Clarus Commerce CEO Tom Caporaso discusses how retailers need to take a different approach to loyalty today along with examples of how some large retailers that have found success by thinking differently and abandoning their old ways.
(As originally published on NASDAQ on February 13th, 2018.)
Loyalty programs have remained essentially the same since the first ones launched decades ago.
Customers must make purchases to rack up points to exchange for discounts or free products. Many companies have tried to better their rewards offerings, but a slightly higher point total than your competitor doesn’t make you stand out. That doesn’t create real loyalty.
It just creates more of the same. When every loyalty program is similar, incremental improvements don’t matter. What does matter is that customer needs have changed.
That’s why to create true loyalty today, companies need to take a different approach.
Long ago, companies held the power. They designed products and bombarded consumers with advertising and promotions to get sales.
Loyalty followed suit with free, one-size-fits-all programs.
Now, the power has shifted to consumers, and they’re not after transaction-based benefits that make them spend first before getting to use them.
In fact, 50% of millennials stated they quit a program because rewards took too long to accrue.
We live in a world of instant gratification, and customers want instant rewards. Now, they’re demanding an integrated, 24/7/365 experience.
No one has understood this better than Amazon.
They challenged the status quo over a decade ago with their premium loyalty program Prime, and as a result, it’s become the best loyalty program of all time with more than half of U.S households belonging to it.
They did it by being different. Where other retailers focused on trying to force loyalty with points and promotions, Amazon focused on consumers’ pain points and convenience. They built Prime around integrating into their customers’ daily lives.
While they dealt with the frustration of shipping expenses first, they added to the program over time. Now Prime members also enjoy non-monetary rewards like video, eBooks, cloud photo storage, and more.
Amazon has done an unbelievable job integrating into peoples’ daily lives with Prime. Their venture into grocery is just the latest way to add convenience to members’ lives with delivery and easy pickup options.
Because of focusing on what their customers want, Prime members spend almost five times as much per year than non-members.
Restoration Hardware is another retailer that has been doing things differently for the past couple of years.
In 2016, their CEO wrote that a lot of what they were doing promotionally was outdated and that traditional sales and promotions did not reflect the brand they were trying to build. They weren’t aligned with what their customers wanted.
So, they listened to their customers, got rid of all their promotions, and went all-in with a premium loyalty program called the RH Grey Card.
For $100 annually, members get 25% off all full-price purchases immediately after signing up. There are other discount-related benefits, but like Prime, it also gives members experiential benefits like free interior design services. No one else is doing that right now, but customers love it.
In fact, a little over a year after launch, the program was driving most of their sales. With almost 400,000 members and growing, membership fees alone currently account for a big percent of income.
Experiential rewards like Prime Video and Restoration Hardware’s design services are the types of rewards that build emotional, personal connections with a retailer.
Sephora has done an excellent job listening to what their customers want and aligning their loyalty program accordingly.
Their Beauty Insider program offers tiered benefit system to their 10 million members based on spend.
While basing rewards on transactions is typical of more traditional loyalty programs, the experiential benefits that come with it are different than those of other retailers.
For example, members get access to experiences like makeovers, a private hotline, and invites to exclusive events depending on where they fall on the purchase spectrum.
One of their most interesting benefits is their members-only Beauty Insider Community, which is a social platform that allows their members to create a profile, upload photos, and chat about products and fashion.
Their audience is largely mobile-first, so offering a platform like this to members in the manner that they want it makes the integration into members’ lives seamless.
Retailers that think differently and challenge the legacy way of thinking are the ones that are earning the loyalty of their customers now and in the future.
Amazon, Restoration Hardware, and Sephora are building loyal customer bases during a time that’s never been tougher for retailers.
They’re doing it by listening to their customers and offering benefits that not only relieve their pain points but create memorable experiences that connect with them.