Loyalty programs have become big business in the United States, but are they personalized enough to really reward consumers?
According to research released earlier this year, there are nearly 4 billion active rewards program memberships in the U.S. That’s approximately 16 active memberships for each of the roughly 245 million adults currently living in the country. But, this year, annual loyalty program growth has slowed from 26 percent to 15 percent, and Americans are increasingly abandoning the loyalty programs they joined in previous years.
The research shows consumers leave these programs largely because they don’t mesh with their lifestyles. Many are members of multiple rewards programs, and while in theory that means consumers can be rewarded everywhere they shop, the result is that it’s difficult for consumers to earn a substantial amount of loyalty or rewards points at any individual merchant.
If consumers can’t earn enough points to get a free product or at least a discount, they’re likely to stop utilizing the rewards program, according to the research — and perhaps even stop shopping with a merchant altogether.
Derrick Fung, co-founder and CEO of mobile rewards app Drop, told PYMNTS he recognized this friction when creating the company. Because loyalty programs are created for a large swath of shoppers rather than personalized to suit the needs of individual consumers, they are often not quite as rewarding as their names imply.
In a recent interview, Fung noted that despite being designed and marketed as ways to reward frequent customers for their loyalty, it is typically difficult for users to actually receive and use those rewards — so difficult, in fact, that many members stop participating in the programs at all. And, for companies that invested invaluable time and money in building these spurned loyalty programs, the whole thing is a bust.
“There’s going to come a time, and it’s going to come soon, [when] consumers drop out of loyalty programs entirely because there are too many to keep track of and actually get value from them,” Fung said.
All-for-one loyalty program
According to Fung, Drop worked to solve this problem for consumers by creating a mobile loyalty program and app that rewards them for spending money with a wide range of merchants.
To join, consumers link their spending method(s) of choice to their Drop accounts. The app currently works with debit cards, credit cards and more modern payment methods like PayPal. Drop then automatically scans and analyzes all purchases made with those linked payment methods, rewarding consumers for purchases from hundreds of its partner brands.
That includes purchases from consumer favorites like Starbucks, Uber and Under Armour, and all via one centralized reward account rather than spreading them across several different merchant accounts.
“Consumers simply spend on the same brands that they always buy from, and the app rewards those purchases from all of our different brands with points that go to the same account,” Fung explained. “Users can then redeem those directly via our app for a gift card at one of our partner merchants.”
So far, Fung said, roughly 500,000 people in the U.S. and Canada have signed up for Drop since the app was launched late last year. For most users, the motivation has been finally being able to realize the potential savings promised by many merchants through their rewards programs.
“Consumers are just inundated with way too many rewards programs, so they’re really only active in a couple of programs,” Fung explained.” There are just too many options. We’re trying to consolidate all those kinds of consumer loyalty program into one platform that will actually deliver rewards to customers, instead of spreading all those rewards out over several platforms and programs.”
Meanwhile, the company makes its money by using the mobile platform to do what many retailers’ in-house loyalty programs fail to: bring new customers into stores and encourage them to spend more money. Because Drop has a large base of customers shopping across a wide range of merchants, retailers can also use the platform to connect with consumers who aren’t customers yet.
“On a platform like Drop, merchants come to us to try to accomplish various goals they aren’t fulfilling in-house, whether it's acquiring new customers or driving customers to spend more per visit,” Fung said, adding that consumers also earn points based on percentage of merchant spending.
While the consumer appeal of Drop may be apparent, Fung noted the app offers rewards for merchants that partner with the company as well.
Along with building customers loyalty in much the same way as traditional, in-house loyalty programs, Fung said he and his team have worked to ensure Drop has other advantages to offer merchants. He noted more than 90 percent of the app’s current users are young, tech-savvy users between the ages of 18 and 34 — or, in merchant-speak, the demographic “sweet spot.”
According to Fung, Drop offers partners analytics based on users’ purchasing habits. With the company’s large partner base spread over a range of industries, Fung said those analytics are often far more revealing than data most companies can generate internally.
“You see all the data across all the stores where consumers spend,” he explained. “If you’re a coffee shop with a rewards program, you might know what kind of coffee your customers like, but that’s it. But with Drop, you can see all of the things they like to buy, and it covers all of a consumer’s spending habits. We work with our partners to use this information to try to help them acquire customers more efficiently.”
The company is currently working to learn more about the time of day and geographic areas in which customers make their most frequent purchases, Fung said, then using that data to push offers to them at a specific time and location. This might include suggesting a coffee shop stop on a user’s commute to a Drop partner offering a promotion.
Whatever comes next for the company, the goal will be to improve the level of individualized service it has built for consumers and companies alike.
“Ultimately, the goal is a truly personalized program,” Fung said.
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