Do’s And Don’ts For A Best-in-Class Loyalty Program

Brands are reinventing loyalty programs and turning them from cost centres into invaluable tools for collecting consumer data, driving customer engagement, and building brand equity. Digital – especially mobile – will be at the core of leading loyalty programs: Professor Scott Galloway argues one of the prime factors separating winning and losing brands going forward will be loyalty programs that use digital as connective tissue to learn about customers and provide them with satisfying consumer experiences.

DO: Use loyalty programs to incentivise engagement and product discovery.

DON’T: View loyalty a purely transactional.

Loyalty need not centre on transactions. In addition to purchase behaviour, brands can reward actions that directly and indirectly contribute to sales. Program members who write reviews, interact with the brand on social media, and post user-generated content prime the pump for online retail by enhancing the environment for other potential customers. Brands can also reward activities that drive product discovery.

Brand examples: Lancôme’s Elite Rewards program gives points for watching video tutorials on the brand site (which can help drive conversions further down the purchase funnel) and for connecting a loyalty account to Lancôme’s social media profiles. Lancôme has indicated that writing product reviews will earn loyalty points in the future. Brands already rewarding this activity include South Korea’s Galleria Department Store. Kimpton’s Karma Rewards Program, which rolled out last year, offers perks for social media shoutouts. Walgreens’ rewards program lets shoppers earn points for visiting different store sections.

DO: Use rewards to preserve and enhance brand equity

DON’T: Limit incentives to freebies and discounts – and participate in a race to the bottom for rewards.

With an abundance of loyalty programs to choose from and a lack of benefit differentiation, customers become loyal to programs rather than brands. Instead of limiting membership benefits to free or discounted goods and services, which do little to foster meaningful customer relationships, brands can reward members in ways that encourage customer interaction without the intent of driving immediate conversion. Product exploration as a form of redemption can include consultation with stylists, samples, or early access to products. Exclusive experiences and enhanced customer service can help to deepen emotion connections to a brand.

Brand examples: Sephora provides pre-release access to specialty products, while Neiman Marcus gives wardrobe consultations. Hotels and airlines tend toward enhanced customer service rewards, leveraging technology to upgrade experiences —expedited check-in or priority boarding, for instance. Best Buy is among the retailers that lower spending thresholds for free shipping. The North Face VIPeak program provides climbing clinics and lift tickets, and Nordstrom offers invitations to fashion shows and intimate access to designer teams.

DO: Make mobile a cornerstone of loyalty programs

DON’T: Neglect to link myriad functionalities for loyalty members within the mobile hub.

Many brands are missing enormous opportunities to harness mobile apps to push loyalty programs to the next level. Brand apps can serve as a hub to integrate loyalty with couponing, for example, and enable seamless omni-channel shopping. Nearly three-quarters of mobile consumers report wanting to use their mobile devices to interact with their loyalty programs, but just 56% of studied retailers with transactional loyalty programs invested in consumer-facing, commerce-oriented mobile apps in 2014.

Brand examples: Starwood’s loyalty app integrates basic functionalities — including member profiles, stay and reservation history, and the ability to view point accruals and book using reward points — with elegant solutions such as keyless room entry and native geo-local functionality that lets users avoid data entry while completing local bookings. Walgreens’ best-in-class app effectively integrates its Balance Rewards loyalty program. Mobile coupons can be added and removed in a click; when a mobile “card” is scanned at register, any applicable clipped coupons are automatically applied. And Sears’ Shop Your Way app lets loyalty members complete purchases with points and coupons and discover nearby deals and events, which can be sent as “Surprise Points” via push notification. The app can also coordinate online purchase and in-store or curbside pickup at Sears stores.

DO: Make surrender inevitable for frequent customers

DON’T: Discourage consumers by making enrolment and benefits time-consuming and difficult to understand.

The best loyalty programs put customers who opt out at a distinct disadvantage. Mobile apps in particular are helping to make loyalty participation irresistible, as best-in-class apps serve as a gateway to seamless customer experiences — automatically applying coupons at point of purchase or faster and easier room booking or use of points as currency. In the hotel sector, loyalty programs should not only provide tangible rewards and discounts but also ease planning and booking, improve access to customer service and enhance the in-stay experience.

Brand examples: Starwood has been particularly savvy about transforming the guest experience. SPG Keyless lets loyalty members bypass the front desk and check in and access the room via mobile phone. With its Apple Watch app, Starwood even lets loyalty members pre-order drinks in advance of visiting the hotel bar. The Hilton HHonors app now allows guests to select a preferred room and request various amenities to be delivered to the room before arrival. For makeup fans who need to keep track of myriad product preferences, Sephora’s exemplary Beauty Insider program enables users to store sample, online, and in-store purchase histories in the “beauty bag,” retrievable across all channels.

DO: Collect and harness data

DON’T: Fear a privacy backlash.

Data and targeting capabilities are a loyalty program’s best assets, and the program itself can be used to effectively aggregate customer information that is otherwise untapped and siloed across an organisation. Data capture – both implicit and explicit, tying together online and offline – must therefore be a top priority for loyalty programs. Unfortunately, some marketers have shied away from using this data to create stronger offers, for fear of a privacy backlash. Privacy is overhyped relative to improving the customer experience. When offers are relevant and targeting is done well, negative repercussions will be minimal at best.

Brand examples: In some instances, brands are making the value exchange explicit. Lancôme’s Elite Rewards program gives points to customers who update their profile to include more in-depth personal data, such as address and gender, or those who sign up for a birthday email.

DO: Customise to markets

DON’T: Ignore local consumer behaviours and preferences.

It’s incredibly difficult to make loyalty work on a global scale. Brands must tailor strategy to local nuances while leveraging cross-market learning throughout the organisation.

Brand examples: Starbucks’ loyalty program, a model for all brands, spans 28 countries and is customized for each. In China, for example, Starbucks relies on gamification to drive participation. Starbucks’ U.K. program has the highest threshold to top-tier benefits and many more “soft benefits,” such as free add-ons like shots and flavours.

For more on how brands are raising the bar for loyalty programs, download a copy of L2’s Insight Report on Customer Engagement: Loyalty.