Jun 12

Loyalty programs, in between crisis and digital future

The rush of B2C companies to Loyalty Programs has ended for some years. Customers are able to manage only two-three programs, although they could participate, on average, to more than ten initiatives. The most obvious sign of Loyalty Programs’ decline is that an increasing number of Customers doesn’t collect his prizes, earned through point collection. Discounts and promotions have become the most coveted kinds of reward and an increasing number of companies is wondering if these types of initiatives make still sense.

According to a research conducted in some European countries, over 60% of Loyalty Programs has comprehensively a negative income for the company. Costs, although low, are greater than benefits. The most used models reward behaviors that Customers would put in place even without the existence of the loyalty program. Therefore, these models can’t influence Customers’ behavior and loyalty. Moreover, if a company creates a Loyalty program with the purpose of analyzing Customers’ profile, segmenting the market and optimizing the offer, it utilizes financial resources in an inefficient way: Customers who use loyalty cards are indeed just a subset, with a specific behavioral profile, than can’t represent the whole market. If companies just need to understand behaviors and segments, they can do annual market researches. Researches give also the opportunity to analyze the Customers with the highest income and spending potential, which are exactly those who haven’t been participating to Loyalty Programs for a long time.
Loyalty, as now many companies are well aware, is driven primarily by location, prices, salespeople, stock and brand. Companies should therefore use Loyalty Programs as a platform to communicate and keep Customers close to the Brand. Traditional models, however, have some problems also from this point of view: they are based on a utilitarian approach (points and prizes), so communication can focus only on rewards catalogues and settlements. Better than nothing, but there are many other tools to enhance the brand and to keep it close to Customers’ heart.

Nevertheless, some current models are winning. For example, programs that create status and exclusivity benefits retain a strong appeal (for example, dedicated services for the “best” Customers). However, companies have often to face management difficulties because these programs require generally some duplications in processes and relationship-service channels.

Models characterized by pure leisure and entertainment are actually rising. For example, instant lotteries have recently been used in many Italian industries.

Gaming-based Loyalty Programs could represent one of the most interesting developments of traditional Loyalty programs; indeed people are increasingly inclined to "play", as highlighted by the use of new digital platforms 2.0. A lot of young and trendy brand like Nike, Starbucks and Jimmy Choo, have developed Loyalty Programs, which are based on social location platforms, such as Foursquare, or the most recent SCVNGR - scavenger hunt. These programs have a big appeal on young Customers, who generally use smart phone and tablet in an advanced way. Moreover, gaming-based Loyalty Programs can also be designed without the interaction smart phones-point of sale: for example, Customers can access to specific website pages or play directly in the store through touch screens. These models, in which points are generally earned through purchases, can generate real benefits in the engagement process between Customers and the brand: Customers can be stimulated to gather information about products and the brand and to create online groups, that arouses a sense of community around the product/brand; gaming-based Loyalty Programs can also increase Customers’ exposure time to the brand and provide data, in order to profile Customers.
One of the new frontiers in the U.S. retail world is the creation of gaming experience during purchase moments. In these models, gaming is no longer the successor of traditional programs with catalogues; it becomes a "magic touch point", able to entertain Customers and to communicate brand values; it also allows to reward Customers immediately and to let them experience something different, that probably will be told to friends and relatives. Exactly what all brands want in the 2.0 age.