Customer loyalty programs in retail

Customer loyalty programs in retail

In retail, great customer loyalty programs are all about membership

Here’s a little story about customer loyalty, as seen through the eyes of a typical retail brand…

We’re looking to build a loyal customer base, so naturally we invest in a program to increase basket size and create greater lifetime value. We create offers to increase transactions per customer and help us gain a greater share of wallet. 

The program is popular. So popular, in fact, that about a year later we look up and realize this whole thing is too damn expensive. To save cost, we default back to a generic coupon program. 

When the smoke clears, we’ve spent a bunch of money on a primitive, transactional program that was all about us. No real loyalty was gained. 

This is a common story in retail, but it doesn’t have to be. When it comes to building a truly loyal customer base, the devil isn’t in the details. It’s in the strategy.

Seek membership to gain loyalty

Many loyalty programs are transactional business drivers with an inward focus. Membership programs, on the other hand, are relationship-based, long-term initiatives focused on the members themselves. 

Membership means being part of a larger whole. The rewards are privileges based on a single tenant – you matter. Offers are based on what customers do. Behavior is observed, recognized, and rewarded accordingly. 

Where loyalty programs serve everyone the same offers, membership programs use intelligence to personalize experiences.

The goal of too many loyalty programs is to get customers to make one extra trip through the turnstile. Membership programs seek a fundamentally different relationship with customers.

Create moments of expression

One of the best ways to create a rich, robust relationship is to make people feel like they’re part of something bigger than themselves. People want to have moments of expression. Loyalty programs give a specific type of currency, but that’s not the same thing. 

A membership program typically gives you rewards as a result of your behavior. For example, you flew American Airlines enough to earn a status and now you receive the experience of boarding first. That makes you feel like a part of something and creates a moment of expression.

Be a data service company

Loyalty programs give more of a single pull, transactional report - earn and burn, accumulate and use, coupon redemption. If you’re trying to construct a membership program, on the other hand, you start with the building blocks of behavior. Behavioral data is the gold standard for what an AI and ML algorithm can accomplish. 

Imagine 10,000 behaviors watched by an AI tuned to membership patterns vs. loyalty redemptions. A company could begin to see and surface behaviors that no loyalty program ever could.

Data is, fundamentally, the DNA of a brand, seen through your customers’ experience with you. Loyalty programs do collect data, but only so much. A single behavior goes into the black box. You can’t personalize that enough. A loyalty program is a transaction wheel. A membership program is a series of experiences that coalesce together to create a feeling toward a brand.

That feeling is important because, ultimately, each of us owns our data. Over time we‘ll choose to share that ownership with brands that provide real value and moments of expression. Blanket rewards eventually lose their luster and we start to reject brands that go that route.

How brands can step their game up

Brands have the ability to condition their customers. Unfortunately, many are conditioning them to understand how little they actually care once loyalty programs become too expensive. The high expectations consumers have for these programs makes the eventual disappointment sting that much more. 

There is a perception brands will learn about their consumer and become smarter and more personalized. The reality is, over time, brands are less focused on their customers’ behaviors and more focused on their own. Case in point – the Bed, Bath & Beyond 20% off postcards we all have piled up in our houses and cars. 

To make people feel a part of something larger, we need to break out of the transactional mentality. When I buy a pair of glasses from Warby Parker, they donate a pair of glasses to a kid who can’t afford them. That’s why I buy all my glasses from Warby Parker.

C-stores, for example, could tap into that same feeling. A loyalty program might give you the chance to earn discounts on fuel or coffee, but what if they also planted a tree every time someone in their membership program pumped X gallons of gas?

Currently, no one in the industry is doing that. Not because it’s impossible or implausible, but because a transactional mentality makes it hard for decision-makers to see the value in it. 

At the end of the day, when we make our customers feel like they’re part of something larger than themselves, we create a sense of community and build actual, long-term loyalty.