Friday, 27 March 2015 11:58

Traditional loyalty programs – broken?


More than half of consumers admitted that they had abandoned at least one loyalty program according to a survey and social media scanning by Capgemini Consulting.

The average US household has over 21 loyalty program memberships but only actively uses less than half of these. Loyalty programs should engage but many are not. Key reasons for the negative social media sentiment on loyalty programs include lack of reward relevance, rigid reward structures, user experience issues with online channels, and poor quality customer service.

Capgemini found that 97% of companies have basic transactional loyalty programs – buy X to get Y. Customers however want to use loyalty programs for more in the digital age - they want to be asked about how to design the new loyalty program, or what items should be sold in the store.

Companies are struggling to break out of the narrow transactional mindset. For example only 16% of loyalty programs reward customers for activities such as taking online surveys, rating and reviewing establishments or referring friends to the program. Similarly, only 14% employ gamification techniques to reward.

An industry-wide comparison shows that some industries are ahead of the curve. 57% of airlines and 41% of hotel chains reward consumers for a range of engagement behaviours.

Companies segment their customers but customization is still very basic. A typical approach uses Platinum, Gold and Silver tiers, typically based on purchase volumes. Loyalty offers are customized based on class. Where loyalty programs are lacking is advanced personalization, such as offers based on location or purchase history. Only 11% of loyalty programs offer personalized rewards based on a customer’s purchase history or location data – in Australia Flybuys and Coles are leading the field here.

 What good programs look like?

 Integrate with the Overall Customer Experience. Starbucks CEO Howard Schultz highlighted the intersection between a superior customer experience and loyalty when he said, “By integrating mobile loyalty, payment, and in-store digital experiences, we are creating game-changing technologies and experiences for our customers, and the opportunity to introduce new lines of business for our company.” The firm integrated its “My Starbucks Rewards” program with the Starbucks mobile payments app.

 Reward Members for Social Media Engagement. Social media channels can significantly enhance the impact of loyalty programs. Multi-partner loyalty program BalticMiles launched a highly successful crowdsourcing initiative on Facebook – called “BalticMiles Brainstorm”. The initiative encouraged members to contribute ideas on the types of benefits that they desired from the program. Winning ideas – the ones that received the maximum number of Facebook “Likes” – were rewarded with 100,000 points. It generated over 420 new ideas and 6,000 comments that served as the basis for various improvements in the program.

Use Gamification Techniques to Drive Deeper Participation. The introduction of game-based content into loyalty programs has helped Air Canada with its “Earn Your Wings” campaign. It awarded badges to flyers when they completed specific ‘challenges’. For instance, members got the “Pacific Badge” every time they took off or landed at specified airports located on the Pacific coast, such as Sydney. These badges were then redeemable in air-miles. Top badge winners were showcased on a leaderboard on Air Canada’s website. Air Canada reported an ROI of 560% for the program and saw registration levels that were double its initial forecast.

Provide Value Beyond the Traditional . A number of programs stand apart by offering value beyond the traditional deals and discounts. US-based pharmacy chain Walgreens launched the “Balance Rewards for healthy choices” initiative as part of its “Balance Rewards” loyalty program, to encourage its members to adopt healthy lifestyle practices. The program allows members to connect their digital health trackers with the Walgreens mobile app. Members are awarded points whenever they engage in a healthy activity. The success of the Balance Rewards program is evident in its members’ engagement levels – 80 million of the program’s 103 million members are active participants.


Engage your customer – loyalty follows. A customer who is highly engaged with a brand or company is equally likely to be loyal. A study found that “fully engaged” customers (those with a strong attachment to the brand, or brand ambassadors) deliver a 23% premium over the average customer in share of wallet, profitability and revenue. Conversely, “actively disengaged” customers (those who have negative feelings towards the brand, or spread negative word-of-mouth) represent a 13% discount in the same measures.

Design Loyalty programs in Line with the Needs of the Digital Consumer. Develop a Contextual View of the Customer. In order to have a meaningful dialogue with their most valuable customers, organizations need to understand the context of their needs and behaviours at different stages of the customer journey. However, in order to develop such an understanding of customer needs, existing customer profiles must be enriched with relevant data on customer interactions across offline and online touch points. Point of Sale (POS) data must be augmented with social media and location data to create a more complete picture of a customer’s preferences and pain points as long as the organisation clearly communicates the types of data they collect and how it is used.

Capgemini’s report is 15 pages  and is available for public download. Capgemini Consulting is the global strategy and transformation consulting organization of the Capgemini Group, specializing in advising and supporting enterprises in significant transformation, from innovative strategy to execution and with an unstinting focus on results.


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Ray Shaw

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Ray Shaw  has a passion for IT ever since building his first computer in 1980. He is a qualified journalist, hosted a consumer IT based radio program on ABC radio for 10 years, has developed world leading software for the events industry and is smart enough to no longer own a retail computer store!



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