social media posts, etc.), and preferences (e.g. derived segments, shopping lists, declared information such as birthdays, sizes, etc.) available in real time at every customer touchpoint.
- Analytics, insights and decisions engines — including traditional campaign and analytics tools to identify customer segments and next-best actions as well as advanced technologies such as artificial intelligence — to ensure the right shopper receives the right message, through the right channel, at the right time (and that they’re not receiving irrelevant messages).
- An interactive experience layer across all customer touchpoints that enables both associates and customers to use and edit existing information plus contribute additional information for marketing, service and commerce purposes.
- Opportunities for an exchange of value with the customer. For example, provide a reason to download your mobile app and enable location-based services, to rate and review a product purchased, to post their purchases and experience on social media, to share their product/services preference, and, of course, to purchase more often. Realize that value extends well beyond points, discounts and coupons.
Build on a solid foundation
Product, price and service. The importance of getting these retail basics right every time cannot be overstated. Yet, with the pace of change and heightening levels of competition, many retailers are faltering.
Many traditional retailers are struggling with basic omnichannel experiences such as click-and-collect and inventory accuracy, while their customers and competitors are already advancing to the next set of innovations such as frictionless checkout or “conversational commerce” through Amazon’s Alexa.
As retailers struggle to advance their capabilities at the pace of customers’ expectations, they’re increasingly at risk of causing frustration. Negative experiences can have significant consequences. Our analysis found that 20 percent of consumers stopped purchasing from a retailer after having a negative experience.
The proof is in the purchase
We have been working with a global home furnishings retailer undergoing a sea-change in its approach to customer engagement. It concluded that it is no longer acceptable for the company to focus only on the customer purchase at the point of sale, but that customers who interact with them at any touchpoint — online or offline — are equally important. Improved engagement across these varied touchpoints will ultimately lead to longer-term customer value and an improved ability to shift customers from brand observers to loyal, purchasing customers.
Together with the client, we ran a number of pilots across different markets to address opportunities to improve interactions. For example:
- Interacting with customers in the right way. One integrated email marketing campaign saw not only increased email engagement rates, but a 66 percent uplift in incremental revenue versus a control group.
- Interacting with customers at the right place. By introducing new channels alongside existing channels to better match customer preferences, our client saw a 20 percent uplift in conversion and a 28 percent uplift in spend, versus a control group.
- Interacting with customers at the right time. Understanding the right time to send communications is also important. Our test resulted in a 57 percent uplift in visits to the store and a 41 percent uplift in sales versus a control group.
Our test-and-learn approach enabled the company to rapidly experiment with new ideas, measure incremental benefit, and then conduct full-scale rollouts.
Designing an updated loyalty program is not a one-time event. To keep in tune with changing needs, retailers must continue to listen to customer feedback, monitor changes in behavior and adjust their strategy and program accordingly.
The signs are everywhere. Loyalty programs must evolve to help close the gap between customer expectations and retail store realities. It’s time to move beyond the point of sale to put human-centered exchanges at the center, supported by mobile and digital solutions. It’s time for Loyalty 3.0.
Shannon Warner is a Vice President in the North America Retail practice at Capgemini Consulting, the global strategy and transformation consulting organization of the Capgemini Group. Melissa Tischler is an Associate Partner and the Head of Strategy at Fahrenheit 212, an innovation strategy and design firm recently acquired by Capgemini and now part of Capgemini Consulting.