Decline of traditional loyalty programmes

If there’s one part of the retail environment that’s feeling unloved and deserted, it’s the humble loyalty programme. Once loved, the old “points mean prizes” excitement has diminished. These days, value is squeezed from both sides; firstly by retailers offering numerous (mainly tactical) promotions, from printed/evouchers to cashback schemes to straight discounts, and secondly by the customer being “loyal to everyone” so the “loyalty” card simply becomes a “discount” or (at best) a “rewards” card.

Many problems stem from the lack of customer-centricity; for example, schemes are rarely multichannel, so purchases online don’t tie in with purchases made in store. The customer is usually expected to purchase over a long period of time before they get any reward, with few or no “micro-rewards” to keep them engaged or to encourage the occasional customer. Rewards are rarely – if ever – timed to coincide with customer wants/needs. Few, if any, rewards are personalised or take into account wider lifestyle.

One of the key problems is the underlying premise of “loyalty”; the close correlation between accumulated “points” and “reward”. A system of “spend more to get the really big rewards” doesn’t encourage those with smaller point totals or the infrequent shopper (i.e., those who are more likely to be disloyal and arguably one of the biggest “wins”).

Digitisation of loyalty

A further trend is evident in the migration of loyalty “cards” from plastic card (or similar) to digital media (apps and websites, supplemented by emails, texts etc.). The “card” is just a customer identifier and it is an inconvenient customer experience to carry and present cards for each programme. Further, it usually only identifies the customer post-purchase, which limits the opportunity to influence behaviour. Using online and mobile devices should therefore be no surprise – and once in a digital environment, it is possible to offer a more convenient and engaging experience, before, during and after purchase. For example, Subway are actively migrating their customers from card to app, allowing users to locate outlets, find a real time points total, discover what they can redeem a (large!) points total against, view transactions and so on. Retailers are also starting to use geofencing (messaging people when they are close to a physical location, such as a store) and proximity marketing to indentify customers pre-purchase and influence their experience, with mobile phones typically acting as the “glue” between physical and virtual worlds.

Rise of Gamification

Traditional loyalty and discounts/promotions are unlikely to drive desirable long term behaviours and this is where the third trend comes into play: gamification. From Farmville to Nike+, gamification has caught the public imagination as it appeals to our sense of nurturing, collecting, visible progression, status and recognition, competition and other fundamental human needs.

For example, Nike+ allows friends to track their exercise, receive micro-rewards against progress, set up challenges between friends, curate and display lifetime achievements and more. Crucially, the majority of those rewards are digital “micro-rewards”, such as an achievement badge for reaching a total mileage, and so regularly incentivise desired behaviour at low cost – and the more exercise someone takes, the more products Nike sells. Additionally, the more engaged the customer is with Nike+, the more loyal they are to the Nike brand.
These initiatives don’t necessarily have to be complex or “high-technology”. One of the simplest and most effective examples is Waitrose, who give customers a green coin with each purchase (regardless of purchase value) to allow them to vote for one of three local causes; it uses gamification to increase repeat visits, engages through competition and also leaves each customer with the feel good sense of helping the community with each visit, a positive mental association.

Compare and contrast this to most current loyalty programmes and their ability to influence behaviour through collecting “points”. The possibilities with gamification are limitless, for example:

  • Digital “badges” as customers “collect” all the sandwich flavours (repeat purchase and product trial in a notoriously disloyal – but high margin – purchase)
  • Targeting a customer segment to make repeated purchase of a single product – for example, students purchasing instant noodles – to grow, nurture and reward an online “virtual character” (driving footfall and increasing both basket value and visit frequency)
  • Friends “travel the world” with purchases of different products with digital rewards (such as travel guide ebooks) for progress and a holiday prize draw for completion, giving engaging short and long term objectives for customers (collecting and competition)
  • A beer and wine club with engaging content mixing micro-rewards (such as access to vineyard tour videos, suggested menus etc) with each purchase, and longer-term partner rewards (such as branded accessories, home tasting sessions etc)

Retailers could use gamification over digital channels to drive behaviours in ways that traditional loyalty cannot. The key is to understand the customer needs and desired behaviours from a particular segment, and use gamification to mutually satisfy the customer/retailer requirements.

Future View Of Loyalty

Retailers should no longer view loyalty programmes as a quantitative in-house currency; rather they could be a qualitative tool to influence customer behaviour, putting the customer at the centre of the strategy. Decoupled from points totals, rewards should influence customer behaviour rather than reflect historical customer value. There is also opportunity to reduce the running costs of such programmes by making “rewards” digital in many cases.

Loyalty programmes should then be multichannel, interactive and personalised, and aim to influence short and long term behaviour by using elements of gamification to engage and reward the customer according to their individual wants and needs. This will make the loyalty effect stronger and provide wider appeal, appropriate to everyone, including engaged, infrequent or new customers. Furthermore, such programmes can be used to drive behaviours beyond loyalty; increase purchase/visit frequency, increase basket spend, product trial and so on. And that, truly, is customer loyalty.