The Green Sheet Online Edition
July 11, 2016 • Issue 16:07:01
Loyalty, the currency of choice
Customer loyalty programs originated in 1896, the year Sperry & Hutchinson Trading Stamp Co. first distributed trading stamps through U.S. retailers as part of a rewards program. The S&H green stamp program gained in popularity from 1930 to 1980, enticing Americans to paste S&H stamps into booklets redeemable for products. During the 1960s, S&H reported that its stamp volume exceeded that of the U.S. Postal Service.
In the early 1970s, frequent-flyer programs debuted, allowing travelers to earn rewards based on mileage accrued. In 1981, American Airlines began offering special fares to frequent flyers, which led to the tiered system of privileges we see today. Loyalty programs have also evolved to appeal to changing consumer preferences.
Despite the proliferation of loyalty programs now available in hospitality, restaurant and other retail sectors, frequent flyer programs still have a commanding presence in the estimated $7.6 trillion global travel industry. "In fact, if you look inside the loyalty industry into travel, two-thirds of travelers are members of a travel loyalty program," said Christopher Barnard, President of Points International Ltd., a publicly traded loyalty currency management firm based in Toronto.
"Because it's an extremely pervasive element of the economy, there is an estimated 20 trillion miles in points in people's accounts around the world just sitting there ready to be used," Barnard said. "One challenge the industry does have, partly because of the strategy of the programs and the other half of the equation being the technology involved, is that it is difficult for people to use their miles and points on a regular basis."
To address these challenges, loyalty commerce platforms have arisen to make loyalty programs more fluid. Just as card-linked loyalty programs once propelled early credit card adoption, digital programs linked to mobile wallets could accelerate mobile as a form factor moving forward.
Inherent drawbacks with the card-linked loyalty model have been the cumbersome and closed nature of enrolling in and using such programs. Typically, a consumer must activate an offer online and then redeem accumulated loyalty rewards via a private-label gift card once all qualifications have been met.
"Traditionally, use of loyalty currency has been restricted to closed catalogs of options offered by the issuing brand," said Barry Kirk, Vice President of Customer Loyalty Strategy for Maritz Motivation Solutions, a global provider of loyalty and incentive programs. "Points are 'redeemed' for curated items like merchandise, gift cards and travel, as well as in-kind options like room nights for a hotel brand or flights for an airline."
More adaptable approaches are in the pipeline. "Liquid currency shifts the model away from 'redeeming' points and toward 'spending' points," Kirk said. "In this new model, points are recognized as a fluid currency that has value in the open market and at the point of sale. So as more brands add this option, consumers will increasingly view their earned loyalty currency as equivalent to cash."
Kirk noted that offering this option is less about driving revenue and more about driving increased choice, since paying with points can be more costly for providers. "But if your goal is to give members more flexibility in how their points are used, a liquid currency option can potentially make your program more compelling than that of a competitor."
Richard Crone of Crone Consulting LLC believes mobile will tip the cart. "A mobile wallet is what actually makes a loyalty program viable, accessible and convenient," he said. "We see the biggest impact there is changing the account type that's used for loyalty programs. The focus is only on the 5 percent of promotional spend that comes from retailers; 95 percent of the promotional spend comes from consumer packaged goods."
But mobile could level the playing field for retailers transitioning from card-linked to cloud-based programs that allow for net settlement and debit at the POS, much the same way manufacturers have done with online-generated printed coupons. "It isn't until they move to the cloud that they can integrate loyalty seamlessly into the purchase experience, where they can activate offers, and have them redeemed automatically and net settled at the point of sale like a paper coupon is today," Crone said.
He pointed to Starbucks Corp. as a role model, because it positioned its loyalty model as a spending account using private label prepaid debit. "The ultimate form of loyalty is to make the purchase before you've made the payment," Crone said. "If I fund $100 into my Starbucks mobile payment account, I can't spend it at Peet's or Seattle First. I can only spend it at Starbucks. The prepaid balances on the Starbucks mobile payment account for 24 percent of their sales. What retailer wouldn't want to make 24 percent of their sales in advance of making 24 percent of their sales?"
As much as loyalty program providers would prefer customer exclusivity, few program enrollees participate in just one company's program. The biennial Colloquy Loyalty Census Report revealed that in 2015, Americans held 3.3 billion memberships in customer loyalty programs, up 26 percent from two years earlier. On average, loyalty members were enrolled in 29 programs, but actively participated in only 12 of them.
To be effective, loyalty programs must nurture relationships across the four loyalty categories identified by Maritz (see chart at the beginning of this article on page 1) by delivering strategies that combine points, rewards, excellent customer experiences and social enablement. "If your entire loyalty strategy is based on finding barriers to exit to trap a customer into a relationship as long as possible, the best you'll ever get from them is Inertia Loyalty, which is very weak," Kirk said.
According to Kirk, consumers in the next category, Mercenary Loyalty, respond well to discounts or points as enticements, but can easily be disrupted by competitors. "To earn True and Cult Loyalty from that same customer, you'll need to focus on giving them a great customer experience to react to (True Loyalty) and a brand tribe to belong to (Cult Loyalty)," Kirk said.
Loyalty currency manager Points found that people generally focus more on earning loyalty currency than spending it. Offering loyal customers the ability to trade, exchange and redeem points and miles is critical in the spending side of the equation, which Points does through its platform.
"One of our core focuses is to help loyalty programs distribute their currency in a much more open way into other industries ‒ either through apps, mobile transactions, websites, digital wallets, really, any channel that we can help get loyalty points and miles into ‒ so they can be used either as an incentive to help somebody get closer to a Tahiti vacation or even pay for an item," Barnard said.
