Forrester’s 2019 CX Index found that most loyalty programs are ineffective. This, at a time as the company notes, when "it costs 500% more to acquire a new customer than to retain a current one."
Customer experience (CX) leaders will ultimately run or redesign these programs — a move that gives the best opportunity for these programs to shed aged practices and orient efforts to experiences like white-glove service, liquidity of rewards points, and the flexibility to redeem across a company’s ecosystem. So why is there such a disconnect between loyalty and CX efforts, and how can they be more aligned?
Earn Your Customers' Loyalty
“Long gone are the days when brands could buy a customer’s repeat business — instead, they have to earn it with exceptional experiences and rich engagement. Now, true loyalty has much more to do with overall customer experience, and far less to do with collecting points and coupons,” said Matt Ramerman, president of Sinch Engage. “While loyalty programs are designed to fuel transactions, today’s consumers are not primarily driven by discounts, but rather by relevance.”
Ramerman explained that customers today want highly personalized communications and timely messages from brands that truly “get” them, with 91% of consumers more likely to shop with brands who recognize, remember and provide them with personalized experiences.
“Although loyalty programs may be dying, loyalty can still live on as a crucial piece of CX if brands focus on strengthening their customer relationships and offering them relevant, personalized content — and delivering it at the right time to the channels that matter most to them,” Ramerman added.
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Personalization Technology Needed
While early loyalty programs were transactional, today’s leading loyalty relationships have evolved alongside data-driven personalization technology, said Julie Bustos, senior vice president of marketing innovation at The Lacek Group. “Today's best loyalty programs offer personalized, differentiated value other companies can’t match. The wealth of known-customer data generated by programs and other CX initiatives now allows for more strategic, data-driven insights on an individual level, and addresses motivators, buying behaviors and emotional triggers that can be leveraged to great benefit — at scale.”
Another issue, according to Polly Kay, senior marketing manager at English Blinds, is loyalty schemes can hurt those who are most loyal because the programs use algorithms to attempt to increase the frequency of shopper visits or the value of their average spend by integrating personalized time-sensitive offers and rewards, or additional bonuses for higher spends.
“The algorithms commonly increase the reward threshold every time a customer ups their spend or visits the store more frequently … to the point that they’re ultimately spending needlessly in order to get an apparently good reward, whilst someone who shops less often or spends less per visit would in turn need to do less in order to get a personalized reward of the same caliber,” Kay added. So CX goes down, rather than up for the most loyal customers.
The loyalty platform provides permission an organization might not otherwise have to engage its customers, Bustos added. A positive customer experience is driven by an equally effective CX and loyalty team. Progressive companies see the value in collaboration between loyalty and CX, which is why they are often aligned to the same leader.
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Bring Loyalty Efforts Under the Broader CX Strategy
Having the same leader could help with elimination of the silos that affect many loyalty programs.
Most loyalty programs were built as stand-alone silos in an era of batch outbound communications, an approach that is at odds with how today’s consumers engage in real-time, multi-channel journeys across a variety of touchpoints and devices, said John Nash, RedPoint Global chief marketing and strategy officer. While loyalty programs remain a great incentive to keep customers engaged, they’re only successful when configured and executed as part of an omnichannel strategy.
“Creating an integrated loyalty program cannot be done by humans alone,” Nash said. “Launching a program at real-time and individualized scale must go hand-in-hand by deploying advanced technology, such as machine learning. Technology must have a play in the automation process across data, analytics and interactions, to personalize the holistic experiences customers are really in search of from their favorite brands.”
Nash urged marketers to be involved in creating loyalty programs within the context of the full customer journey, and in the cadence of the customer. This includes dedicating time and money to personalized offers, discounts, and rewards to a customer’s preferred touchpoints across the entire customer lifecycle.
“Marketers have a responsibility to send relevant messages to individuals, influenced by knowing if a customer has shopped with them already — or not — and targeting them based on past purchases and understanding the context of their buying habits,” Nash added.
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Focus on Long-Term Gains, Not Short Term Boosts
Most “loyalty" programs are misnamed, they don’t generate true loyalty, said Ali Cudby, CEO of Your Iconic Brand and adjunct professor of entrepreneurship at Purdue University. “Loyal customers exhibit three specific traits — they spend more, come back faster and refer like crazy. These are all long-term behaviors."
By contrast, most companies use programs that compensate customers for taking specific actions, such as buy 10 get one free cards, referral deals, and discounts for signups. But these are tactics while true loyalty is a strategy, according to Cudby.
“Loyalty requires a stronger connection between customer and company. When customer experience is designed with loyalty in mind, the emphasis shifts from short-term bumps to long-term gains, and from tactical to strategic,” Cudby said. “The financial benefit of great customer experience focuses on lifetime customer value. This means a marketing strategy designed to inspire lucrative, long-term loyalty."