Best Practices for Revamping a Loyalty Program – Part I

Link to Part 2:

It would be easy for brands that have a successful loyalty program in place to simply leave it be and let it do the work for them. However, in today’s climate, it takes more to retain customers who could easily become bored with a program and lose interest in a rewards program that remains stagnant. But how can a brand determine if its loyalty program has become stagnant and needs a refresh?

Loyalty360 spoke with supplier members for their insights and perspectives on ways brands should best incorporate updates to their loyalty programs, including how often to make updates and ways brands can best update on a budget.

“Modern loyalty is heavily dependent on a consumer’s emotional connection to your brand and the overall lifestyle your brand represents,” explains Sue Frech, Founder & CEO of Vesta. “Any traditional loyalty program that relies largely on transaction-based rewards should consider it time for a refresh. While this system can work in the short term, it rarely delivers the long-term relationship-building brands need to do to stay competitive. Today’s loyalty programs need to infuse emotionally driven and personalized rewards from zero-party data. They must also make a consumer feel a part of a bigger community of consumers who share similar values.”

Nancy Gordon, Chief Product Officer, Loyalty & Rewards at Bakkt says, “Brands become aware of a need for loyalty program evolution either actively or passively. An active and agile approach is best to ensure program health. The optimal active approach brings together market intelligence and insights, consumer primary research and alignment with the brand’s strategy, customer engagement and financial targets.”

Deloitte suggests brands explore how their programs are aligning to prevailing trends and competitive dynamics in the market before they become stagnant because at that point, it’s often too late.

Says Brendan Boerbaitz, Deloitte Senior Manager, “We’re seeing a similar set of macro forces driving boardroom discussions impacting the world of loyalty, be it supply chain disruptions driven by geopolitical conflicts to rising demands for corporate action on the topic of climate change. This makes sense when you view loyalty programs from members’ perspectives: it’s often their closest connection to a brand and many prove to be quite sensitive to how messaging, experiences, and offers align with their attitudes, needs, and values. These shifts have resulted in what we now characterize as a global battlefield for loyalty, where program leaders must now break through a new range of barriers to differentiate, be it attention-starved members with higher expectations than ever to new investments in the space from traditional and untraditional players.”

Steve Palladino, Chief Growth Officer at Group FiO says that brands can tell their program is in need of a refresh when customers are no longer joining, when new members who were active at the start begin to taper off, and customers are no longer redeeming rewards. He also notes that long-term customers may become upset that brand-new customers enjoy the same perks.

Ravi Srinivasan, President and CEO of Group FiO, agrees, adding, “The program is stagnant when the rate of engagement from members is reduced which is measured by point accumulation or redemption. Another factor is the members are not offering up or reducing Zero Party Data collection efforts which helps build personalized engagement.”

Bakkt suggests that if a competitive program increases value, then a new bar is likely set that requires evaluation. Says Gordon, “One of today’s leading programs, Amazon Prime, has set the bar very high in terms of both “free shipping” and “expedited shipping,” to the extent that many retail loyalty programs cannot avoid providing these costly benefits to their members.”

Jillian Dimoff, Strategic Account Executive at Cheetah Digital, lists these indicators to test if a loyalty program has become stagnant:

  • Customer churn: are customers disengaged and not seeing the value? 
  • Low enrollments: there’s a chance that your competitors have refreshed loyalty programs that go beyond transactional ho-hum programs and they’re stealing your share of wallet because your members no longer see a value and they don’t feel known or recognized
  • Low redemption rates: are you seeing a lot of breakage with your rewards? Perhaps customers want to redeem for more rather than coupons and we need to introduce a more diverse set of reward options.
Gordon adds that when different customer trends or cultural shifts happen, loyalty programs must follow, saying, “We are increasingly having conversations with brands who are exploring entry into the “metaverse / Web 3.0” environments, with their loyalty programs leading as the central experience.”

She cites these examples:
Consumer satisfaction scores for a loyalty program or set of features may decline, or utilization of a certain benefit may be waning, or consumers may indicate in a survey that they are not getting value from a certain benefit. Brands like Dunkin’, Nordstrom and Delta have learned as of late that changing a value proposition without such input is an invitation to bad press and member attrition.

A program may become too costly to serve, requiring a higher qualification for program tiers. Crowded tiers is one of the clear challenges for the airline and hotel industries. Other examples are where corporate strategies have shifted to online commerce as a key growth driver and you’ll see many programs that have evolved to provide more benefits to members online such as online only sales that are common in the retail sector.

