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Reinvigorating Retail Loyalty Engagement through Partner Programs

Guest Blog by Rob MacLean

Just because something is good doesn’t mean it can’t be better.

According to COLLOQUY’s 2013 Loyalty Census, retail loyalty program membership has enjoyed some of the fastest growth compared to other industries. Department stores saw their loyalty program membership surge 70% in the last two years while drug store loyalty grew 45%. Overall, retail loyalty program membership has grown 24% since 2010 and 116% since 2006.

But with engagement levels down 4.3% as a loyalty program average, membership growth is only part of the whole loyalty and customer story.

Today’s retail loyalty programs (despite high membership) struggle with three main challenges:

#1.  Rewards fragmentation: the types of rewards offered to customers in different retail loyalty programs are inconsistent. Such inconsistency undermines consumers’ rewards expectations across the entire retail space. Financial institutions and airlines, by contrast, have designed loyalty program constructs where the rules and rewards between programs are similar.

#2.  Lack of merchant-operated scalability: many merchant-operated programs are too small to become retail profit drivers. Instead they become cost centers, forcing many loyalty programs to shut down before they hit their engagement stride.

#3. Drowning in the data deluge: competition among retailers combined with changes in consumer behaviors has left many businesses scrambling to find new ways to capture customer behavioral insights. And in the rush to acquire this data, retailers have failed to align business goals with the data they need to maximize customer engagement. As a result, many loyalty programs lack focus and, once again, don’t offer customers what they want.

Hubbub Over Loyalty Hubs

Considering how interrelated the above challenges are, solving them requires an overarching and integrated approach. Rather than building individualized small-scale loyalty schemes, coalition loyalty programs that bring together multiple retail loyalty programs in one location make the most sense. Either that, or retailers must do additional homework to discover which third party program providers are offering their competitors amazing loyalty rewards and collecting data that will help tailor future rewards to specific demographics.

In other words, there’s no reason to re-invent the wheel. If successful rewards programs are already engaging customers, why risk further fragmentation?

But after a coalition program or loyalty hub has brought customer reward schemes together, what then? How does brand’s loyalty strategy evolve? Loyalty marketplaces must be more than grand assemblies. They must allow customers to track, trade, exchange and redeem their points/miles (depending on the specific loyalty currency) in a seamless and intuitive manner. Making these transactions easy to perform and execute is the key difference between coalition programs and true marketplaces that continue to be developed.

The latter drives engagement to new heights as consumers are incentivized to perform more loyalty transactions, improving the quality of the reward while reducing redemption time. High activity levels also help merchants discover new customers and the shared customer data between members benefits all parties.

Mobile Wallets and Loyalty – A Partnership with Potential

Of course, a discussion of loyalty marketplaces isn’t complete without addressing mobile wallets and its customer engagement potential. Despite sluggish adoption, this environment will prove the perfect incubators of such digital transactions. With smartphone shipments now outpacing feature phones, (225 million smartphones were shipped in the US second quarter of 2013) it’s clear consumers crave these devices’ functionality and ability to augment in-store and off-site shopping experiences.

Convergence, a marketing term favorite, isn’t a buzz word after all. Uniting great loyalty programs with easy-to-use virtual currencies all within a single smartphone is nothing short of revolutionary. The union of loyalty programs and virtual currency might be the perfect marriage of convenience and the ultimate loyalty strategy.

Even if mobile wallet adoption has yet to hit critical mass and Point of Sale technology uniformity is far from achieved, smart retailers will be the ones envisioning a future where the phrase “paper or plastic” sounds entirely antiquated.

High loyalty program membership is great. But legions of disengaged members are like dead weight on a loyalty program’s enduring success. Joining a coalition loyalty program isn’t cost-free, or without integration challenges. But there’s no doubt that’s where the future of retail loyalty engagement lies.

So consider this article a conversation starter about what’s needed to reinvigorate retail loyalty programs and the steps needed to transform an already good retail loyalty program into one of the best.

Rob MacLean is CEO, Points

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