The Points platform offers a high degree of connectivity. "It gives any third-party developer in any app or website the ability to tap into our access to literally dozens of loyalty programs around the world and hundreds of millions of members of these loyalty programs," Barnard said, noting that client partners have benefited by taking on relationships with other loyalty programs just as credit card providers did by aligning with other loyalty programs in the past.
Dining by droves
Another pioneer in the art of loyalty is San Francisco-based Spendgo Inc., which launched in 2010 and now offers its patented Transaction Link technology through an expanding network of reseller partners. According to Spendgo, its platform caters to 4 million loyalty customers – with 2 to 3 million expected to join this year – and manages over $1 billion in transaction volume annually for restaurant clients.
"What we patented was an integration technology," said Ivan Matkovic, founder and CEO of Spendgo. "Instead of having to invest a lot of money in point-of-sale integrations, we use the printer feed as an API. We actually take what normally gets sent to a printer and capture that as a way to figure out what people are buying, the items and SKUs [stock keeping units] that are being purchased, and using that solution we can integrate with any POS system," and its digital offers and messaging capabilities can target customers by segment.
Other types of retailers may use the platform, but restaurants were initially targeted for specific reasons. "We saw a higher degree of point-of-sale fragmentation in restaurants," he said. "Some restaurants had seven or eight point-of-sale systems, and there was really no vendor that could easily do that many [POS] integrations. For those organizations with older systems and more fragmented infrastructures, we're really by far and away the best option for them."
Spendgo recently partnered with Epson Inc. to enable merchants to leverage real-time data sourced directly from Epson's receipt printer suite to drive loyalty. Matkovic noted that some restaurant have seen sales increase by as much as 35 percent within loyalty program segments.
"We have one company who thought their customers were coming in three times a month," he said. "Through their loyalty program we found that in reality those customers were coming in 1.5 times a month, so they needed to focus more attention on driving frequency as opposed to driving spend." He noted that one of the most effective strategies for Spendgo restaurant clients has been the ability to bring back lapsed customers.
"We power email, and SMS for a lot of brands we work with," Matkovic said. "We also work with third-party vendors and do direct integrations with them as well." Matkovic said his company is working on further development of automated customer engagement communications tools to facilitate client loyalty efforts.
On the consumer side, Spendgo app users need only register once. Each subsequent enrollment requires a phone number for user preferences and enrollment information to be transmitted to the new entity. Spendgo charges a flat subscription fee per POS system for use of the service and counts Jamba Juice and Round Table Pizza among its clients.
Social sharing movement
A recent Maritz LoyaltyNext Customer Study confirmed that 43 percent of consumers join loyalty programs to earn rewards, yet only 5 percent actually identify with the brand's values, which means the potential for customer disconnect makes it incumbent upon brands to shed the solitary profile accepted in the past and offer more social forms of engagement.
"A program might have millions of members, but what you most typically experience is your activity only – your offers, your progress, your rewards," Kirk said. "This flies in the face of almost all other consumer experiences today, most of which have become highly socialized experiences, where digital and mobile technologies have made it easy to share that experience instantaneously with your friends."
He believes social loyalty will play more prominently in the next evolution of the loyalty market. Maritz research revealed that one in five consumers would like to interact or compete with family/friends within loyalty programs; 37 percent would like to share or combine points or other earnings toward rewards with family/friends enrolled in the same program; and 32 percent would like to team with family/friends to reach common goals.
"Your most loyal customers are likely looking to connect with fellow brand loyalists as a means to share the experience and to reinforce the wisdom of their choice," Kirk said, noting that targeting the top 40 percent of customers is a good place to start.
Loyalty in the aisles
According to the Food Marketing Institute, U.S. supermarket sales totaled $649 billion in 2015, with average net profit after taxes of 1.5 percent. Given the slender margins, grocers by necessity must place a premium on customer loyalty.
To reinvent the checkout experience for grocers, NCR Corp. teamed with mobile self-scanning provider Re-Vision to launch NCR FastLane Mobile Shopper Powered by Re-Vision. The app makes it possible for stores to offer consumers a scan-as-you-shop option using either a store-provided device or customer smartphone. Designated checkout areas enable shoppers to complete cash, card or mobile wallet transactions.
It also delivers data. "Because we are using a personalized device, in most cases, we know what your shopping journey was," said Dusty Lutz, General Manager Self-Service Solutions at NCR Retail. "We know what offers you were presented. We have the ability to track your path through the store, understand what parts of the store you frequented, how long you dwelled in each location, and what influence we had with offers made."
For smartphone users, the ability to opt in or opt out at each point of engagement is critical to app adoption. Mobile Shopper offers that flexibility, and to receive additional benefits on the spot, customers can join the store's loyalty program as they shop.
"One of the things that we've already demonstrated with the Mobile Shopper is that people who use the mobile technology to scan as they shop, see their running total and receive personalized offers, actually do buy measurably more," Lutz said.
He said the reasons can vary from shoppers on a budget managing spend closer to their limits, because they can view running totals, to shoppers making impulse purchases as a result of offers sent to them as they stroll past items. According to Lutz, since launching NCR Mobile Shopper in June, grocers are averaging a 6 to 10 percent lift in basket size.
Today's advancing technology could further enhance brand loyalty. "If you're in aisle 5, how do you actually find that item?" Lutz said. "Is it to the left, up high or low?" With augmented reality, a shopper could conceivably snap a photo of the aisle with a smartphone, and then receive a live image showing exactly where products are located.
"That's what loyalty should be about – creating an easier journey," Lutz said. "I got a better offer from the retailer. I had a better shopping experience. That makes me want to come back and buy more."
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