Finally, a brand today must “lean in” to emotional connection as well as personalization and if a program value proposition was designed for largely transactional reasons, then it will at some point stagnate.  If everyone is treated the same and the program is not tied to how the consumer experiences and interacts with the brand, then it’s stagnant.

Incorporate Loyalty Program Updates Into Corporate Strategy
How often a brand updates its loyalty program is up for debate, but all agree that brands need to treat loyalty like any other profitable facet of the company.

Palladino puts it simply, saying, “To stay competitive in you niche, appeal to your target market and evolve as a business, it's so important to revisit and refresh your branding every 2 to 3 years.”

“Loyalty program updates can be small, iterative and ongoing rather than major changes,” says Joe Pino, Senior Vice President, Strategy & Solution, at Clutch. He recommends a quarterly review to see how the program is performing against goals, followed by an annual review.

The quarterly review is to look at metrics like signups, redemptions and engagement and see if the numbers are lining up with initial expectations. Small edits to the language, incentives, and timing of communication are low effort and can improve results. Two things to keep in mind at this stage are: Are the program’s benefits clear and compelling? And, do existing members feel appreciated and are they informed about their status and available rewards?

The annual review can look at performance again, but is a good time with enough data to make updates to tiers and rewards structure. Is it taking too long or not long enough for members to reach the next tier? Are the benefits of the subsequent tier enough to motivate members to work to achieve them? Is it time to refresh the data you’re tracking and using? Consider using non-spend events like visits, location data or demographics to engage customers.

“When making changes, however,” Pino states, “keep in mind that members like predictability so making wholesale changes often can be disruptive and be confusing to members.”

Says Gordon, “A company should think about updating its loyalty program much like it would think about its strategic brand and corporate plans.”

She stresses the importance of establishing a long-term loyalty plan that supports the north star vision and plan for the brand. These typically exist on a 3-year horizon and should be updated annually.

“For example,” she says, “if a financial services brand wanted to focus long-term on the premium credit card market, then its loyalty strategy and value proposition should support that through its benefit and partnership structures.”

Dimoff agrees, saying, “Brands should continuously be monitoring and updating their loyalty programs based on data-driven insights. Customers evolve and so should your program!”

In addition, the team at Bakkt says it’s beneficial to listen to customers or (B2B) clients through regular, interactive sessions whether through primary research or interactive dialogue. “For example,” says Gordon, “if a survey showed that consumers expected advanced notice of sales, then a retailer could incorporate that as a loyalty benefit. If regular client interactions revealed a need for an online forum for learning, then a B2B program could incorporate that into its program design.”

She continues, explaining how nimble, agile development processes that allow for more immediate changes or modifications whether through a loyalty technology platform, call center, or other channel are extremely valuable. It is fairly easy for a company to change earn or redeem constructs or enhance a rewards offering on a short time horizon.

“The loyalty program should be tweaked every 2 years and fresh ideas introduced every 5-7 years,” suggests Srinivasan, adding, “However, the general theme of the Loyalty should be left alone and tweaks should be around improvement based on customer feedback so it is seem as a great improvement.”

Dimoff also suggests that brands should consider the impact that outside factors may have on their business and choose partners that are nimble and proactive. “For instance,” she says, “look how many programs changed almost instantly with COVID--we saw brands extending points expirations and benefits, operational changes to meet customer needs, and so on.

“Customers are becoming more and more demanding, and they expect more. If we learned anything from the last recession, it’s that brands with solid engagement strategies can protect their businesses and even flourish during changing economic conditions. Loyalty programs create stickiness when customers can attribute a real value and they will justify those purchases if there’s a true value exchange.”

Frech at Vesta presents an interesting analogy, saying, Any loyalty or relationship-building strategy should be considered more like gardening than carpentry. A successful loyalty strategy requires frequent tending to in order for it to grow and thrive. That’s why it is also critically important to gather feedback and insights from consumers to stay on top of trends and changing needs. As we move into a true post-COVID era, this is a prime time to update and position your brand as a forward-thinking leader.”

Adrian Trzaskus, Digital Transformation Practice Lead Deloitte, has a similar view. He says, Brands should treat their programs like living products as opposed to projects they work on once or twice a year, just how they would any other revenue-driving offer. This starts with applying the product mindset to loyalty and aligning the enterprise around a shared understanding of responsibilities and expectations. This is why detailed loyalty reporting and analytics are a critical pillar for success.”

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