Loyalty programs existed long before personalization and one-to-one marketing bubbled up as buzzwords, but the emergence of fresh digital channels and evolving privacy regulations suggest they may become paramount to brands.
A KPMG study from November 2019 found Australia, Italy and Canada have the highest rates of loyalty program adoption, with more than half the population making purchases that earn rewards at least several times a week. The U.S. isn't far behind, however, with 42% of consumers doing so.
Those statistics may tick upward as more organizations contend with new laws and industry changes around how consumer data is used for marketing purposes. Following enforcement of the European Union's General Data Privacy Regulation (GDPR) last year and the California Consumer Privacy Act (CCPA) in January, advertising kingpin Google rattled the industry when it announced it would block third-party cookies on its Chrome browser within the next two years.
While the move may disrupt the infrastructure around marketers' ad targeting and data collection that support loyalty programs, it reflects a broader trend toward consumer privacy.
"I definitely think for marketers, all the privacy measures have created a heightened awareness they need to be thinking more strategically about using first-party data," Jeff Adelson-Yan, president and co-founder of Levelwing agency, told Marketing Dive. "Consumers understand, at this point, that their data is the currency by which they barter. They just want to know that everything is above board. Loyalty programs can be a lot clearer or easier to understand in terms of how that happens."
Red Lobster kicks things up a level (or three)
The strong integration of data into loyalty programs could explain some of the thinking behind recent decisions like Mastercard's acquisition of SessionM, a firm that helps brands manage real-time offers and rewards. It may also point to why more brands are revamping their existing programs.
"Consumers understand, at this point, that their data is the currency by which they barter. They just want to know that everything is above board."
Levelwing, president and co-founder
Recently, for instance, Red Lobster introduced status levels to its program, which first launched in 2017. The update allows customers to earn a more diverse range of points toward rewards based on their individual activity.
Providing a name and email address unlocks the lowest Red tier, which activates money-saving offers on a meal. Those who complete a full customer profile will achieve Gold status, awarding them birthday treats, insider information and bonus points. Platinum members can double their points on delivery orders and have unlimited play time on tabletop devices in Red Lobster locations.
"Our members liked the idea of tiers, like they have in their frequent flyer and hotel programs," Lillian Murphy, the chain's VP of customer experience and loyalty, told Marketing Dive. "It means they would have the ability to earn rewards and also be rewarded for total points earned over the course of a year."
The revamp came after a survey of existing rewards members showed a direct relationship between their willingness to participate and their appetite for new, more personalized program offerings, Murphy said.
"The more frequent the member visited, the more they wanted to see these program enhancements. Guests who visited frequently were twice as likely to ask for membership tiers and bonus points," she said. "The more we can customize the experience based on what our members want, the more value we can provide to the guest."
The dangers of indifference and loyalty fatigue
Key challenges surrounding loyalty programs include inertia and indifference, according to Bridget Fahrland, head of digital strategy at Astound Commerce. The most common example of this is when consumers register to take advantage of an initial promotion but then rarely, if ever, participate again.
"You have to have realistic expectations. People go to Starbucks every single day. You can't compare yourself to [its program] or that of an airline because the payoff with those loyalty programs is so high," Fahrland told Marketing Dive. "You might only buy apparel once a month, or new furniture once a year."
That said, brands in those categories should note how airlines offer rewards ranging from free tickets to early boarding or free luggage.
Fahrland pointed out how businesses like Sephora bring a "surprise and delight" factor to rewards members by automatically adding free samples to their online shopping carts, and Neiman Marcus invites its loyalists to exclusive events. These activities don't require consumer data collection, a potentially compelling factor for shoppers amid today's renewed privacy focus. However, strategies like Sephora's or Neiman Marcus' may not be effective for categories in which consumers shop infrequently or with short-term intensity, such as big-ticket items like a house or car, Fahrland said.
Another potential pitfall is loyalty fatigue, where people simply don't want another program or profile to manage, according to Levelwing's Adelson-Yan.
"There will be an element of 'it's just another loyalty program,' and has no real value," he said. "There's a pressure on brands to create meaningful loyalty programs. I can’t point to any industry or vertical where a gold standard has been set."
To entice consumers to participate regularly, loyalty programs must be easy to understand and use. That issue may finally be getting some attention as a growing number of brands revamp their rewards strategies. In January, Footlocker launched FLX to consolidate a smattering of disjointed programs across all of its brands into one entity.
Overhauling a loyalty system looks different for every category and brand. First-party data may not be the right goal for every business, as many don't know what kind of data they have today, let alone a solid strategy for managing more of it, according to Adelson-Yan.
In many sectors, looking to the industry leader can give brands a hint about what resonates with consumers and what their loyalty programs should ultimately deliver, Fahrland added.
"When you look across all the brands that have the most loyalty, they often don't have loyalty programs — Jeep, Apple, Patagonia," she said. "People are so passionate about those brands. Loyalty programs, if you use them, should be part of a larger effort to create that kind of emotional affinity."