If retailers wish to attract loyal customers, they must offer more than just run-of-the-mill discounts. These days, giving a generic discount to all cardholders does not enhance the customer experience. Sure, everyone likes to offer ways for customers to save money, but a customer’s loyalty goes a lot further. The Pareto Principle tells us that 80% of revenue comes from the top 20% of customers; therefore, should these top customers be treated differently? The hospitality industry gets it. So does the financial industry. But in general, the retail industry is still issuing generic loyalty cards to the masses, when they should be offering customized, tailored experiences to their most loyal customers.
Today’s customers are more sophisticated and less willing to give up personal information for free. They know the value of loyalty and are more selective about the programs they join. So retailers need to make sure their programs provide real value and create emotional connections with customers. Below are five rules for modern loyalty programs with real-world examples:
Do Not Treat Everyone Equally
Retailers should separate the 20% from the 80% — much like airline and hotel programs have done. Earning and redeeming miles is great, but it is being treated to better seats, early boarding and priority booking that really makes those programs valuable. Likewise, retailers should offer ways to earn perks that set their best customers apart. For example, Nordstrom grants their VIP customers access to their Anniversary Sale pricing earlier than everyone else. The sale is hugely popular, and the best deals often sell out early, making it a very valuable perk. It is a great way to let their best customers know they are appreciated — and other retailers should follow suit.
Be A Part Of The Lifestyle
Discounts are important, but lasting relationships occur at a deeper level. This is why it is important to provide other types of value to customers beyond the typical incentives. For example, The North Face VIPeak program rewards customers not only for purchases, but also for visiting locations and participating in sponsored events, which is very consistent with the brand. Their loyalty program is very aligned with their customers’ outdoor lifestyle — they help their customers get the most out of the sports and activities they love.
Engage Where Customers Spend Time
If you are only engaging when the customer visits your store or web site, you are missing out on many additional opportunities. Modern loyalty extends to social sites and mobile apps where customers are spending their time. Retailers like Zumiez use their loyalty program to reach their customers across many different channels, such as Instagram, Snapchat and YouTube. Additionally, “The Stash” rewards customers for participating on social media, which in turn raises the awareness of the program.
Be Authentic To The Brand
A retailer’s loyalty program should enforce the brand’s values and align with the brand culture. For instance, Toms is all about great products and helping others worldwide with the “one for one” promise. Their “Passport” loyalty program fits this theme with an international travel motif and two tiers called Explorer and Trailblazer. They help customers feel good about their purchases and the worldwide impact of helping those in need — which ultimately creates long-lasting customer relationships.
With their 25 million members, DSW’s VIP program offers three tiers depending on spending, providing points for purchases, reduced shipping fees and rewards for birthdays. In other words, the best customers get the best perks. And loyalty programs should never just be about giving away margin. Instead, they should be used to incent behavioral changes in customers, like more frequent visits to the store, tweeting about products or acting eco-friendly. DSW’s VIP program encourages shoe lovers to spend more but also recycle used shoes for charity.
Of course, to build great loyalty programs, retailers also need software that tracks engagement, increases reach across many channels and measures effectiveness. It is vital to keep the program fresh, changing its parameters as the brand matures and culture morphs. Loyalty software needs to be flexible enough to easily support many earning and redemption opportunities across emerging touch points.
Personalization is also becoming required in order to make customers feel special. Loyalty programs can be used to capture purchase patterns and make personalized recommendations and offers. Now with machine learning becoming more easily available, retailers can better understand what drives their customers to make purchases, then test offers to impact behavior in different ways. For example, getting customers to buy in new categories, increase purchase frequency or switch to higher margin products.
Analytics are key to understanding which programs are actually providing the highest return. The objective is to increase the Customer Lifetime Value (CLV) of your existing customers and drive new ones to join the program. Collecting and analyzing performance data will tune the program to be most effective. Lastly, it is time for retailers to embrace loyalty programs that customers want to join, that enhance the shopping experience and that benefit both parties.
David Dorf is VP of Product Strategy at Infor, where he focuses on customer experience for various industries. Before joining Infor, Dorf handled product strategy at Oracle Retail and held several positions at 360Commerce, Circuit City, AMF Bowling, and Schlumberger’s Retail & Banking division, developing retail systems using various technologies. Dorf is an NRF-ARTS board member and has chaired several work teams including the NRF Mobile Blueprint for Retail and the ARTS Social Retailing whitepaper. He holds degrees from Virginia Tech and Penn State.