For some time now, there has been a paradigm shift in the way loyalty programs are conceived, designed, rolled out and assessed. This shift is a reflection of the changing landscape of brand loyalty over the past 10 years—changes and trends brought on by the forces of disruptive technology, data and analytical accessibility, and the undeniable influence of millennials.
This shift has been a long time coming. Loyalty programs started in the 1960s as supermarket and gas station "continuity programs," explained Ira Ozer, CEO and president of Engagement Partners, Chappaqua, N.Y. In these programs, he said, specific sets of plates, bowls and glasses were selected by the program sponsors and then a new plate was given each week with a purchase of a specified amount by the customers, with the proposition of collecting the whole set. Later on, these programs were overtaken by stamp programs, in which customers would be given trading stamps with each of their purchases, which they could then save in booklets to accumulate and trade in for merchandise from a printed catalog or in-store selection.
Over time, Ozer continued, these stamp programs and other ways of tracking incentive award points manually were overtaken by spreadsheets and computer database programs. Then, most print catalogs were replaced by dynamically updated online versions. There were many benefits of this, including increasing convenience and award choice for customers, improving customer segmentation, communications and data available for program improvements, while reducing costs for program sponsors.
The evolution in program design, as Ozer suggested, is trending to convenience, simplicity and personalization. Indeed, "people expect loyalty programs to be simple and available, whether those people are in a consumer loyalty program or a business-to-business, channel loyalty program," added Barry Kirk, vice president of Loyalty Solutions with Maritz Motivation Solutions, of Fenton, Mo. "Getting people to enroll in a rewards program can be relatively easy," Kirk said, "but ongoing involvement can be more difficult. There is something called 'the engagement cliff,' where we see a large percentage of those people who enrolled falling off in their engagement with the program."
A common reason for this, he said, "can be difficulty in accessing and using the program." Loyalty programs today must be accessible through mobile devices, and earning needs to be simple and as automatic as possible.
"This is especially true for loyalty programs that are primarily using what we call a 'mercenary' style of loyalty," Kirk said. "This is the traditional 'buy this, get that' points-based program, and it's a foundational form of loyalty. But we also see a trend for two deeper forms of loyalty: true loyalty, where customers want more of a personalized, two-way relationship with the brand through the program and are willing to invest a little more time and information to get that; and cult loyalty, where customers are also willing to advocate for the brand—make referrals and comment on social media."
"What we have seen," added Steve Taggert, content strategist, Loyalty360, of Cincinnati, Ohio, is a marked increase in brands engaging customers on an emotional level as opposed to transactional. "Where loyalty programs were once able to get away with simply offering discounts to retain shoppers," Taggert said, "they now find that once those discounts end, the more fickle modern customer simply moves to the next brand. Instead, companies are going the extra mile to try and make loyal customers feel valued and part of a club, as well as offering unique, tailored perks along the way."
That's right, said Susan Adams, senior director of engagement, Next Level Performance, a Dittman Company, New Brunswick, N.J., agreeing with Taggert. "It's all about engagement when it comes to loyalty, whether channel, customer or employee. The more the program participant feels that they are connected to the organization and its goals and mission," Adams said, "the greater the mindshare and the motivation. Clear, interesting and frequent communications are absolutely essential to stay front of mind and deliver the company message."
The Internet has made all that possible and easier, said Adams. Now with mobile apps and mobile responsive websites, loyalty programs can truly be taken on the go. Participants and representatives can check progress to goal while on the road. What's more, with push notifications, it's possible to reach the entire audience with timely updates and opportunities. While the program principles remain the same, it is much easier to keep the attention of a broader audience, and to refocus them on shifting priorities.
Key Drivers of Successful Loyalty Programs
It sounds simple, but take a step back upfront and make sure that you understand why you are starting the program and what the objective and metrics are that you are looking to drive, advised Christina Zurek, solution manager, marketing strategy, ITA Group, West Des Moines, Iowa. "So often, she noted, there are many stakeholders who are going to be impacted by the rollout of the loyalty initiative, and it is too easy for those objectives and metrics to get cluttered.
It is critical to have consolidated agreement on what the most important behaviors are that we are looking to drive and change through this incentive."
That starts with that strategic design process.
A successful program starts with a clear business strategy on the part of the sponsoring company—who are the customers or business partners you are trying to reach, and what are the behaviors you want to see more of? Purchases? Repeat visits? Sales or product certification, in the case of a channel program? And what is an increase in those behaviors worth to help determine award value?
"This is an area where analytics and predictive modeling, even machine learning—what we call Decision Sciences—is vital," said Kirk, of Maritz. "Complementing it all is a people-focused design to ensure the program is enticing and reinforcing for the program members."
Digging deeper on that thought, Ozer said that once the specific business and behavioral objectives desired from the program are clear and that the proper participant audience is understood and segmented, the drivers for success are:
Compelling benefits: Providing loyalty benefits and rewards that are compelling to the participants and that can be sustained during the program period. Not all benefits have to be expensive, such as special access to events.
Engaging communications: Communicate the benefits frequently during each phase of the program including acquisition, activation, usage, retention, advocacy and win-back.
Gamified training: Ensure that participants understand the behaviors you want, and educate them about the benefits of your brand and program. Use gamification techniques where possible.
Listening and responding: Allow and encourage participants to provide feedback about their interactions with the company and program and provide personalized responses and actions.
And don't forget, Adams added, "particularly when designing a loyalty program for channel partners, such as agency or company owners, it is important to think about what will capture their attention in a crowded marketplace."
Travel remains the number-one motivator, especially for channel programs, Adams said. "Many channel partners may be able to afford to travel extensively on their own, but a great incentive planner can always wow them with exciting destinations and access to activities and events the guests cannot replicate," she said. "Additionally, the opportunity to network with other industry partners provides important opportunities for future business and best practice development."
