While gaining customer loyalty has always been a priority for brands, it will become even more critical in the next few years. This is largely due to the shift of power from brand to consumer-driven by digitization, competitive marketplace and commodification. Moreover, rising customer acquisition and overheads costs will further prompt brands to double down on maximizing Customer Lifetime Value (CLV) by retaining existing customers. An uncertain global economy and higher focus on profitability by ecommerce businesses are further expected to fuel this trend.
This is apparent from the renewed focus by almost all major brands in either upgrading or completely revamping their loyalty program. Another factor fueling this trend is the realization by retailers that traditional spend/earn point loyalty models won’t cut it anymore and they need a more engagement focussed reward program to entice today’s spoilt-for-choice, attention-deprived customer.
As a result, most of the traditional programs are now being replaced by behavioural-based, highly personalized omnichannel reward models which recognize customers for diverse actions/interactions like store check-ins, social shares, reviews and referrals. This makes good sense simply because brand loyalty, or loyalty in any context for that matter, is an emotional derivative, and rarely determined by logic or rationale. Here are the other top loyalty trends we expect to prevail in 2020 and beyond.
The rise of emotional and behavioural based loyalty programs
By far, this has been the biggest shift in loyalty programs in recent years. Customer loyalty is a combination of behavioural, emotional and rational factors. Until now, most of the loyalty programs were driven by a combination of rational (points/transactions based) and behavioural models (these are mostly paid/subscription programs; Amazon Prime is a great example of behavioural loyalty). However emotional loyalty has been proven to have higher longevity and stronger connection compared to the other two.
The role of emotional loyalty is to answer the ‘Why’ for a customer. Why did they choose the more expensive coffee that got him/her more points (it was made with sustainably grown coffee beans?). According to research by Gallup, customers with strong emotional connections to retailers will visit their stores 32% more often and spend 46% more money than those without emotional bonds. A truly great loyalty program will be the right blend of rational, behavioural and emotional loyalty such that it wins both the heart and the mind.
Key Takeaway: Traditional loyalty programs were limited in the sense that they only rewarded customers during a transaction. This placed limitations on the brand’s ability to deliver an emotional experience. Brands are therefore switching to advanced, engagement-based loyalty platforms that allows them to greater flexibility like rewarding customers for signing for a wine-tasting session or going for a run in their IoT connected smart shoes.
Hyperpersonalization will separate the leaders & laggards
One-size-fits-all rewards will not work anymore, and the ability to customize rewards and communications based on individual customer behaviour, interests and preferences will become a critical factor in deciding the success of a loyalty program. Thankfully, the maturing of AI-related technologies has allowed brands to automatically predict the best channels, reward types, creative and format for individual customers at scale.
While loyalty programs can use data sets to personalize the customer experience, they also generate a trove of customer insights around purchase history, product preferences and reward redemption which can be leveraged to power the entire marketing automation engine.
Omnichannel reward programs will become the norm
The omnichannel model has been proven to be a win-win for both customers as well as businesses. While customers enjoy the enhanced convenience and seamless experience, brands have benefited from higher conversion, sales and customer retention.
With the rise in the number of connected devices in the coming years, think IoT devices, Voice Assistants etc., we expect more brands to jump on the omnichannel loyalty wagon. For brands, the biggest challenge in enabling omnichannel loyalty has been capturing data from multiple sources like in-store, app, social and website into a single data pool. However recent advancements like CDPs have solved many of these challenges.
Key Takeaway: Digitize your loyalty programs so that you blend offers and rewards across in-store and online channels, thereby allowing shoppers to choose the channel that’s most convenient to them and get more value for their money.
Paid loyalty programs will rise in numbers
The success of Amazon Prime proved that customers are willing to pay for a loyalty program if they are offered additional perks and benefits. Paid loyalty customers typically have higher purchase frequency and Average Order Values, making them a no brainer for brands. In a customer study, a whopping 62% of respondents were willing to join a paid rewards program if their favourite retailer offered one.
Key Takeaway: The success of a paid loyalty program hinges on having compelling, unique and high-value benefits
Integration of ML, Big Data & Blockchain in loyalty programs
Big Data and ML have been increasingly used in loyalty programs to enhance personalization and predictive insight. The first use case is fairly straightforward – when a customer engages with a loyalty program, the system analyzes the information and segment members based on demographics, rewards preferences etc. This allows brands to personalize engagement over a period of time. For predictive insights, the system can create alerts for specific use cases, like the risk of customer churn, propensity to purchase, tier-upgrade probability etc.
Blockchain-based loyalty programs aim to fix what has been a major pain point for brands: low redemption rates. The technology allows a customer to store all points in a single wallet rather than trying to manage multiple programs. There will not be separate rules for acquiring and redeeming points from different loyalty programs which will remove a lot of the friction and improve redemption rates. While blockchain programs are still in their infancy and there are questions around scalability, they nevertheless hold a lot of promise.
Key Takeaway : These emerging technologies typically have multiple use-cases. However, it’s advised to pick a specific problem to solve and run a pilot on a limited audience before scaling up.
Mobile loyalty apps will see continued increase in adoption
Mobile is becoming a critical component of brand’s engagement and sales strategy, with nearly a third of consumers saying it’s their favourite way to show membership in stores. Last year a slew of major brands like Target, Nike and Victoria’s Secret refreshed and revamped their loyalty apps to offer a more connected experience. The reason for this increased focus on mobile loyalty is simple: it creates opportunities for better targeting and rewards delivery. In fact, no other channel can use information (like a customer’s exact location) to deliver highly personalized, real-time offers and rewards that can be seen and acted on quickly.
While brands are recognizing the need for loyalty apps, the experience part of it still falls short. In fact, while 84% of retailers now offer a mobile loyalty experience, only 22% of them allowed users to view their rewards on the home screen. Mobile loyalty is the critical bridge between online and offline experience and if it doesn’t portray the all-channel view of the customer, it risks being ignored. While the last few years have been focussed on acquisition and adoption, the next 5-10 years will be focussed around enhancing and optimizing the mobile loyalty experience to be at par or better than the desktop.
Key Takeaway : Focus on improving the mobile loyalty experience and ensure it offers an integrated view of customer purchases, points and redemptions across all channels.
The preference for coalition loyalty programs
While the trend was mostly limited to travel and hospitality, it is expected to be adopted across diverse industries like apparel and footwear, automotive and manufacturing. The biggest draw of coalition loyalty programs is the flexibility and freedom of choice it offers to the customers. For brands, these programs are a great way to extend the reach and overall base of customers. In addition to the extra eyeballs, these programs enhance the credibility of your brand since it will be placed alongside other reputable brands. While multi-company loyalty programs are a clear step in the right direction, there are chinks to be ironed out, especially when it comes to restrictive point redemption policies.
Key Takeaway: Explore potential coalition loyalty partnerships with a win-win mindset for your brand as well as the customer. The key to success lies in understanding the persona of your customer in terms of their lifestyle and preferences. This will help you figure out the right set of brands to partner with.
In the next few years, we expect more brands to switch to experiential loyalty programs that will be powered with emerging technologies like AI, Big Data and blockchain. In a nutshell, loyalty programs will evolve from being impersonal, static and transactional to one that is emotional, human-centric and dynamic.