Are customer loyalty programs stuck in the past?

Global Capgemini report reveals loyalty programs haven’t adapted to the needs of digital consumers

Customer loyalty programs have not adapted to the digital age and are failing to engage customers, according to a new study by Capgemini Consulting.

The report, Fixing the Cracks: Reinventing Loyalty Programs for the Digital Age, identified participation rates in loyalty programs are frequently low, with 89 per cent of social media opinions on loyalty programs reported as negative.

The study analysed the loyalty programs of 160 global companies across seven sectors including retail, banking, consumer products, telecom, airlines, hotel chains and consumer electronics. The report also conducted a scan of 40,000 consumer conversations on social media to gauge customer sentiment towards loyalty programs.

Banks hit the mark as one of the biggest offenders, with only 3 per cent rewarding customers for at least one form of engagement. Also lagging behind were the telecommunications and retail sectors, followed closely by consumer electronics.

On the flip side, airlines proved the most active in loyalty programs, with over half delivering loyalty programs across offline and online channels, followed by hotel chains.

The research revealed 97 per cent loyalty programs still follow a basic transactional philosophy, where rewards are simply based on purchase. Only a small minority of programs (16 per cent) recognised and rewarded consumers for engaging and interacting with the brand in other meaningful ways.

These included rewards for taking online surveys, rating and reviewing establishments or referring friends to the program. A mere 14 per cent employed gamification mechanisms to reward customers.

Significantly, the report showed most loyalty programs lacked personalisation and failed to offer cross-channel redemption services. In fact, only 11 per cent of loyalty programs offered personalised rewards based on a customer’s purchase history or location data. While 79 per cent of loyalty programs surveyed used a mobile channel, only 24 per cent allowed redemption through it.

More than half of consumers in a 2013 survey admitted they had abandoned at least one loyalty program in the past year. Nearly 50 per cent of the negative sentiment towards loyalty programs stemmed from a lack of reward relevance, rigid reward structures, user experience issues with online channels, and poor customer service quality levels.

According to Capgemini expert in large-scale program development, Antoinette Ienco, Australian companies are more or less aligned with the report when it comes to adapting loyalty programs, if not lagging behind.

“You are still not seeing a lot of personalised rewards, and what we are seeing are people with lots of rewards cards in their wallet that do very little to differentiate themselves,” she told CMO.

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The study commended Sephora as an example of best practice. The cosmetic giant’s ‘Beauty Insider’ loyalty program matches loyalty accounts with its mobile app, as well as the Apple Passbook mobile wallet. This has allowed Sephora to provide a seamless purchase experience, where customers can track their purchases, view offers, and redeem reward points on the go via their mobile devices.

The strategy has worked, with Sephora’s Passbook users purchasing twice as much and twice as frequently as the average Sephora customer.

The ‘My Starbucks Rewards’ loyalty program has also proved hugely successful and is integrated with the Starbucks mobile payments app to allow consumers to earn and redeem reward points directly from mobile devices. The Starbucks app now has 12 million active users and accounts for 7 million transactions a week, while ‘My Starbucks Rewards’ has 8 million active members.

Closer to home, Qantas is leading the way in terms of customer engagement with their loyalty program. According to Ienco, for Qantas is it not just about air miles but extending to programs such as gold memberships and wine clubs.

“This really ties in with what you read through the report around making sure your rewards program is not just transactional-based, but they’re creating some sort of emotional attachment with the consumer and they are relevant to what the consumer is looking for,” she said.

In the retail sectors, Ienco highlighted Coles and Woolworths are already starting to use customer data through their rewards program as part of personalising the rewards they give to their customers.

Focus on driving customer engagement

According to the report, loyalty programs need to be integrated into the larger context of a marketing strategy, with a focus on driving customer engagement and a personalised experience. This means organisations need to look at each step of the loyalty program from design to evolution, through the prism of engagement in a digital space.

Ienco said implementing a loyalty program boils down to technology, people and process. However, all of this is primarily underpinned by understanding the customer.

“First and foremost, you need to profile your customer, understand their behaviour, their needs and their journey with your brand,” she advised. “Once you’ve got that, it’s really important you understand your objectives for your loyalty program and what you’re trying to achieve with it. Then you can start tackling the people and technology and process.”

From a technology perspective, Ienco said having integrated systems is vital to recognising customers across all different channels. From the process side, integrated processes require automation to allow for scale.

“Having an integrated loyalty program strategy means breaking down the silos within an organisation,” she added. “You need to have people that have the right skills, but also have the right teams with a very customer-focused mindset.”

According to Ienco, adopting new loyalty program methodologies is not something that can be done overnight.

“How fast or slow they move depends on a lot of things, including budget,” she said.

For a company with limited resources, this means making the most of what you already have. This includes tapping into existing data, finding innovative ways to make tiered loyalty programs more relevant to the customer as well as utilising social media to start a dialogue with the consumer, she said.

“Most retailers already have a large repository of customer data, so the very first thing is to start to tap into that,” she said. “Being able to put in an analytical capability over the data they have and start to get those customer insights and start to make decisions based on those insights is definitely a step in the right direction.”

Moving forward, while technology is changing at such a rapid pace, Ienco claimed having a strategic vision upfront is critical for future-proofing a loyalty program strategy.

“This means developing long-term roadmaps that are based on knowing your customer, what their behaviours are, what their needs are, as well as who your future customers will be,” she said. “This road map needs to be continually reviewed and refreshed. That way you don’t become outdated because you are sticking to that vision, but you’re also looking at what new technology will be available.”

Key recommendations
  • Integrating loyalty programs with the overall customer experience
  • Delivering a personalised customer experiences
  • Conducting “Social Listening” to understand customer needs
  • Rewarding members for social media engagement and advocacy
  • Using gamification techniques to drive deeper participation
  • Providing value beyond traditional rewards

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