Is Implementing a Loyalty Program Right for Your Retail Brand?

Sep 9, 2013

As retailers continue their quest for deepening customer engagement, they’ll often turn to a loyalty program. With retail loyalty program membership enjoying double digital growth and department store signups surging 70%, this seems to make sense. Yet high membership numbers are deceiving because engagement levels are actually stagnant. This poses the question, are loyalty programs right for every brand? How do brands choose the right strategy for customer engagement and the overall integration of the loyalty program within the brand?

Having loyal customers is the goal of all retailers- and almost any business for that matter, but that does not necessarily mean that retailers desire loyalty programs. Oftentimes, the key decision makers can agree that they want a loyalty program, but are interested in opposing objectives and definitions of success.

Many retailers engender loyalty in ways that may not be manifested in a formal program. By offering genuine connections that create optimal experience, knowledgeable staff who understand the importance of delivering great and consistent customer experience, and by using unobtrusive engagement tactics, retailers are finding that loyalty can indeed be earned in many different ways.

If a retailer does wish to engage in a loyalty program, focusing on customer and member acquisition is a great place to start. Effective loyalty programs are optimized when brands are researching and developing customer acquisition strategies with the goal of obtaining potential high value customers.  While there is value in obtaining customers and ultimately program members from varying value segments, it makes the most sense to target the very best – right from the beginning. This last aspect is absolutely critical: why spend good money going after bad? Why would a retailer continue to drive acquisition efforts that go after those who may not be or may not have the potential to ever be their best customers?

Assuming the acquisition phase has been well planned and accounted for from the loyalty perspective, how should a retailer view customer defection? Churn is an interesting metric as it cuts both ways: high churn may indicate customer dissatisfaction and the need for loyalty program re-engagement. Low churn suggests a core of deeply committed customers who might be on the precipice of brand ambassador status, provided exclusive offers and status make them feel unique. There’s an interesting infographic here that looks at this dichotomy.

When to Implement a Loyalty Program?

For too long, retail loyalty programs have been stuck in a “me-too” mindset with most or all offering the same generic rewards, i.e., points, month-end specials, coupons or automatic discounts. This is where retailers have a great opportunity to implement something different by segmenting between tangible (points and physical rewards) and experiential, status-based rewards.

After reviewing its competition, assessing the economic and financial benefits of loyalty and making a commitment to differentiation, a retailer may believe it’s ready to develop a loyalty program. However, the retailer that chooses to include ‘softer experiences,’ and experiential types of rewards; rewards that appeal to its customer base and not only differentiate the brand and program, but the overall experience, begin to truly differentiate

Another factor that will impact a retailer’s loyalty program implementation (and differentiation) is whether it is single-tiered, multi-tiered or integrated multi-tender. An integrated multi-tender loyalty approach can help retailers improve ROI while broadening their customer base and really increase shopper engagement and satisfaction levels. That’s because their credit product can be completely integrated with a non-credit approach. Consumers can, in one seamless experience, enroll in the loyalty program and have the option to apply for a credit product.  Retailers have the opportunity to democratize their loyalty program, but still provide a superior, but visible and integrated, member experience to the credit holder.

In contrast, retailers who choose to offer “parallel” programs (credit and non-credit) are missing the potential value to grow their card base, generate incremental behavior and optimize member satisfaction. Non-Credit programs are a fit for some retailers; however they must be careful not to give away margin to already valuable members.