Sure, customers can be loyal to brands they like. But how effective are the current and developing loyalty tools in creating a stronger relationship with a brand? A new report from Forrester Research attempts to point the way toward Loyalty 2.0. 

The report, TechRadar for Customer Intelligence Professionals: Customer Loyalty Programs, Q1 2013, looks at the current state and future plans of 13 loyalty tools -- affiliate networks, card-linked rewards, coupons, daily deals, gamification, location-based services, loyalty aggregators, mobile apps, points-to-shares converters, program websites, social networking pages, social rewards and U.S. loyalty coalitions.

Overall, it found that most programs remain “stuck on ‘Loyalty 1.0’ and have not successfully evolved beyond the transaction toward customer engagement and emotional loyalty.”

Member Interactions

The 13 tools were chosen because they are centered on member interactions, deliver some value to the customer and the company, and have received industry attention.

The report, which interviewed 15 companies engaged in customer loyalty such as Kobie Marketing and Bunchball, noted that the first generation of loyalty programs were focused on points and discounts to encourage purchases, but now, with so many loyalty offerings, the challenge is to hold the customer’s attention and evolve toward engagement and emotional loyalty.

Forrester said that loyalty programs not only offer marketplace differentiation and help in securing a steady base of regular customers, but can offer the value exchange that many customers want for providing the kind of personal data that marketers crave.

Creation Phase

But, while the report envisions a key goal for loyalty programs is their evolution from being transaction-based to offering emotional engagement, it found that few are actually doing that.

The report characterized two of the tools -- points-to-share converters and U.S. loyalty coalitions -- as still being in a nascent or “Creation” phase, so their value cannot yet be determined. Points-to-share converters add another potential redemption option for consumers’ points -- trading points for shares of company stock.

This could potentially put consumers literally on the side on the brand, but the promise is still “largely theoretical” with some potentially considerable obstacles -- not the least of which is SEC regulations.

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U.S. loyalty coalitions are managed by a third party such as Air Miles or Payback, and offer a single currency and loyalty card across multiple partners in groceries, financial services or other products. For consumers, it provides a single point of management and greater choices for redemption; for brands, it offers lower costs and greater access to new customers. Loyalty coalitions have been successful in other countries but are a "non-starter" in the U.S. to this point.

Survival, Growth Phases

Six technologies are categorized in the Survival phase, as they have begun to emerge in the marketplace, to gain fans and to prove their value. The report puts in this category card-linked rewards, which are automatically redeemed at the point of sale onto a consumer’s credit, debit or loyalty card. Forrester notes that this is primarily transactional, but that there is potential for emotional engagement by use of targeted data and customization that encourages specific behaviors.

Other techniques in the Survival phase include gamification, location-based services, mobile apps, social networking pages and social rewards. The report said that gamification has the potential to go beyond transactions, because it improves and encourages customer knowledge of a product/service.

Location-based services still have a relatively low adoption rate, and technological limitations are making the process not quite frictionless, but the report said that advancements in consumer adoption, in Near Field Communications and in personalized offers could eventually allow this method to empower customers’ expectations.

Three technologies are placed in the Growth phase, where the technologies are in widespread use and have demonstrated their value -- coupons, daily deals and loyalty aggregators. Coupons, the report notes, do not help to create long-term emotional loyalty, and daily deals get a thumbs-down if used as one-time offers, but daily deals can help build or sustain a customer base if used, for instance, as an incentive for existing customers. Loyalty aggregators bring together multiple loyalty programs into one interface, but are seen as diluting brand loyalty.

Equilibrium Phase

Two technologies qualify as being in the Equilibrium phase, in which the ecosystem is “large and resilient” -- affiliate networks and program websites.

One shortcoming in the report is that, while Forrester places a high value in the evolution of programs toward more customer engagement and emotional loyalty, it did not define any characterizing boundaries for those terms. This lack of definition or metrics raises a variety of questions, such as:

Why isn’t a customer who uses a discount coupon engaged with the brand, since the purchase experience might result in a product or service so terrific that the customer is sold for life? How is emotional loyalty to a brand different from becoming a brand advocate -- and, if it’s the same, why single out loyalty programs for that challenge when other marketing efforts might be needed, such as a pro-active customer service?