How Relying On Points Could Be Hurting Your Loyalty Program

Every marketer thinks that he or she understands the customer better than the competitor; that KPI’s and numbers speak to us in a Beautiful Mind sort of way, deepening that understanding.

But what do customers really want from a brand? What makes them obsessively return? It is industry blasphemy to admit it, but KPI’s might be misleading.

The obvious answer is “value.” But value means something different to every customer.  Among the most pervasive forms of value are product, quality and price. Inherently, any successful brand is winning on at least one of those fronts.

As the world of ecommerce evolved, it became clear that lower overhead, globalized sourcing, and advanced logistics would allow pretty much anyone with a decent product idea to perform on the same level as established brands. The incremental margin simply wasn’t there anymore—there was too much parity in the market.

So retailers everywhere turned to loyalty programs founded upon the points-based model, with 3-4 customer tiers to drive incentives. It worked well for hospitality and hotels; why not retail?

The model is too ubiquitous and cookie-cutter to provide value alone these days.

In addition, many loyalty programs struggle to produce long-term incremental margin without providing deeper discounts and offers every year. It’s becoming increasingly harder to incentivize members to return when they’re over-extended in dozens of loyalty and rewards programs.

Reviewing today’s great loyalty programs tells a different story of what customers want.  Effective loyalty programs have invested time, energy and dollars in obsessive service and consistent innovation.

The problem we now face is that too few programs utilize this model.

Most loyalty programs have misinterpreted customer engagement by reading too much into the numbers. They only drive transactional loyalty through a give-take relationship.

Points and promotions train the member to view the brand as purely transactional.  That behavior builds a foundation that erodes loyalty—it’s based solely on price and discounting triggers to drive performance.

Bargain-based couponing behavior is also not an indicator of loyalty. It may increase customer frequency, but marketers need to look beyond the metrics.

There’s no emotion and no intrinsic behavioral-shift to the brand, even though it may look good on paper.

At their core, successful loyalty programs provide intrinsic value to the customer based on long-term brand behavior. Each component is truly intertwined with the rest and together they drive returns from loyalty.

Let’s take Amazon Prime for example.  Prime represents one of the loosest associations with loyalty on the market. Its offering is indistinct and nebulous, ranging from two-day shipping to TV subscription services.

Anyone else would say that kind of range for a rewards and loyalty program is crazy. Yet, Amazon Prime is one of—if not the most—successful program running today.

So why is it successful? It’s not based on tiers or double-points events.  There’s no promotional influence.

Prime is successful because Amazon has shown that it obsessively cares about its customers.  Amazon set the standard with the easiest checkout in retail.  It has the fastest guaranteed shipping in the industry with Prime.  It innovates offerings through streaming music, book and TV services, and free photo storage.

In other words, Amazon provides services and benefits that customers find essential to their daily lives, without a clear benefit to the brand.  The services appear altruistic and customers love them for it.

Customers are eager for the rest of the industry to catch up.

That doesn’t mean retailers need to start figuring out streaming services and diving into producing television shows. But it does mean that they need to figure out how their brands can provide inherent value to their members without requiring a transactional relationship.

Under Armour is a great example of a brand that stayed within its industry while providing seemingly self-sacrificing benefits to its customers.

Under Armour offers a cadre of connected apps for customers.  From MapMyFitness and MyFitnessPal to Endomondo for running plans, they all tie back to UA Record to warehouse your fitness goals.

Each app targets athletes to stay within Under Armour’s vertical while providing lifestyle benefits to consumers that don’t require anyone to buy a Under Armour product. Under Armour now owns a significant market share of athletic consumers with the best app offering in the industry.

In recent years, loyalty programs have become over-abundant and homogenous. Everyone followed the same template rather than trying to understand what services and benefits their unique customers wanted.

Looking ahead, the brands that offer high levels of innovation, deep enriching experiences, and inherent value will see long-term success with behavioral loyalty. Brands that over-extend their reliance on points and tiers will see their program’s decline in the coming years.

Jeff Sopko is President of Baseman Insights and Marketing

 

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