Three Trends That Will Transform Your Loyalty Strategy

Sep 14, 2006 12:36 AM  By

As we look into the future of loyalty-marketing innovation, three major trends will emerge. In fact, some leading-edge companies are already taking advantage of these concepts and tactics.

Trend #1: the power of the network

Marketers have long known the power of engaging in dialogue with customers. But those who push the boundaries of customer dialogue also understand the power of communities of consumers united in affinity for a brand, bound by geography, or engaged in similar lifestyles. The growth of these consumer network-building systems is the first seismic shift in the loyalty landscape.

In the loyalty game, helping to create customer groups bound by shared interests is a way to develop a sense of community around your brand. Communities have always evolved organically, without help from marketing, but today smart marketers are tinkering with the DNA of their customer bases to push the boundaries of customer communities outward.

Within the context of the loyalty-marketing space, when we think of how best to leverage the power of consumer networks, what we’re really talking about is implementing a dialogue marketing strategy. The better your ability to grow dialogue between you and your customers and among your customers themselves, the stronger your brand will become. For loyalty innovators, that means moving beyond two-way communications to enable customers to connect with each other, share insights, and exchange relevant information through facilitating platforms.

Trend #2: the power of data

Retail executives at the uppermost levels have come to understand the critical importance of loyalty data. Yes, they still want to see incremental behavior shifts that lead to a measurable return on investment. But they also see that, when it comes to leveraging loyalty-program data, most companies have barely scratched the surface of opportunity.

It’s a hoary truism: Information is power. But this spotlight on the power of customer loyalty-program data reveals a fundamental debate brewing about the purpose of loyalty programs: Is it enough for a program to generate incremental return on investment? Or does the real power of loyalty data reside in our ability to drive customer insight back into the core business model?

The former depends on the latter. It’s true that without the data, you can’t get the ROI. But to unleash the program’s real potential, you’ll need to embrace the second seismic shift: leveraging loyalty data to enhance your brand’s core value proposition through personalization and customer experience management. Particularly in the retail space, loyalty programs will play a pivotal role in identifying customers coming into the stores and harnessing data to change how they shop, how they experience the store, and the benefits they receive on site.

So far, the emergence of this trend is still limited to the handful of retailers who understand that the in-store experience is what drives their success. In addition to the gold standard held aloft by such forward-thinking retailers as Best Buy and, in the U.K., Tesco, a handful of other brands, including M&M Meats, a 340-store Canadian food retailer; luxury car brand Jaguar; and Shoppers Drug Mart, the Canadian health and beauty retailer, are translating data into customer experience.

Simply put, you can’t manage a relationship or enhance the in-store experience without knowing whom your customers are. And indeed, before you can really leverage loyalty-program information to enhance your company’s core product, you need to understand what insights you can glean from the data you’ve already collected. Basic ROI analysis is no longer the end game. It’s just the starting point.

Trend #3: the power of convergence

An epic confluence of events and factors outside the loyalty space will form the third seismic shift that will influence your loyalty strategy. In the global marketplace, three major areas of convergence are giving rise to a second generation of multimerchant loyalty coalitions: corporate convergence, in which mega-corporations continue to gobble one another up, with the corresponding size of their customer bases growing more astounding every day; CRM convergence, in which the next generation of CRM technology helps these same companies organize every aspect of their businesses around customer segments; and point-of-sale (POS) technology convergence, in which the next wave of payment and identification innovations will eventually collide in their ability to enable sustainable brand-customer relationships.

Coalitions typically form through entrepreneurship: A would-be coalition operator establishes a stable of “everyday spend” partners that includes a grocer, a fuel retailer, a credit-card issuer, a telecom, and a host of smaller retailers. The operator then takes the value proposition to market and asks customers to enroll. Such is the genesis of the world’s most successful coalition programs, including the Canadian Air Miles Reward Program, Fly Buys in New Zealand and Australia, the U.K.’s Nectar program, Malaysia’s Real Rewards, and Germany’s Payback.

But what about the United States? The answer lies in the ability of its corporations to take advantage of these converging trends. The new model may see a proprietary loyalty program run by one of these new mega-corporations evolve into a national coalition. By leveraging new CRM technologies to move data swiftly through the enterprise, and by building new payment and identification systems that will make consumer participation a snap, a major corporation could launch a coalition without signing the usual suspects in grocery, telecom, and fuel.

Several corporations are already poised to take this leap: Citi with its ThankYou Network program; American Express’s Membership Rewards; The Kroger 1-2-3 Card program; even one of the legacy airlines could spin off its proprietary frequent-flyer program and evolve it into a coalition—like Air Canada is doing with Aeroplan.

As consumers pull out their coalition cards several times a week while shopping at top brands, coalitions will win the battle for share of mind. And the first companies in each sector to align their brands with a top-tier loyalty coalition will enjoy a formidable first-mover advantage. The bottom line: You’ll need a strategy to evaluate whether an emerging coalition is the right one for you.

Kelly Hlavinka is director of COLLOQUY, a provider of loyalty marketing research and services. To download a free copy of the complete COLLOQUY TrendTalk white paper, go to https://www.colloquy.com/reports/WhiteIntro.asp.