One of the most significant takeaways in Loyalty360’s first-of-its-kind report− “Loyalty Landscape: State of the Industry”–is that brand commitment is deemed absolutely critical to companies’ success and to customer loyalty programs.
Loyalty360 CEO and CMO Mark Johnson unveiled the 16-page report on March 18 during the 7th Annual Loyalty Expo, presented by Loyalty360 – The Loyalty Marketer’s Association.
Brands have to make a new kind of commitment to customers, according to the report.
“New processes were established as a part of this new relationship,” the report says. “Knowing the customer and his or her wants−not just telling the customer what he or she wanted−became their primary focuses. The best of the best didn’t simply cobble together a loyalty program; they boldly made a commitment to reimagining their relationship to customers. They became deeply committed to this process, fostering a sense of community.”
“Loyalty Landscape: State of the Industry” is a data-driven, confidential assessment of customer loyalty that industry insiders claim was long overdue.
The report is based on confidential data shared by some of the top brands and loyalty marketers representing companies of all sizes across a wide swath of industries. The data has been analyzed and compared with entry data submitted by more than 60 brands that competed in the inaugural Loyalty360 Awards.
“We are getting great feedback from our members about this report,” Johnson said. “Honestly, this doesn’t surprise me because this is the report our members have been asking us to create. It’s really exciting to see these two Loyalty360 productions—the Loyalty Landscape and the Loyalty360 Awards—being presented at the same event. This report and these awards are two things our members, who represent some of the best-known brands out there, have been asking us to provide for quite some time.”
As the customer experience gravitated toward the center of the marketing universe, strategies to keep the customer engaged and loyal to a given brand were created. Fast, slick and exciting to customers, these so-called “loyalty programs” rewarded customers for their purchases with a wide variety of gifts, discounts, and coupons, the report says.
“The success and failure of these rewards became yet another feedback loop through which marketers could gain valued insight into the motivation and purchasing habits of their customers,” the report notes. “But as the window into the lives of the customers opened, the Internet allowed them access to more information on brands and the ability to express their needs in a near real-time manner. This put a unique and previous unknown onus on the brands. Further still, for the first time ever, consumers became more plugged in to what different companies were offering and could comparison shop as never before. The loyalty program−once a reward−became an expectation as novelty gave way to ubiquity. At the same time, the complexity of creating unique campaigns and programs based on 360-degree consumer engagement that daunted most was embraced as an opportunity by others.”
As a result, consumers demanded more.
“Customer expectations gave way to more innovation, which gave way to more expectations,” the report says. “On and on went the virtual arms race between brands and the consumers who buy their products.”
One of the big takeaways from the report, when compared to Loyalty360 Award finalists, is that the award winners are spending more on marketing and are earmarking a large percentage of those dollars for loyalty marketing. But, despite a year-over-year increase in marketing budgets, the report shows that loyalty marketing dollars account for less than 10% of marketing budgets at nearly half of the 200 top brands surveyed.
“These companies are thinking beyond traditional rewards programs to build loyalty at every step of the customer journey,” according to the report. “Placing a larger bet on customer loyalty is paying off handsomely at these companies. Marketing budgets are on an upward trajectory when comparing year-over-year spend. Even though we see evidence that the C-Suite is increasing its focus on loyalty as a marketing strategy, it makes up less than 10% of marketing budgets at nearly half of all companies surveyed.”
What’s more, the report shows that benchmarking is a gap for many companies. And a lack of industry metrics makes gauging true loyalty marketing performance difficult and poses challenges when trying to attain internal senior executive buy-in for more marketing dollars toward investment in innovative tools and techniques to drive loyalty.
The primary focus of loyalty marketers remains their greatest challenge: Identifying and offering rewards that are valuable to the customer.
“This is a basic building block. If a brand doesn’t get this right, no slick mobile application or cleverly personalized message will change consumers’ minds,” the report says. “Even though we are tired of hearing about Big Data, it is more than just big talk. Cracking the nut on using data to better understand customers and deliver on what motivates them is top of mind for many marketers and remains a pressing challenge.”
