In today’s retail landscape, there is no denying that the customer is king. Today’s shopper has more power than ever before – with information at his or her fingertips and endless choices on where to buy their goods. In this world, there’s no wonder that retailers are putting an increased focus on customer loyalty, and by extension, their rewards or loyalty programs. In a previous insight, we examined how loyalty programs in retail have evolved as retail has changed over the years, and we find ourselves now at a point in time where the holistic approach to loyalty is emerging as the best way to engage customers for long-term profitability. Building a holistic loyalty program which offers unique, innovative experiences for their best customers is the future of retail loyalty programs. Brands should consider four key factors while designing their loyalty programs in retail to ensure they are achieving the best possible customer experience and competitive advantage.
It Starts at the Beginning with Loyalty Programs in Retail
What is the first basic barrier to a successful loyalty program? Getting your customers to sign up and to use it! In an age where eCommerce retailers are seeking to cut as many clicks out of the purchase journey as possible, finding ways to quickly and easily enable loyalty signup during a visit is key. Two leading cosmetic retailers who have found a way to do this well are Ulta Beauty and Sephora. When signing up for an online account, it is extremely simple to add on their Ultimate Rewards Program or Beauty Insider program, with one extra click of a checkbox. There is no maintenance of a second profile or the need to visit a separate website, which often creates confusion and a poor experience for the shopper. Both companies also allow users to join their programs either during or just after the purchase – again with a very simple process.
It’s important to not forget that while eCommerce plays a huge role in retail today, less than 10% of total retail sales are completed online. This means that retailers need to find a way to sign up their customers while in store, in a manner that doesn’t bog down checkout times and ruin the store experience. Ensuring that the Point of Sale system is set up for quick loyalty signups, and store associates are trained to entice customers to sign up might be the single biggest factor in getting your loyalty program off the ground. Once a customer is signed up though, being able to easily use the program becomes the next logical challenge. Starbucks is a notable example of a company that has mastered this. Rather than their rewards program is an extra step in the process, they have combined the payment method and Starbucks Rewards, leading it to be the most popular mobile payment app.
Straying from Private Label Credit Card Restrictions
Retailers have a clear incentive to encourage their customers to sign up for and use their branded credit cards including additional customer engagement opportunities, lower processing fees, and new revenue streams. However, consumers today like having the flexibility to use the payment method of their choice so they can earn additional benefits in a form of their choosing whether that be points towards travel, cash back, or rewards related to the retailer they are shopping at. With an increased focus on experiences for younger generations, it becomes clear that this payment flexibility is a must for retailers, else they risk missing out on a large number of loyalty purchases.
Large retailers who previously rewarded loyalty only for private label card users are trending towards opening their programs to everyone, regardless of payment method. Macy’s has revamped their Star Rewards program with a new tier for non-card holders, and Target is testing a program that is not tied to their Redcard. There are benefits to providing extra rewards to private label card holders, and offering a tier-based approach where your most loyal of customers receive additional benefits is a good strategy. Retailers, however, should be conscious that cutting out a substantial portion of the customer base from loyalty offerings simply because of the cards they carry in their wallet is a thing of the past and should be avoided going forward.
Give More Than Points, and Reward More Than Spend
When looking at the evolution of the loyalty program – from punch card to a points system to a holistic marketing program – the biggest question today that retailers should be asking themselves is “what unique experiences can I be offering our best customers, and how can we reward them in innovative ways?” Consumers enjoy earning points and getting free things – but innovative retailers will look to broaden the scope of rewards beyond a simple dollar back model after reaching a specific spend threshold. MAC Cosmetics’ Select program offers early access to products, exclusive products to its highest reward members, and even free makeup application sessions. Carhartt’s Groundbreakers program will reward members not just for spending, but also for doing things like leaving product reviews and attending store events. These are terrific ways to drive in-store traffic or to collect additional data on products while finding a new way to engage with customers in an age where every touchpoint matters.
A Customer-Focused Design
It can be easy for retailers to get caught up in the benefits they will see from implementing a strong loyalty program – from more insightful customer data, increased customer retention, more repeat visits, and higher cart values – but it is critical that retailers don’t forget to focus on the customer when designing their rewards programs. Jeff Bezos has credited Amazon’s success to their “precise focus on customer outcomes” which led to the creation of Amazon Prime. On the other hand, Bed Bath & Beyond’s Beyond+ program seeks to charge customers $29/year while offering few benefits, and ones that are widely available to most customers daily in the form of endless paper coupons or low free shipping thresholds. While Amazon Prime is clearly focused on the customer, Beyond+ in its current beta form is more focused on generating an additional revenue stream for Bed Bath & Beyond than creating new experiences for their customer base.
Overall, it’s clear that retailers are realizing the benefits of a strong loyalty rewards program in this period of hyper-competition. While loyalty programs in retail can’t patch holes in a flawed core business, it can be a key differentiator for shoppers deciding on where to make a purchase when there are multiple choices. As we’ve seen in the examples above, retailers are thinking outside the box on how they can improve their programs whether it be overhauling them to include more people, giving away new experiences, or rewarding additional behavior. Those that best execute on this strategy will have a leg up as consumers focus on experience and feeling valued by those that they do business with.
Co-author and contributions by Jenny McLean and Kelsey Sharp