Are We at a Turning Point for Customer Loyalty?

Customer loyalty is changing as it becomes more complex in the way that brands can leverage it to strengthen consumer relationships.
According to The Loyalty Report 2018, released Monday by Bond Brand Loyalty, the loyalty landscape is in the midst of significant evolution, driven by new technologies, smarter programs, and changing customer needs and expectations.
“The biggest takeaway for me is that this is an exciting time, and perhaps a turning point for loyalty,” Kyle Davies, VP of Global Insights for Bond Brand Loyalty, explained to Loyalty360. “People are open to giving more, and they absolutely want to get more. They want to engage digitally with brands more—62 percent would like to engage via mobile, up from 57 percent a year ago—and there’s a real opportunity to strengthen relationships through the meaningful evolution of the behaviors acknowledged by programs, and the rewards and benefits that are offered.”
What will the successful loyalty programs be doing moving forward?
“The successful programs of the future are evaluating all of these things now,” Davies said. “They are speaking with their members, they are innovating, and they are A-B testing in ways that will pave their paths forward.”
In partnership with Visa, The Loyalty Report 2018 is recognized as the industry’s leading report on customer engagement, loyalty attitudes, behaviors, drivers, and disruption. Now in its eighth year, the expanded 2018 global report features an unprecedented assessment of more than 800 loyalty programs, in 18 markets, by more than 50,000 consumers across a range of key sectors including payments, retail, grocery, CPG, gas, dining, hotel, airline, entertainment, and coalition.
According to the report, the top five sectors in which spend increases when a consumer is a member of the loyalty program are gas with a +99 percent spend increase; hotel +82 percent; drug store +63 percent; movie theaters +61 percent; and grocery +57 percent.
Premium loyalty programs comprise another area of growing interest, the report says. In fact, 37 percent of consumers (up from 30 percent in 2017) are willing to pay a fee for access to enhanced loyalty program benefits.
Willingness to pay for enhanced benefits is significantly higher among Gen Z (47 percent) and Millennials (46 percent), as well as households with children (44 percent) and early technology adopters (69 percent). Paid loyalty programs and tiers are associated with higher member spend, higher advocacy, and longer-term brand loyalty, the report says.
“Younger consumers will fundamentally change loyalty because they expect more from brands, but are also willing to give more back to brands,” Davies said. “The type of analytics-led observations and tracking that would have been considered ‘Big Brother’ in the past will be an expected part of the consumer/brand relationship—young consumers are comfortable with brands having this level of insights about them. For example, 91 percent of Gen Z tell us they are open to brands tracking elements of their behavior beyond the purchase. But in return, they have very high expectations that companies will learn from that information, and will provide more relevant, personalized, and valuable rewards and experiences.”
Examples of paid programs driving incremental sales, higher program engagement, reduced returns, and other significant operational benefits include:
GameStop: Two paid tiers offer members access to enhanced benefits like exclusive sales, expedited shipping, and more points per dollar spent. GameStop reports that benefits lead to 3X higher sales among paid Power Up Pro members versus free members.
Restoration Hardware: Paid members program is responsible for 95 percent of sales, reduces returns, and increases inventory accuracy. Members pay for perks like 25 percent off all full-priced merchandise, an additional 20 percent off sale items, and complimentary interior design services.
Amazon Prime: Estimated to be a $9 billion-per-year revenue stream that offers its roughly 90 million members access to benefits that increase use, like free two-day shipping and free same-day deliveries. According to sources, members shop 2X more often and spend 2X more than non-Prime members.
Technology is tightly connected to loyalty success. According to the report, members who have engaged with loyalty technology say it has substantially improved their member experience (85 percent who have redeemed with their mobile phones say their experience was improved by that technology).
According to the report, top-ranked loyalty programs include: USAA, Kroger Fuel Program, Speedway Speedy Rewards, Marriott Rewards, Papa John’s Pizza Papa Rewards, Kohl’s Yes2You Rewards, Walgreens Balance Rewards, Dollar Shave Club, and Amazon Prime.
“We are tracking our steps, our sleep patterns, our driving habits, our environmental friendliness with smart thermostats, even our dating lives—so as we become more open to having various elements of our lives tracked, we are becoming more and more used to the idea of companies getting their hands on this information, and using it to provide a more personalized experience,” Davies explained. “Our comfort levels are still moving, and we will absolutely see companies cross the line and make customers nervous—but we are, and will be, increasingly more comfortable with this dynamic in the future.”
With new technology, advancement in customer analytics and intelligence, and new customer comfort levels, “loyalty is absolutely changing and becoming more complex,” Davies added. “But with all of this going on, I think what’s most interesting is actually what is staying the SAME. Despite massive changes in the ways brands can and are engaging with customers, there are some fundamental tenets of loyalty that are not changing: People want to feel like they are a valued customer; they get a rush from feeling special/recognized; they look for benefits, communications, and offers that are relevant to them; and, they want to feel a bond with the brands they do business with. Customer Experience continues to make up about two-thirds of what drives member satisfaction and engagement. So, the advancement of bigger, faster, stronger, and better loyalty programs needs to happen in a way that respects the fact that people still crave humanity, simplicity, and recognition in their brand relationships.”
What was the biggest surprise from the study?
“One of the interesting things is just how emotionally tied people are to their favorite programs,” Davies said. “We did a ‘would you rather’ exercise with respondents designed to understand just how deep these connections are. We found that more than one-quarter of Americans would rather have their wisdom teeth pulled than to have their desired reward removed from their program. Nearly six-in-10 would prefer the stress of trying to find a spot in an ultra-crowded parking lot than have their loyalty points/miles expire. For such large numbers of people to make these choices shows just how heavily invested consumers are in loyalty programs.”
Customer expectations are increasing rapidly, Davies noted.
“Loyalty programs and their operators are going to have to be smart, creative, and innovative to keep up without simply throwing funds at the base dividend,” he added. “The opportunities are to take advantage of the invitation for a deeper two-way relationship, watch and listen to your members, and use these learnings to create better programs that enable great experiences. New loyalty technology will enable this, but only for those marketers who are willing to push themselves outside of their current comfort zones. Personally, I’m excited to see how we, as an industry, react to these changing dynamics and customer demands, because if we do it well, we’ll end up in a future where customer relationships are both more profitable for companies, and more engaging and valuable for consumers.”

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