Can your business survive without a customer loyalty program?

As Amazon Prime continues its march to dominate the loyalty landscape, the question of paid customer loyalty programs - or even a program at all - is taking centre stage

Amazon Prime, the behemoth of paid customer loyalty programs, counts some 100 million members in its ranks, and it’s growing.

During the recent Prime Day sales event, the company was offering a free trial to entice new members to join the program. It's one of many retailers, locally and overseas, creating new loyalty programs or otherwise looking to revive existing membership offerings that may no longer provide genuine value in a bid to boost customer loyalty in this hyper-competitive online retail era.

According to the Clarus Commerce 2019 Premium Loyalty Study, locking down customer loyalty is more difficult than ever. The reason? The plethora of choice available through the Internet. 

The report from the premium loyalty program consultancy noted consumers are bombarded with offers from traditional retailers as well as those in the ever growing direct-to-consumer industry, giving them virtually unlimited choice. In this age of the customer, differentiation by product alone is no longer enough. If price or availability becomes an issue, consumers can switch between retailers with just the touch of a button.

Author of the study, Tom Caparaso, said nearly 70 per cent of consumers agree loyalty is more difficult for a retailer to maintain than ever before, while 88 per cent agree retailers could do more to earn their long-term loyalty. Amazon might be the symbol of this new competitive landscape, but it’s just one - albeit very large - part of the new market of almost infinite choice in online shopping.

So in response, brands are again turning to loyalty programs in a bid to make an emotional connection with their best consumers. Yet can they continue to be effective?

Not everyone thinks the game is up for retailers trying to compete with Amazon Prime’s program. CEO and founder of Loyalty & Reward Co, Philip Shelper told CMO while Prime can be held up as the “gold standard” of paid programs, it faces a challenge to deliver the same service, based on ultimate convenience for a small yearly cost, across all its markets.

“In Australia it’s going to be quite problematic to deliver at the same level as Amazon does in the US because of the size of the market and the geography," he claimed. "It might just concentrating on capital cities. But they do really deliver on that convenience factor, which is incredibly appealing to a lot of people and does engender quite significant loyalty.”

Caparaso told CMO that, while Amazon has struck the perfect balance between the annual cost of the program, the daily frequency of benefits and the types of exclusive offerings that subscribing shoppers are promised, other retailers should copy this to stay competitive. “According to our data, the top motivators to join a premium program are instant discounts whenever consumers shop (67%) and fast and free shipping (61%).

Defining loyalty in 2019

The 2019 For Love or Money report, an annual pulse check on customer loyalty in Australia, found consumers’ definition of loyalty falls into two distinct types: Behaviour and belief. Behaviour loyalty is primarily driven by a consumer’s transactional connection with a brand, whereas belief loyalty is primarily driven by an emotional connection with a brand.  

Generating loyalty through developing a relationship with a brand is not a new concept. The Point of Loyalty CEO and founder, Adam Posner, told CMO loyalty programs go as far back as green stamps in the US in the 1930s. Locally, FlyBuys and Qantas are some of the oldest, launching in the 1980s.

Today, loyalty is an avenue for data, it’s about knowing the customer, as well as building a connection, he said.

"Brands have an ongoing mission, which is: How can they understand their customers across all their channels?” Posner explained. “Loyalty programs are seen as a way to connect customer data and also give more value back to customers to get that incremental spend... and retain and grow the value of my existing customers."

For consumers, there are three specific reasons people join loyalty programs, according to Posner. “Convenience loyalty, which is consumers shop [with the brand] anyway and so why not be rewarded; transactional loyalty, the rewards programs’ benefits are appealing; and emotional loyalty, identification with the brand,” he explained.

While a lot of retailers still don’t have a premium program in place and plan to stick to traditional loyalty, they may be surprised to know that the majority of shoppers are waiting for them to offer one, according to Clarus Commerce’s Caparaso.

He told CMO its research found “70% of consumers who do not currently belong to a premium loyalty program would join one if their favorite retailers had one” proving the assertion that consumers are willing to spend a recurring fee to make favorited brands a larger part of their everyday life.

Free vs paid loyalty programs

Then there's the choice between a loyalty program with free membership and access to a limited range of benefits and savings, versus a loyalty program with a subscription fee that comes with an extended range of benefits and savings. The For Love or Money report found that across the board, 74 per cent of respondents prefer a program with free membership, although it’s not uniform across age groups. 

The 2019 premium loyalty study from Clarus Commerce found 80 per cent of Millennials, for example, are willing to join a premium loyalty program if their favourite retailers offered them and the benefits were valuable to them. This contrasted with 68 per cent of non-Millennials.

Paid loyalty programs still have growth potential, even though Amazon is shaking things up. “Qantas, Costco, Super Cheap Auto - paid programs are more prevalent these days, especially since Amazon Prime made everyone wake up and see their value,” Posner said.

“There’s still a huge opportunity because it’s still quite low but members are keen to join if they see the value is there.”

