Mastering The Loyalty Effect

Rewards and incentive programs are not the bacon on top of the brussels sprouts. Bob Legters, senior vice president and chief product officer for FIS, says loyalty starts with a good product and good service. If a consumer doesn’t like brussels sprouts, then no amount of rewards can inspire his loyalty.

In the same way, a credit card company can’t fix a program with low engagement by offering more (or better) rewards. A card with high rates and fees just isn’t going to be popular among consumers. The company needs to fix the actual product first, and then it can adjust the rewards to match.

In a recent webinar, Legters and PYMNTS CEO Karen Webster discussed the foundations of loyalty, including ways in which financial institutions and retailers can change their approach to tap into consumers’ natural sense of how incentives should work.

“The loyalty effect is confidence, trust and consistency, all built around a good product, plus an incentive or reward,” said Legters. “If you want to get to disciple status, where your customer is loyal beyond any type of measure of evaluation, like Harley Davidson or Starbucks coffee … those pieces are all important, but the sum of those is even greater.”

A Value Proposition

For customers to buy into a loyalty program, they must see its value for them. What can they do with their points? How often can they use them, and where? If they don’t see value, they become “at-risk” customers who could easily be swayed to take their business elsewhere.

Legters said that about one-fifth of rewards members fall into that category, having never redeemed a single point. For some, it’s because they like collecting points, and that’s enough of a reward for them. For others, they haven’t seen an opportunity to use those points in a way that they like and are waiting to see the value. Still others simply don’t realize they have points at all; they’re here because they are truly loyal to the brand, service or product — rewards or no rewards.

In the new loyalty economy, said Webster, “Points become money. It’s always been that, but now customers can apply them when making a purchase in real-time. It’s elevated the significance of points in a way that wasn’t quite as tangible before for consumers. Before, you were watching your balance accrue, but there was never a motivator to apply them at that moment.”

Cashing In

In many instances, cashiers will now ask shoppers whether they want to apply their loyalty points to their current purchase at the point of sale. Customers can even “double dip” if they have both a store loyalty card and a rewards program attached to their credit card, at no extra cost or inconvenience to the store.

The ability to stack $20 off from the credit card provider plus 20 percent savings from the store loyalty program — plus any other coupons or special offers — now that’s a reward! To Legters, the point-of-sale experience is one of the most compelling arguments for a customer to participate in a loyalty program.

“We want it to be a surprise and a delight,” he said.

Therefore, the rewards must be offered when the customer is engaging with the point of sale — at the register or at the gas pump — and, once offered, applied seamlessly to avoid disrupting the normal checkout process. Programs should not overwhelm with too many options or present information about rewards at all unless points are available to be applied right now, to this purchase.

A confused cashier is “the last thing you want,” said Legters. “It makes the consumer feel inferior. It’s very hard, in this market, to find a win-win-win.”

Making Rewards a Win-Win-Win

A good loyalty program makes retailers happy because they don’t have to sacrifice anything — except, perhaps, the time and effort it takes to implement a point-of-sale system that can process rewards. Loyalty programs make financial institutions happy because they increase engagement. And, of course, these offerings make consumers happy because they had a convenient, rewarding experience that inspired them to shop again.

The first loyalty program in the U.S. was rolled out by Betty Crocker. Loyal customers could save clippings from products and, once they’d collected enough, mail them in to receive a t-shirt or a cookbook. Later, incentive programs would introduce more options: When customers racked up enough points, they were mailed a catalog and could choose their reward from approximately 60 item options.

The biggest change since is the consumer demand for immediacy, Legters said. Rewards that take 12 to 36 months to earn are too much work. There’s no sense of urgency to use the product or service again. Conversely, rewards that pay off a few times a year are more attainable and feel more like true rewards, thus inspiring repeat business.

“The consumer wants that road shorter,” said Legters, “and the institution or retailer wants to know that they’re getting there faster, because a rewarded customer re-engages twice as fast.”

Getting People Hooked

When loyalty program providers make the road short and intuitive, it’s actually extremely easy to change consumer behaviors. FIS’s data shows that 69 percent of people will break their existing habits to earn more rewards.

For instance, if someone uses one credit card for shopping and a separate card to pay for gas once a week, the first credit card company could offer double points for fuel purchases, incentivizing the customer to switch his payment behavior at the pump or even to switch gas stations.

Generally, once the incentive expires, the new habit is already ingrained and the customer will keep using that card to pay for gas rather than going back to the second card.

Of course, Legters said, there’s no point offering the same deal to everybody. It loses the company money if it incentivizes fuel purchases for someone who is already using its card to buy gas. Instead, the company might offer that customer extra incentives to use their card when dining out.

Gamifying rewards is another effective way to inspire behavioral changes. For some, merely collecting points is a reward in itself. For others, “leveling up” to become a gold or platinum member is a goal worth pursuing. Notifications like “100 more points until …” can awaken customers’ inner competitor and encourage purchasing.

Even when the company plays all its cards right, there will always be a certain percentage of customers who want to game the system. They’ll sign up for anything with an attractive sign-up offer, burn the points and then move on to the next thing.

But for most, that game isn’t worth it. Customers have to start at zero every time they switch, and the majority see more value in accrual. That’s what makes loyalty programs so powerful.

“I would say,” said Legters, “that 95 percent of retailers and 100 percent of financial institutions need to engage actively in a loyalty program and build the loyalty effect.”



Digital transformation has been forcefully accelerated, but how does that agility translate into the fight against COVID-era attacks and sophisticated identity threats? As millions embrace online everything, preserving digital trust now falls mostly on banks and FIs. Now, advances in identity data and using different weights on the payment mix afford new opportunities to arm organizations and their customers against cyberthreats. From the latest in machine learning for fraud and risk, to corporate treasury teams working in new ways with new datasets, learn from experts how digital identity, together with advances like real-time payments, combine to engender trust and enrich relationships.

Click to comment