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Understanding Marketplace Loyalty Programs

With increases in the adoption of marketplaces by retailers, companies are facing challenges of how to make their existing loyalty program fit within this new operational area. Loyalty programs are critical for retailers today. They are providing opportunities to acquire more first-person data on customers, helping fill the gaps in customer data as 3rd party cookies are phased out. The interplay between a marketplace and an existing (or new) loyalty program can be mutually beneficial to both marketplace owner and seller, but key questions must be answered to realize the full value of both programs.

Benefits of Leveraging Loyalty in Marketplace

Loyalty programs are often one of the main drivers of customer purchase with a given brand. Marketplace owners who have this existing customer loyalty can leverage it to help convince sellers to list products on the site. Customer information from a loyalty program can show potential sellers what the demographics of customers are on the site, cart size, and other factors that could demonstrate value to the seller. This is especially important for smaller or newer marketplaces as they find the right sellers to partner with.

Customer data is also an asset that can be shared with sellers, provided the appropriate legal pathways are adhered to. While not a marketplace relationship, the recent partnership with Nike and Dick’s Sporting Goods demonstrates this trend. Customers can link their Nike Membership account to their Dick’s Scorecard to receive additional offers, perks, and more. This lets the retailer and vendor gain additional insights into customer purchasing patterns both through the retail storefront at Dick’s and through direct channels at Nike, building out a more complete picture of this customer behavior.

The Nike and Dicks Sporting goods agreement also highlights the ability of sellers to build brand loyalty through the marketplace itself. Creating exclusive deals, offers, or other benefits that customers can receive when making purchases through a marketplace increases customer engagement in that channel. This is a mutually beneficial arrangement where sellers can increase their brand awareness via the reach of the retailer, and the retailer can benefit from the increased volume of sales.

Additionally, combining any marketplace selling with the marketplace loyalty program reduces complexity for users. If a retailer chose to exclude marketplace items from its loyalty program and not allow customers to earn points or redeem awards on those purchases, that can lead to a negative customer experience. The customer would often not realize the exclusion until the final checkout steps or after the purchase. This can generate frustration and lead to reduced purchasing behavior in the future.

Loyalty programs can also be developed to reward marketplace sellers. Etsy has recently introduced a Star Sellers program which encourages its sellers to hit key customer service and sales metrics. While the program has faced some criticism, Etsy has noted that sellers that hit the goals of the program have a 25% higher repeat purchase rate than those that don’t. This program seems to focus on metrics to encourage customer sales rather than providing incentives from the marketplace owner, such as discounted commissions or free marketing.

Uber Pro is another marketplace rewards program for the sellers (in this case drivers).  Drivers gain points based on ride volumes, service, and other key metrics to unlock benefits such as roadside assistance, priority pickups, and tuition coverage. Lyft provides a similar driver rewards program, aimed at encouraging and recognizing drivers. A great marketplace leverages loyalty to both incentivize buyers and sellers to continue to participate.

Complications in Marketplace Loyalty

Loyalty programs in marketplaces can be tricky to manage. There are more parties that have a stake in the loyalty program, but it isn’t always clear who will be covering the operating expenses. Marketplace owners could use a portion of the commission revenue to pay for a loyalty program, or they could charge a fee to sellers for this cost. Choosing to pass through this cost may discourage sellers from listing products on the marketplace or could lead to a scenario where the sellers attempt to opt-out of the loyalty program.

If a retail marketplace decides to exclude some or all sellers from loyalty earn and redemption, this creates complexity for the customer experience. UX designers would now be challenged to create clear messaging to the customer that certain products don’t generate loyalty points or cannot have redemptions applied, which can cause customer confusion and frustration. Customer service agents would also have to be educated and empowered to deal with customers who miss the messaging throughout their journey and must be appeased at the end.

Beyond those challenges, organizations engaging in data sharing must consider legal and ethical factors of this data use. Beyond just the laws, organizations should be conscious of how data sharing could be perceived and ensure they are transparent with all use of personal information.

Lastly – sellers that have their own loyalty program may view a marketplace loyalty program as competition. Organizations can get around this by directly linking the two programs, allowing customers who shop on the marketplace to receive deals through the marketplace program, as exemplified by the Nike and Dick’s Sporting Goods partnership. Customers can link their separate loyalty accounts, giving them access to exclusive perks and offers that mutually benefit both parties.

Retailer adoption of marketplaces has many advantages but also requires consideration of existing programs. Loyalty programs can provide synergistic benefits to both the marketplace owner and seller, but numerous questions must be answered to achieve these benefits. If you are exploring the options of integrating your marketplace and loyalty programs, reach out to our Retail experts.

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Contributions from Parker Fennema

Tags: Retail, Retail Trends