It’s a cost-benefit analysis in the customer’s mind, according to Shelper, who believes it's harder to convince a customer to join a paid program. For instance, sometimes a free program can be a stepping stone to encourage people to join and then recruit from within to join a paid program.

“If you want volume, a free program is the way to go. If you want a higher value member, then a paid program is worth looking at,” he said.

For a business choosing between having a paid or free program, Shelper admitted it’s easier to start with a free program and that having a paid program is still niche.

“They are more complex to implement and need to deliver incremental value and incremental services to a core group of customers to generate more revenue from them,” he continued.

One of the defining features of new-age paid loyalty programs is free delivery. According to Shelper, this is driven by wanting to compete with Amazon Prime in a “copycat play”. He cited Deliveroo, FlyBuys and eBay as examples and expected to see a lot more over the next 12 months to gain a competitive advantage.

“The added convenience [of free delivery] could easily justify joining a program, if you’re shopping with them already,” he noted.

The risk of undervaluing loyalty 

What's no in doubt is that loyalty matters, a lot. And value brings member engagement and the sales that flow from that.

A number of research studies into retail brand loyalty have found consumers with a loyalty membership account for a greater proportion of sales. Clarus Commerce has shown in the US, for example, when Restoration Hardware created a loyalty program the uptake was strong, with 380,000 members signing up. These accounted for a staggering 95 per cent of sales and, furthermore, income from membership with growing at a faster rate than sales. It's similar at Myer locally, with upwards of 70 per cent of all transactions made by Myer One cardholders.

Locally, eBay introduced eBay Plus last year in a bid to bring savings, freedom and convenience to its buyers. Its research found the cost of delivery and returning an item are the two main barriers consumers have when it comes to online retail. Its loyalty program provides free delivery on millions of items along with sales and special deals to members.

eBay Australia CMO, Julie Nestor, said 75 per cent of buyers told the marketplace giant free delivery was the most important consideration to conversion. She saw loyalty programs as a way for customers to feel valued. 

“Providing access to experiences and exclusive events is a powerful way to connect with your customer - and eBay Plus is about providing superior value during a customer’s shopping experience” she said.

From the business’ point of view, once it has a loyalty program, it needs to understand it’s now in the subscription business, in additional to its core retail business, industry experts argue. This means a brand needs to manage all the things that go along with it - data, renewals and the need to invest in the program and continue to offer value to members - so it remains a valuable program to members and brings value to the business.

Shelper explained companies need to know why they’re adopting a loyalty program first and foremost. He told CMO when programs flounder, there are common reasons. 

“Lack of lifecycle management in terms of how to join, no proper onboarding, tying to grow by sending too many emails, no referrals and no retention process to engage a member in a meaningful way and delivery value,” he said.

Changing loyalty demands

While modern loyalty program members increasingly understand they're exchanging some of their data and privacy in return for rewards, there are also growing expectations of enhanced experience through personalisation. The For Love or Money report found 50 per cent of members are comfortable with the amount of personal data retained by such programs.

Yet many see it an invasion of privacy. Data security, data usage and company reputation are the three most important considerations when handing over personal information to a program.

Shelper cited effective use of data to hyper-personalised member relations as key to customer loyalty program, success, no matter who you are.

“Artificial intelligence-powered marketing platforms, data-rich profiles and buying data from data brokers... it's about the right message at the right time to the right person,” he said.

Loyalty programs can’t be static, set-and-forget undertakings. They require ongoing management as well as timely review to keep up with the changing online retail landscape. Nestor explained delivering a higher standard of meaningful and personalised experiences is changing loyalty program offerings.

“Simply having a program that rewards for purchases is not enough. Customers need to feel like they’re in an exclusive club.”

As an example, Nestor cited eBay’s members-only sales event, Plus Weekend, which offered deals to a wide range of customer groups.

“Loyalty programs are constantly adapting to the needs of customers. Offering third-party services has become more popular as brands look to diversify their loyalty programs," she said. "Last year, eBay offered new eBay Plus members three months free access to streaming TV service, Stan. And just last week, we teamed up with Pedestrian.TV to offer an eBay Plus member-only fashion pop-up sale.”

Caparaso told CMO he thinks we’ll see more partnerships. “Like Hilton Honors and Lyft, brands with complementary offerings will mostly likely find ways to team up to provide more value to shared consumers.”

And premium loyalty programs that cater more closely to the “unique needs and wants of customers across multiple touch points.” “If brands provide a top-notch experience at every opportunity, it’s likely they will earn stronger loyalty from their best customers overtime.”

Shelper explained “heightened expectations” of members means any business has to keep investing to ensure their customer loyalty program delivers.

“It starts with market research to ensure the program delivers incremental value to the members to determine additional rewards and benefits that will be appealing,” he said.

“The average person’s expectation of receiving a personalised service is increasing. It’s not just about getting an email with their name at the top. It’s about getting communication across a wide variety of channels serving up specific products they know will resonate. It’s about accessing an app or website that adjusts based on who you are, with the customer at the centre, and based on how you respond, the system learns what you do and don’t like and adjusts things further.”

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