The History of Loyalty Programs, Part Three

Jul 20, 2015


In Parts One and Two: Beginning with trading stamps at the turn of the 20th Century, by 2010 loyalty programs had become experiential as well as transactional and new technologies had begun to revolutionize customer engagement.

By 2015, customer loyalty had reached the milestone of 3 billion program memberships in the U.S., with the average American enrolled in 13.3 programs and active in 6.7 (Bond 2015 Loyalty Report). While some think this level of engagement is disappointing, the same report finds that 34% of U.S. consumers say they are loyal to a brand because of its loyalty program – and usually U.S. consumers don’t like to admit that they can be influenced by a marketing effort. What other single marketing strategy can claim 34% effectiveness?

Loyalty programs continue to evolve, reaching into new industries and categories, using technology to enable the customer experience and breaking new ground in unexpected ways.

Whatever I want – whenever, wherever, however I want it.

Thirsty? Check the Starbucks app on your smartphone to find the nearest store. Does it have a drive-through? How late is it open? Place your order via the app. Walk into the store and scan your phone to pay. Then watch the stars you just earned in My Starbucks Rewards bounce into the cup on your screen. If you have enough stars, redeem them on the spot for a free snack.

This is what loyalty looks like now.

Technology has allowed the best marketers to integrate store locators, payment vehicles, loyalty programs, even games, in a single app that’s always at the consumer’s fingertips. Convenience, rewards, ease of use and a fun experience combine to build habit, loyalty, engagement and advocacy.

These are today’s best practices.

Initially led by Millennials, all consumers have come to expect experiences, benefits, rewards, services, entertainment and information customized to their needs and wants, tailored to their current location, context and mission, delivered in the channel of their choice, anywhere and anytime. Marketers who fail to deliver on those expectations will be left behind. And loyalty programs remain one of the best ways to gain a consumer’s explicit permission to track behavior, which will only increase in importance as more privacy laws take effect. Loyalty programs provide a visible mechanism to exchange data in return for value and relevant content that engages consumers and delivers a rewarding experience with the brand.

Mobile payment is a key part of the best-designed programs. As Apple and Google work to bring mobile pay to critical mass acceptance, one piece of the puzzle will be incorporating loyalty seamlessly into the experience, as Starbucks has done but with the limitation that the member has to purchase a stored value card and maintain a balance with Starbucks. So far, most payment apps require the customer to identify herself twice; once for the payment and once for the loyalty program. This is a less than optimal experience, and will have to be solved as the apps mature.

Direct connections with indirect customers

In 2006, Coca Cola introduced My Coke Rewards, leading the way for CPG manufacturers

and other marketers with indirect distribution to start building direct relationships with customers. Other packaged goods companies including Procter & Gamble, Kraft and Kellogg’s also began efforts to interact with consumers without disrupting their retail partners. Many of these initiatives are simply communications, like e-newsletters, but some are full-fledged rewards programs, like Kellogg’s Family Rewards. CPG programs still face a challenge in delivering an effortless customer experience – some programs require manual entry of package codes – but program penetration in the category is bound to increase in the near future as the ability to scan data from receipts and purchased products becomes a reality.

Entertainment content companies like Warner Bros., Disney, NBC, and Univision have also been trying out loyalty with some fascinating reward innovations. However, most did not sustain the effort to gain critical mass. For example, Warner Bros. launched Insider Rewards in 2008. It was an innovative program rewarding purchases with points redeemable for discounts, and interactions such as reviews, likes, and tweets with recognition, status and game elements. That program morphed into the Warner Bros. A-List, primarily used as a research panel. Disney has been the most successful at the discipline of building actionable loyalty bases with targeted programs to reward different segments willing to buy directly. Disney Movie Rewards targets the direct purchaser of Blu-rays, DVDs and digital downloads with rewards in kind plus exclusive collectibles. The Disney Movie Club combines features of modern loyalty programs like Amazon Prime with the old-school appeal of the classic music and movie clubs. Club Penguin and Games apps provide age appropriate engagement opportunities for children – with full parental permission.

Whatever forms these engagement efforts take, the key is creating interaction with the end consumer, even in an environment where the transaction is owned by distributors like Apple, Amazon, Walmart or AMC Theatres

Merci, Merci, Merci

Another sector entering the loyalty arena may seem unlikely: public agencies, and public/private enterprises. Perhaps the most noteworthy is the Merci program launched by the Societe de transport de Montreal. While a public transit agency is essentially a monopoly, such agencies obviously compete with private cars, taxis, Uber and other alternatives – and a good loyalty program can help agencies win and retain share while also monetizing their extensive rider base.

STM partners with local businesses to offer discounts and rewards to Merci members, using behavioral data and geo-locating technology to deliver immediately relevant, local offers and experiences to transit users. Merci also rewards “doing the right thing” with recognition for the rider’s contribution to the environment and quality of life.

Other public agencies, including power utilities, have also experimented with loyalty programs, achieving mixed results. Some, like Energy Plus, partner with existing programs (Marriott, Amtrak, Sears and major hotels and airlines) to deliver rewards to their ratepayers. And other enterprises, such as Recyclebank, partner with numerous “green” merchants to reward socially desirable behaviors.

Is America finally ready for coalition programs?

Coalitions like Air Miles and Nectar have long been successful in Europe, Canada and other markets. But success in the U.S. has eluded those loyalty marketers, like Air Miles, that have attempted to break into the American market. One primary cause of this disparity is that key industries, including supermarkets – a vital player in most coalitions – are much more fragmented and regionalized in the U.S., compared to the more compact and consolidated markets elsewhere where one player can drive membership of the majority of all consumers in a country. Another factor is the American consumer’s strong engagement with individual brands’ programs, especially the airlines that have enough partners to fulfill the function of multi-brand coalition. Finally, marketers fear that coalitions won’t provide them with the customer data they need, and may distract customers with a separately branded program.

Plenti is betting that’s all about to change.

Launched in 2015, Plenti’s initial marketing partners include Macy’s, AT&T, Exxon Mobil and Rite Aid. Plenti’s marketing efforts are extensive and expensive, including national media and prominent POS promotion. The program certainly has a chance to become America’s first successful retail coalition, given the strong brands participating and the powerful promotional campaign. But the challenges to gaining traction are significant. The public will need to perceive that the program’s rewards are sufficiently valuable and relevant to bother playing. And marketers will need to see measurable return on investment along with improved access to a larger customer base. So the jury remains out on coalitions in the U.S.

What does the future hold?

Many have predicted that loyalty programs would outlive their usefulness and disappear from the marketing landscape. But 34 years after the launch of modern programs by the airlines – and 119 years after S&H Green Stamps – it appears that the death of loyalty programs has been greatly exaggerated. In fact, Millennial customers display even higher rates of sign up, earning, and redemption than other age groups – almost 70% of 20 to 34 year olds said they would change where they shopped to get more loyalty rewards (Bond 2014 Loyalty Report).

Customer engagement strategies have continued to innovate, attracting new players, new industries and new members every day. Programs have adopted new technologies, introduced new efficiencies, developed new ways to deliver the benefits customers want and the results marketers need. Programs have adapted to changing relationships between consumers and marketers; in fact, programs have been a key driver of today’s disintermediated, customer-driven environment.

It’s a pretty safe bet that loyalty programs will continue to be an integral part of the marketing mix for the foreseeable future – provided we never stop listening to customers and innovating to meet their needs.