Do Loyalty Programs Need Discounts At All?

On the surface, there seems to be no reason why shoppers wouldn’t want to sign up for rewards programs. Many consumers love the rush of scoring a deal, but more often than not, the promise of program-based rewards and discounted prices hasn’t been the irresistible offer that retailers had hoped for. In fact, a 2014 Nielsen report found that 78 percent of consumers don’t claim loyalty to any particular brand.

Are retail loyalty programs broken? Yes, says consumer loyalty firm Thanx’s CEO Zach Goldstein, in an interview with MPD CEO Karen Webster. But that doesn’t mean they can’t be fixed.

Goldstein seized on one major flaw of modern retail loyalty programs: They don’t really foster the kind of retailer-shopper interaction that merchants should be focusing on. Discount-centric programs that offer incremental savings on orders can run the risk of subsidizing shoppers who plan on spending large amounts regardless, Goldstein explained. These rewards-based programs can work in certain industries – “highly competitive commodities businesses” — with particular consumer populations, but if retailers want to achieve mainstream and widespread success with loyalty programs, Goldstein explained that merchants need to start thinking beyond discounts at the point of sale.

“A loyalty program builds around the concept of ‘Once I know who my best customers are, I’m going to build a deeper relationship with them,’” Goldstein said. “Part of Thanx’s loyalty program is soliciting feedback right after a customer makes a purchase. Just the process of proactively asking a consumer about his or her experience actively builds a deeper bond between you and that customer; there’s a 7-percent higher likelihood of repeat visits. If you actually respond to that piece of feedback, that number doubles – a 14 percent higher likelihood of returning. If you give them something regardless of their experience, the number goes up again and you have a 23 percent higher likelihood of returning.”

Goldstein explained that the key point is that none of these interventions involve giving discounts, coupons or anything that might explicitly coerce customers to place more orders. Instead, these methods focus on fostering an ongoing relationship with key shoppers through interactions that take place irrespective of stores or online marketplaces. Goldstein likened Thanx’s approach to customer loyalty as the same way airlines conduct premium clubs: passengers get added amenities, such as private lounges or early boarding, that make the process of flying more comfortable or convenient, and the lack of discounts on flight tickets doesn’t seem to turn too many frequent flyers away.

Goldstein also noted that many rewards programs aren’t quite running off the same frictionless framework that the modern shopper expects from retailers. Swiping or scanning a physical rewards membership card adds yet another step to payment processes, and the lack of immediate feedback leaves many customers wondering if they’ve received any rewards or progress toward savings at all. In fact, Goldstein asserted that physical cards are a holdover from an antiquated age of loyalty programs in retail, and the sooner merchants move to all-digital platforms that free customers from remembering to bring and swipe cards, the better.

“[Friction with cards] is the reason why 60 percent of consumers who sign up for a loyalty program churn out in the first year,” Goldstein said. “They stop engaging because it’s a lot of effort. The mobile device, because it’s on customers at all times, strips everything down and allows the retailer and loyalty program to stay top of mind.”

This, Goldstein explained, might be Thanx’s ace in the hole. After creating an account with Thanx and loading in a payment method, all transactions with qualifying merchants are automatically processed by Thanx. This means no swiping, no remembering to log orders and no checking up on rewards progress. Thanx contacts shoppers immediately after purchases to extend brand interaction, and an app provides real-time information on how much more shoppers need to spend in order to receive a reward.

It’s this consumer-focused approach that has allowed Thanx to build several unique features into its loyalty programs. In particular, Thanx’s Winback and Timeshift features put consumer-provided data to work in innovative ways – Goldstein explained that, with enough of a sample size, Thanx automatically creates profiles of shoppers’ “normal” behaviors. When key customers start to deviate from those patterns (decreasing average spend, not coming into the store as frequently, etc.), Thanx’s Winback feature flags this and either automatically sends or gives the merchant the opportunity to craft personalized messages to keep those shoppers from bleeding to competitors. On the other side of things, Thanx’s Timeshift feature streamlines the new client acquisition process by highlighting for targeting customers who are more likely to shop during off-peak or underutilized time periods, thereby improving the consumer experience for all.

“We’re proud that Thanx has a 97-percent retention rate with merchants,” Goldstein summarized. “Our churn number for consumers is about 2 percent.”

With partners in nearly 18 different verticals all looking for a new kind of loyalty program for their customers, Goldstein and Thanx see no end in sight to the retail rewards revolution.