Finally, people respond to insider status and recognition. A channel incentive travel program offers an unparalleled opportunity to acknowledge partners and give them the special access they have earned through their ongoing loyalty. And, very importantly, this also helps to build the relationship between the company—including reps and senior leaders—and customers and channel partners. There's simply nothing like time and shared experiences to create lasting connections and positive perceptions.
Dealing With Different Generations
There has been a great deal of buzz about millennials and gen Z being digital natives, said Adams. "This suggests that programs must go online to reach this audience. It turns out, however, that gen X is actually more engaged with social media and smartphones than their younger colleagues. The reality is that most of the workforce is tech-savvy and expects the workplace to keep pace. Using Instagram, Facebook and LinkedIn, along with mobile apps and program websites, is often the expectation, rather than the exception for most workers."
Zurek agrees: "I wouldn't say that millennials need to be motivated differently, but they are a catalyst that has been opening up doors for organizations to really take that deep dive into what can be done to ensure that this program is personally relevant and meaningful for the person I am trying to incentivize. The payoff of that is not only are we seeing much stronger results, but we are also able to relate to those individuals on a personal level.
It isn't necessary that this newer generation needs to be treated differently, Zurek believes. Instead, it's important to realize that everybody needs to be treated differently. We are all different. And so the task of program designers is to figure out how incentives can be flexible and adaptable, looking at life stages of individuals rather than oversimplifying and focusing on one generation.
"I think there is a shift in the human perception of success, and that is something we are seeing across all generations," Zurek said. This shift is being driven by millennials questioning how things have been viewed in the past. For years, success meant lots of stuff and earning more and more rewards and recognition.
"We are seeing a shift toward a more minimalist lifestyle," Zurek said. "That is something you might keep in mind when it comes to designing your loyalty programs. Many people in your program look at success differently. It is more than just stuff now. We call it motivology, looking at intrinsic and extrinsic motivators and figuring out what that right balance is in a given solution, to see that we are really capitalizing on motivating people to their utmost potential."
There has been too much of a focus on extrinsic motivators as incentives, because that was has always driven salespeople, Zurek believes. But as the vision of success is changing in the world, it is imperative that there is that balance and that you are attending to those intrinsic motivators as well.
The kinds of rewards that will help grow loyalty depends on the strategy you use, Kirk said. "In most cases companies are addressing a very diverse audience," so options are important. In-kind awards continue to be popular as well as travel, merchandise and gift cards. Special privileges are a very powerful driver, too; extra discounts, early availability to new services, or access to a members-only area can inspire program members to push a little harder to reach that special status.
Many of the differences in engaging younger audiences, such as millennials and gen Z, come down to a channel migration, added Taggert. Where brands were once content with engaging shoppers through a website or mobile app, "we've started to see a shift in how customers earn rewards. This includes embracing social media trends, and rewarding based on engagement activities across these channels, through things like hashtags or tagged pictures."
Going hand-in-hand with social media usage, audiences today—especially younger ones—are looking for relevant experiential rewards, Taggert said. "Where older shoppers might opt for a new gadget, younger consumers usually prefer exclusive VIP experiences to events like concerts."
Customer data analytics has gotten to a point where loyalty programs are incredibly powerful tools to get to know customers, and thanks to leaders like Amazon and Starbucks, customers now expect nothing less, even when engaging with smaller, less sophisticated brands, noted Taggert. "Much of this difference is felt in personalization—customers have become savvier when it comes to valuing the data they hand over to companies, and while they're still willing to provide it, they expect a substantially heightened experience in a brand."
Musts and Must-Nots
Don't launch a program without a plan, Zurek said, as she began her list of four "musts" and must-nots to avoid. "We've had clients say programs are not performing as planned, and we say 'how do you measure success? What do you consider success?' And they don't know. They just feel like it is not working.
"Make sure you take the time to assess what your needs are as an organization and vet your program upfront before you launch it. It can be something as informal as casual conversation among people representative of the type of participants you would have in the program, or it can be much more formal in terms of organized focus groups."
Secondly, Zurek said, don't build your program in a bubble. You can unintentionally exclude people because they might not think as you do. Try to get as complete a picture of all the incentive options you should be presenting to participants, and then once the program is up and running, don't assume the participants know how to earn, or how they are performing.
"People are multi-tasking more than ever before," Zurek said, "and it is too easy for things to be lost in the clutter. You need to launch the program in a way that commands attention. You only have one chance to make that first impression."
Another must is constant communication. One e-mail is not enough. No matter how great a program you build, if you don't promote it and make sure people understand how and why they should be participating, it will never succeed.
Don't set the program on auto-pilot, Zurek suggested. "Once a program launches, you need to keep the program appealing. Is it performing to reach those objectives and metrics you wanted to look at from the start? Don't be afraid to change it. There is a balance: You don't want to be too reactive, but careful introspection and making sure that you are really assessing the solution's effectiveness is critical to keeping it fresh."
Ozer added his own "musts": Segment the audience, he said, "depending on a variety of factors, such as recency, frequency, monetary amount (RFM) and lifetime value. Also, design the program so that it is not too rich or too cheap, and ensure that it is measurable, so improvements in purchases and loyalty can be tracked and the return-on-investment measured on an ongoing basis."
And finally, Ozer said, "do not launch a program and then change the rules capriciously and/or too soon. Loyalty programs can take three to five years to truly understand if they are working and prove the ROI."
Rick Dandes is a reporter/feature writer at The Daily Item in Williamsport, Pennsylvania. This story originally appeared in Premium Incentive Products magazine.
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