One of the challenges that brands can often face when implementing a loyalty program is getting key stakeholders on the same page about the value of the initiative. More specifically, a chief financial officer and a chief marketing officer might have very different views of the program, with the former seeing it as a cost center while the latter sees it as a growth engine.
A CFO could focus on economics over perks by looking to add expiration policies or increasing redemption thresholds, whereas a CMO is focused on things like personalization, brand engagement, and customer acquisition and retention.
According to David Glantz, Director of Business Development for Germany’s Loyalty Partner Solutions (LPS), one of the key ways a CMO can bridge the divide with a CFO is by having the right KPIs in place to effectively argue the value of the program for not just customers, but also the company. KPIs are just one aspect of the program design that LPS helps its partners create.
“From a CFO perspective, the costs and the program must be plannable, and the costs, especially on the redemption side, need to be managed somehow,” Glantz said. “And from a CMO perspective, the value drivers need to be clearly defined and made transparent because if there's only a cost discussion, the CMO and the VP of the loyalty program will always lose against the financial people.”
LPS, which was spun off from PAYBACK—one of the largest loyalty programs with 35 million customers in Germany alone—but remains part of the PAYBACK GROUP, is a full-service loyalty program provider that supports brands with SaaS technology platforms, consulting and program design, as well as optimization of existing loyalty models.
Strength in Numbers
While loyalty program coalitions have not really taken off in the United States, PAYBACK is thriving in Europe. In addition to its 35 million members, it also has 18 million people on its app in Germany.
The coalitions offer programs where multiple, mostly unrelated brands, team up under one shared rewards program so that customers can earn and redeem points across all participating partners. Coalitions can help lower marketing costs for companies and increase data insights into customer behavior across the network, while also increasing engagement by making programs more appealing.
PAYBACK is a massive program that keeps growing, adding both the biggest grocery company in Germany and the biggest bank to already 700 partners. According to Juergen Hesse, Director LPS RAISE, 95% of the points that get issued to PAYBACK members get redeemed.
“I think one of the major differences is with the PAYBACK business model where points are not part of the P&L statement,” he said. “So, points are just a clearing mechanism between the partners and there is no cost incentive for PAYBACK to have points expiring. What it means is that PAYBACK as an operator is driving the redemption.”
The Return of Hyper-Personalization
Hyper-personalization had been a big topic of discussion in the loyalty industry a few years ago and then tapered off. However, it is now becoming something many brands are becoming focused on once again.
However, Hesse sees a lot of companies struggling to develop a personalized customer journey. The key for companies is to get away from the one-size-fits-all approach that had perhaps been a dominant feature of programs in the past.
“The customers know of course that a loyalty program is a marketing channel of the company, and they also expect that through data they get relevant benefits focused on individual preferences and needs,” Hesse said.
Hesse points to Alaska Airlines, one of LPS partners, which is rolling out its Atmos Rewards program that offers four elite status tiers — Silver, Gold, Platinum, and Titanium — based on earning status points through distance or segments. Members can also choose their earning method and potentially buy up to the next status level within 5,000 points of the requirement.
“I think this is an interesting move on individualizing not just the communication, but also the benefits and the value proposition of the program and targeting individual needs,” Hesse said.
He also sees emotional loyalty as a crucial part of the overall customer journey.
“You need to have this transactional loyalty, really, to have this baseline benefit that the customer is getting in a tangible way,” Hesse said. “And then, of course, in order to have long-term customer loyalty, you need to tap into the emotional side in your relationship with the customer.”
A Unified Approach to Personalization
AI is of course becoming a huge topic of discussion at loyalty industry conferences, and Hesse has already seen AI effectively used to create campaigns and promotions. One of the big benefits of AI is its ability to analyze a massive amount of data in a simplified way.
Hesse, however, has heard a lot of discussion of AI, but has seen few implementations thus far because companies are still trying to figure out how it fits into a loyalty program. He nonetheless thinks AI will eventually have a huge impact on driving efficiencies and managing loyalty programs to limit the time that people need to spend operating the program and the platform.
Beyond just AI, Hesse thinks that brands need to have a modern tech stack operating their loyalty program to create a unified view of their customers. He sees many companies who have their data related to customer behavior sitting across various silos.
"The baseline is having a good loyalty stack to bring it all together,” Hesse said. “If you don't have that, I think hyper-personalization will never work. And then, of course, you need to have a good promotion engine that translates these customer data into real action when it comes to promotion, when it comes to incentivization levels and so on.”
With the right technology stack that unifies data, brands have a better view of customer behavior and how they react to a rewards program.
“And then you can really play with these levels and identify the threshold you need to invest in to make sure customers are reacting to your promotion,” Hesse said. “And then also the CFO is happy because hopefully you get exactly the same result on the revenue side by investing less on your reward costs, for example.”