When you think of a loyalty program, what comes to mind?
Points? Discounts? Scanning a loyalty card or giving your phone number at checkout?
Traditionally, that’s what loyalty programs have looked like. And just about every retailer invests millions of dollars into loyalty programs that all look very similar – points, discounts, transactional benefits.
But do these programs build true loyalty? Do they really capture peoples’ hearts and wallets?
Billions of people belong to loyalty programs, yet 65% of consumers actively engage with fewer than half their loyalty programs.
While points program still hold value, they are still only a part of the equation. There’s more to building loyalty.
Differentiation Matters Most, but Traditional Points Programs are too Similar
Product assortment and location used to be determining success factors, but in the Age of the Customer where shoppers can order anything from anywhere at the best price, differentiation at that level is no longer enough.
Differentiation must come at the brand level, and loyalty programs are a tremendous asset there.
But most traditional loyalty programs are the same. They all look the same. Everyone has one. Points for signing up, points for making purchases, points for social shares.
About two-thirds of Gen Zers are reluctant to join loyalty programs for a variety of reasons, with 40% of this segment saying the programs require too many purchases to earn rewards or to redeem points.
Programs like this really focus on the retailer. They aim to drive short term revenue by requiring consumers to transact upfront with the hope of getting a reward later.
Points and other transactional benefits are still important because they make people feel smart about shopping, but they all feel the same. It’s impossible to compete on purely transactional elements.
What’s missed here is the opportunity to create deeper, more meaningful relationships.
See what a modern loyalty program looks like in the age of the customer.
Experiential Benefits Makes the Difference
While the points, discounts, cashback, transactional benefits still do elicit emotions, experiential benefits are what have deeper, longer term effects and drive emotional loyalty. Just look at how well Lululemon is doing this with their paid loyalty program market test.
Rather than putting the retailer first, put the customer at the center. They want to feel special and buy from companies that they feel an emotion connection to.
By understanding everything about them including their expectations, emotions, and behavior, you can offer them exclusive benefits not available to all members (like with a traditional program).
68% of Americans say exclusive offers are more important than traditional coupons that are available to everyone.
Transactional rewards like cash-back, free shipping, or discounts can make customers feel smart and excited because they are saving money, but exclusive rewards make customers feel special and valued.
Consumers with an emotional connection to a brand have a 306% higher lifetime value, stay with a brand for an average of 5.1 years vs. 3.4 years, and will recommend brands at a much higher rate (71% vs. 45%).
That’s why it’s critical to start thinking about how to build relationships with your best customers.
Start Thinking in Relationships
Loyalty programs that establish positive emotional connections with members see 27% more of their membership increasing their spend with the brand.
When you build relationships with your customers, you’re building emotional loyalty. That means they’re engaged at a deeper level than simply going where there’s a discount.
Sephora Beauty Insiders know that in addition to points for purchases, they’re also getting an experience not available to non-members.
In-store beauty services, free beauty classes, and access to the Beauty Insider Community come with membership and members know they’re not getting those experiences at the competitors.
Retailers need to use their loyalty programs to really showcase what makes them special and unique.
Amazon Prime doesn’t just get its members fast, free shipping. Prime is the only way to everything that Amazon has to offer, including experiential benefits like Prime Video.
Amazon Prime subscribers spend $1,300 per year, nearly doubling the $700 per year the average non-member spends on the e-commerce site.
Relationships are powerful. They are what keep customers engaging repeatedly.
Finding a Balance
Points are still valuable, but in the Age of the Customer, successful loyalty programs will combine transactional benefits with experiential benefits.
In a time when differentiation at the brand level is more important than ever, retailers need to use their loyalty programs to demonstrate their value and uniqueness.
Adding experiential benefits into the mix is critical. While transactional elements like points and discounts still elicit emotions on a more rational level (like feeling like a smart shopper), experiential benefits make your customers feel special. That’s what will build lasting relationships.
Isn’t time to stop thinking only in points and start thinking in relationships?