While loyalty programs have proliferated, internal support (budget, resources, internal alignment, and executive-level buy-in) continues to be a challenge.
“It seems many brands want to ‘check the box’ on having a program, but aren’t putting the necessary muscle behind making their program successful,” the report notes. “Evolving to a process takes a commitment from the C-Suite through senior level marketers to all those that touch a customer.”
Benchmarking is a gap and marketers are clamoring for performance numbers on key metrics.
“Lack of industry metrics makes gauging true loyalty marketing performance difficult and presents challenges when trying to justify putting marketing budget toward investment in innovative tools and techniques to drive loyalty,” the report says.
The best of the best take a hard look at processes associated with the bigger picture of loyalty, the report says.
“This commitment to invest incrementally in the newer, more customized technologies and processes leads to incremental returns for the brand and substantial brand loyalty,” the report says.
Here are some more eye-opening takeaways from the report:
The largest portion of marketers surveyed are spending more than $15 million on marketing annually
Smaller companies and those in the Travel sector are spending a smaller portion of their marketing budget on loyalty than those in larger companies or in the Finance and Retail sectors
Most brands offer an explicit loyalty program, where members earn, accrue and redeem points
The Finance sector boasts the largest loyalty program enrollment numbers, with 38% of respondents saying that enrollment totals over 10 million members
Even as consumer expectations evolve and the tools available to both customers and companies proliferate, the most critical component of a loyalty program remains the value of the rewards and the ease and speed of how they can be earned and burned
More innovative and non-traditional offerings rank high on the list of importance−greater flexibility with how rewards are earned, including earning for non-transactional actions, increased personalization in the rewards that are offered and the communications received and use of customer insights/analytics to optimize elements of the program
Compared to smaller companies, larger companies (those with annual revenue over $1 billion annually) put more emphasis on meeting customer’s expectations for rewards value and implementing flexible and non-transactional rewards. The Travel sector also emphasizes flexible and non-transactional rewards, relative to Finance and Retail. Retailers focus on making loyalty programs easy to understand and utilizing personalized/customized elements
Nearly half of all marketers report that the effectiveness of their loyalty programs are measured by sales and revenue, often looking at the incremental lift in sales or revenue from members compared to non-members. Retention and churn measures, as well as engagement and enrollment metrics are used by more than one quarter of programs. Soft, indirect metrics also prove to be popular, with Net Promoter Score (NPS) and Customer Satisfaction (CSAT) high on the list of tools used to gauge effectiveness
Challenges related to external (customer expectation matching and activation) along with internal (managing costs, proving value, obtaining budgets) are at the top of the list. Offering rewards that deliver on consumer expectations for value and relevancy is the biggest challenge faced by marketers. Next are those challenges related to profitability and hitting revenue targets. The push and pull of meeting ever-growing consumer demands and expectation, such as top-notch experiences, unique engagement techniques, always-on customer service while navigating internal constraints, is a real struggle for many. Navigating the fluidity of emerging challenges, such as rapidly developing technology, mobile and omni-channel expectations, is somewhat lower on the list
Those spending more than 20% of their marketing budgets on loyalty are using innovative data and analytics and mobile payments more than other marketers
Consumer Expectations
From a marketers’ point of view, consumers are more demanding than ever and expect more benefit in exchange for the same or less, according to the report. The proliferation of loyalty programs may be one reason for this. Consumers no longer view a loyalty program as a “perk” but see it as a “right” in exchange for even a small degree of loyalty.
“Consumers are critical when their purchase history, preferences, demographic information, etc. isn’t cleverly utilized to personalize the shopping experience or marketing touch points,” the report says. “There is also a continued challenge in understanding the value exchange between the consumer and the brand. Brands must thread the needle of knowing what a customer wants by proactively listening and responding in a manner that drives a certain behavior (and, of course, testing and tweaking until this insight-response combo is finely tuned).”