9 Things You Don't Know About Retail Loyalty Programs In 2016
From the tangible value of data assets to stealth pricing, loyalty programs can offer retailers many advantages that are little understood. With 2016 now upon us, I share nine expert-provided aspects of loyalty marketing that retailers may not know.
By: Bryan Pearson
An oft-used term in business, especially in fast-expanding industries, is, "You don't know what you don't know." These days, in the loyalty marketing industry, there is much retailers are striving to know, but boy is it work to keep up.
From stealth rewards programs to cloaked pricing to delayed regulations, the retail and loyalty environments are more fluid each month. I spoke with my friends at Precima, our global retail strategy and analytics company, and other experts to learn what loyalty events are likely not known as 2016 gets under way. Following are the top nine:
1. Your best members can be much better:
A supermarket's most loyal customer typically spends only 50 to 70 percent of her monthly budget with that merchant, according to Precima. If retailers directed more of their budgets to better satisfying these customers, rather than acquiring new customers, and used their loyalty data as a guiding light to specific preferences and needs, they could recognize highly significant and attainable growth opportunities. Further, the dollars invested in existing customers deliver a healthier return on investment than those used to acquire new ones. "If a shopper has never been to a specific store, it is probably for a good reason, and a generic offer is not likely going to change her mind," said Graeme McVie, vice president of business development at Precima.
2. Programs are shape-shifting:
Some leading retailers not typically associated with loyalty programs, most notably Walmart, are introducing loyalty-like programs by stealth. Walmart's Savings Catcher app does not issue cards or memberships, but make no mistake - it is a loyalty program in all but name. First, the app enables Walmart to personally identify its customers in much the same way as a rewards program, and second, it provides Walmart with the data and a mechanism (the app) to deliver personalized offers to its shoppers, improving its chances of earning their loyalty for features that extend beyond price.
3. Prices can be cloaked from competitors:
Some leading retailers use their loyalty programs to send one-to-one special offers that are evident only to the targeted shoppers. These offers are increasingly sent via smartphone and often when the shopper is right in the aisle, in a better position to take advantage of the opportunity. These personalized promotions make the standard shelf price less important to loyal customers and, more important, they make it very difficult for competitors to match the price these shoppers receive.
4. Loyalty programs generate their own products:
Retailers sell more than sweaters, bananas and electronics. The insights loyalty programs generate are of great value to their retail suppliers. Consumer data and other intangible assets (trademarks, copyrights) could be worth more than $8 trillion, according to a story in the Wall Street Journal. The Kroger Co., for example, was estimated to have sold $100 million worth of data in 2014 to Procter & Gamble Co., Nestle and other suppliers, according to the report. In September 2014, members of the Financial Accounting Standards Board were advised to research intangible assets for the third time since 2002.
5. Odds of engagement are declining:
On average, American households are enrolled in 29 loyalty programs, yet they are active in only 12. This 42 percent participation rate will continue to decline if retailers persist in presenting the predictable, one-dimensional model that rewards customers with points and discounts. This model, while the traditional format, does not maximize the ability of today's loyalty strategies to identify and accommodate unmet but potentially life-altering needs. Walgreens' Steps with Balance Rewards program and Sears' FitStudio both recognize and reward members who increase their physical activities, acknowledging their desire to improve their health and lifestyles.
6. The best programs are not programs:
"The winners in loyalty will be those organizations that can think horizontally, meaning they see their loyalty endeavors not as mere programs, but instead as strategies that serve the broader brand promise," said Dennis Armbruster, vice president and managing partner at LoyaltyOne Consulting. Retailers that integrate their loyalty data insights, investments and human resources across the organizations can transcend the boundaries and regimens of typical programs. This strategy is further supported when retailers carve out and reserve specific, high-value aspects of their loyalty initiatives (special events such as cooking classes or one-to-one fashion consultations) for those members who show a high likelihood to appreciate such features.
7. Data value is not hitting max:
Following up on No. 5, retailers invest a reasonable amount of financial resources into their loyalty programs, but they still don't leverage that investment - particularly the data stake - across all areas of their businesses. Specifically, too few retailers are consistently incorporating insights from their loyalty programs into their prices, promotions and assortment decisions. As a result, too few are aligning their merchandising decisions along customers' needs as well as they could. The upshot is these retailers are not maximizing and realizing each program's potential return on investment.
8. Experience beats rewards:
Loyalty programs do not guarantee loyalty when they do nothing to improve the customer experience. Rewards and loyalty strategies should be viewed as means to an end, with the end being a superior experience that is informed by data and designed to address individual shopper needs to the best of the company's ability. The Nordstrom Rewards program, for example, allows members early access to its highly anticipated anniversary sales. And Caribou Coffee's Perks program strives to delight members by presenting random surprises at checkout. The message bears repeating: Loyalty programs and the data they generate are often marginalized and not fully leveraged to accomplish these attainable goals.
9. Rewards data regulation is now two years away:
Topic 606, the Financial Accounting Standards Board's method for accounting for contracts that generate revenue from customers - including rewards programs - has been delayed by one year. The revenue recognition standard will now take effect among public companies in December 2017. That gives many retailers 12 more months to prepare and devise currency strategies that factor in the planned policy. We may not know what form these regulations will take when they finally come into effect, but we can keep tabs. The less we do not know, the better.