Loyalty has long been an industry that shifts based on business trends, new technologies and market disruptions. But one thing remains the same, consumer loyalty relies on a seamless customer experience. Multiple industries inform and teach others how to keep pace with the expectations and needs of consumers. Banks teach us about security and regulation, travel and hospitality teach us about partnership exchanges and shared bank financial modeling, and retail… retail teaches us how to handle the velocity of currency exchange.
In loyalty, we use the term velocity in many ways, but from an economics perspective, and in its most simple form, it is about the speed in which money changes hands. Loyalty currency changes hands between retailers and the consumer faster than any other industry – creating significant exposure and risk for the brands if anything is not calculated correctly. Exposure comes in many forms and has numerous implications.
As consumers, we all love a good promotion. But what if a loyalty promotion is calculating or decisioning incorrectly? What if the system is to blame or even human error? These errors create instant liability for retailers and a haven for fraudsters and gamers who look to abuse the program. The U.S. estimated value of unredeemed points is upwards of $350 billion, making program mistakes a tempting target.¹
In most industries, there is an option to post points in a delayed manner; post points, but don’t vest them until a billing cycle ends (e.g. credit card); or pre-decision but don’t award until a future event (e.g. travel bookings). With each of these delays before posting the final reward for consumer use, there is a runway to course correct errors. In retail, that is not an available luxury.
The consumer expectation in retail is to earn their points, see them omni-channel in real-time – sometimes even posted right on the receipt or shown on the screen of the point of sale, and have them available for use almost immediately. As an example, a single retail client at Kobie carries over $150M of liability on their books every year. A mistake granting loyalty currency available for real-time redemption creates a massive liability for the brand. In a batch processing world, file issues can be re-run the following day for catch-up or resolution. But, not in retail.
Of course, a program that relies on batch processing needs to be able to process quickly, efficiently, and accurately because the consumer experience is the only thing that matters. But in retail, one bad consumer experience can lead to instantaneous shifts in channel or brand – even during the transaction! Relationships built upon stickier mechanisms such as credit cards reduce the fragility in the experience and risk for consumers to brand shift.
The exposure from the currency exchange to the consumer in retail can be compounded with a lack of acquisition barrier. With products that require an approval enrollment process, such as a credit card, an instantly redeemable reward isn’t available. This creates a time lag and barrier of entry that ensures a viral “run on the house” isn’t possible. A retailer’s mistake is a consumer’s treasure trove as it goes viral online and consumers can take advantage faster than the retailer can contain the situation.
One may recall the Starbucks incident where savvy members exploited the vulnerability of terms and conditions written poorly. The T&Cs did not explicitly say the type of drink that could be redeemed for free, which led to a social media game of who could redeem the most outrageous drink. A $54 Frappuccino won.² Imagine what the stakes could look like on Black Friday for a major retailer. For a single client, Kobie processed over $3B of spend across 19M consumer transactions during the holiday weekend and issued over $25M worth of loyalty points. Inaccuracy could be disastrous.
The lack of rollback capability also rears its ugly head during, “pay with points.” Retailers have pioneered the concept of pay with points in real-time at the point of sale. This isn’t a rebate or cashback that can be rolled back before the statement is issued. This is real-time earn AND burn possibly on the same transaction leaving no margin for error.
At Kobie, we have been built to mitigate these concerns for retail – and as a result we have solved for all other industries we serve through expertise, practice and technology. Our multi-vertical approach to learning and delivery ensures we provide the best customer experiences in market for our clients. As we bring learnings from each of our industries to bear, we have brought the demands of retail to our broader client base to provide scale, accuracy, and performance that they don’t need to question in terms of points accounting safeguards.