Loyalty & Rewards

Loyalty: Beyond The Buzzword

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There’s an old saying in politics: “If you want a friend, get a dog.” Extend that to commerce, sans canine, and you get this: “If you want loyalty, get some points.”

It’s best to get the right points, though — the ubiquitous kind.

Loyalty programs may be all the rage these days, but they sometimes foster rage if they don’t serve customer needs the way consumers want. Which begs the question: What is loyalty, anyway? To get to the basics behind the buzzword, PYMNTS’ Karen Webster posed that very query to Ravi Venkatesan, chief technology officer of Bridge2 Solutions.

 

“It’s all about allegiance or adherence — whether it’s a brand or a style or even people,” Venkatesan said. “Loyalty … when you boil it down, is the fact that I want to stick to something for a long period of time and have allegiance to it.”

Go back a few centuries in business lore and you’ll discover the phenomena of merchants offering up old copper coins. A consumer could then take those coins and go to another merchant and get additional stuff.

“That is what I would call the origins of loyalty,” Venkatesan said.

Greenfield Stamps arrived in the 1800s, boasting a similar purpose but much lighter in weight. Then, in the 1900s came the genesis of Box Top Coupons, personified by Betty Crocker and the like. These are the classic forms of loyalty, he explained.

The modern age, in which points reign supreme, originated with American Airlines and its own rewards program’s launch back in 1981. It was among the first instances “where someone said, ‘OK, let me define a currency that is somewhat virtual and that people can redeem and be rewarded for,’” Venkatesan said.

“Ultimately, I think it boils down to a moment of truth which is when a customer says they will want to go and make a repeat purchase,” he added. “Will they go back to Starbucks and get another coffee or go back to a restaurant and get another meal? Or will they spend more money on a credit card because [they are] going to get a reward that [they] like?”

Against this backdrop, people and the companies themselves use the word “loyalty” incorrectly. They say they’re running a loyalty program, but it’s a concept that’s misinformed at best.

“You cannot induce loyalty through a transaction or a one-time event,” said Venkatesan. “It’s a relationship and, by definition, over a period of time. It is over multiple periods of engagement.”

There’s a spectrum of success when it comes to loyalty programs, too, with airlines in the middle. On the positive, the relatively successful side would be financial institutions (FIs).

“If you think about where we are today, the financial institutions that are among the major issuers of credit cards … have some of the most sophisticated and best loyalty programs — based, in part, on the product design,” he noted. “They give you a metallic black card or some similar positioning that shows it is a premium item for the whole experience … including how they provide fraud control or concierge services.”

The airlines are in the middle of Venkatesan’s spectrum of success. They realized they would be better off if they expanded customers’ array of options for rewards beyond just their own products. Nowadays, a United Airlines MileagePlus member can redeem miles for, say, Apple products.

Venkatesan would put retailers at the bottom of the spectrum — or at least at the lower end.

“They have been creative and have been rewarding people within their own ecosystem, but they really have not been smart about how to broaden that engagement,” he said. “If I am a department store, how do I benefit from the fact that my customer is eating at a particular restaurant?”

He noted there are dozens of rewards models within the retail space, but said they haven’t taken off in the consumer’s imagination.

“Starbucks is the exception that proves the rule, but retailers run out of ideas and options around repeating the same strategy,” said Venkatesan.

Simply scaling the value of the reward so it equates to 25 or 30 percent of a purchase holds some initial appeal, but then runs out of steam. Merchants, then, must foster true loyalty.

“I would push points ubiquity, or moving toward points ubiquity as a top and number one engine,” he said.

Research shows that customers want the ability to access the rewards, wherever and whenever they can, and that they want the liquidity of the rewards in multiple places.

“The challenge is that you want the customer to remember and engage with your brand,” according to Venkatesan. “If all I do is give you cash back or gift cards, to cite a couple of examples, you earned a good reward, but you may not even remember me. But if I can find a way where you can use that reward anywhere — but when you use it, there is also engagement with my brand — that would be the best of all worlds.”

Brands should be mindful that rewards must appeal to consumers’ rational and emotional sides alike. The rational side is all about value, tied to the customer experience and focused, in part, on ease of use.

To help move to a duality of rewards and engagement, the executive recounted his own firm’s October 2017 launch of Loyalty Pay. It came about as merchants were embracing the innovation of near-field communication (NFC)-based payments, a technological shift that led toward digital wallets’ adoption as a payments mechanism.

The platform allows consumers to access their rewards, regardless of where they have been earned, as part of the digital wallets on their mobile devices. When they go to their respective wallets and use those points, though, they engage directly with the brand. Thus, rewards and even special offers can be displayed on the mobile wallet.

“It opens up a whole new world of in-the-moment, mobile marketing,” Venkatesan said.

Whatever the approach, consider the fact that loyalty has its own reward. After all, research shows 80 to 85 percent of corporate sales growth comes from existing customers. As for going beyond the buzzword?

“Companies that get this right will succeed in growing their business[es], and companies that don’t … won’t,” he emphasized.

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