When people discuss loyalty programs, there are a couple of questions that always come up:
- How long does it take to start a program?
- Are there any industries where loyalty won’t work?
- Is loyalty actually effective?
This last question is definitely the one we hear most often at Smile.io. As a loyalty specialist I can enthusiastically assure you that loyalty is very effective, but I understand that my bias might make my answer a bit unsatisfying. The fact that we deal primarily with ecommerce retailers may also give you pause, leaving you to wonder if retail loyalty is also effective.
Thankfully, I come prepared. Not only am I going to prove that retail loyalty is effective, but I’m also going to show you how it’s done. By the time you’re done reading this, I guarantee you’ll know more about retail loyalty programs than you ever thought possible, whether you want to or not.
The Impact of Retail Loyalty
The best way to prove that loyalty works is by looking at the numbers. We took this approach a couple of years ago, too, because unlike words numbers don’t lie, making them the perfect tool for proving our point.
Every year, the National Retail Federation releases a list of the top 100 retailers in the United States. This list gives you a great snapshot of the North American market, showing you revenue, growth, and worldwide sales data. After combing through the stats, I came to the following conclusion:
Retail Loyalty is Effective.
You might be wondering how I got there, and the answer’s surprisingly simple: 100% of the top 10 brands are currently operating with a loyalty system. Whether it’s a punch card, membership card, or credit card, each of these retailers uses customer loyalty as an integral part of their marketing strategies.
This trend continues throughout the rest of the top 100, as 70% of the brands listed are actively using customer loyalty. For their efforts, these brands experiences a whopping $1.99 trillion in combined revenue. That’s over 600% higher than the combined revenue for brands without a loyalty program!
If those numbers aren’t enough, consider these: even though repeat customers are only 8% of a brand’s customer base, they bring in 40% of the annual revenue. That means that repeat and loyal customers were responsible for bringing in almost $800 billion this past year.
When you combine these results with what we know about the powers of customer loyalty, it’s no surprise that brands with customer loyalty are growing and earning more than their loyalty-deficient counterparts. Clearly, retail loyalty is effective. But this confirmation raises another question: what actually makes these programs successful? To answer that, we need to go a little deeper.
What Makes Retail Loyalty Effective?
While the numbers we just looked at are impressive, they don’t really explain what these brands are doing to confirm that retail loyalty is effective. How do you build a successful retail loyalty program that really makes an impact?
1. Understanding Customer Expectations
When customers choose a brand, they have certain expectations for what their shopping experience will be like. Typically cost and convenience are at the top of the list, and customers will choose one brand over another if their expectations aren’t met.
This is especially true for retailers like Walmart. With such a diverse product catalogue, Walmart understands that customers could easily find what they’re looking for with another brand. Even with the convenience of over 5,000 stores, if someone offers the same products for less, customers would be willing to travel further.
That’s why Walmart’s brand is built on affordability. With their cash back credit card loyalty program, Walmart is dedicated to delivering lower prices on everyday items that they know their customers need to purchase again and again. From gas to groceries Walmart’s rewards program gives shoppers the chance to save money while making regular purchases, demonstrating an understanding of what their customers need and value.
Meeting and exceeding customer expectations is at the root of any successful retail loyalty program. With the desire to turn an ordinary shopping experience into an extraordinary one, brands like Walmart are turning their customers’ motivations into loyalty building blocks. With these blocks in place, successful retailers are delivering effective rewards solutions that meet their customer’s needs with every transaction.
2. Integrated Loyalty Experiences
In the U.S. alone, there are around 3.3 billion loyalty program memberships. At an average of 29 per household, it’s evident that customers still find participating in programs valuable. The problem is the number of cards they have to carry.
With the introduction of mobile payment apps and wallets, the concept of physical membership cards has been declining. This is largely due to the fact that shoppers are spending more and more time on digital devices. The average person currently spends almost 3 hours a day on their phone, and as technology continues to evolve it’s almost guaranteed that these numbers will continue to climb. On top of that, 57% of customers have indicated that they want to engage with loyalty programs on mobile devices, making the appeal of physical membership cards virtually inexistent.
Retail brands are taking these upward mobile trends seriously by developing sleek mobile loyalty experiences. From restaurants to department stores, many of the Top 100 brands are beginning to expand their customer experiences into the digital realm.
Starbucks is undoubtedly the best example of this practice. With an integrated mobile payment system and the option to order ahead, customers are treated to a loyalty experience that is both easy and convenient. By eliminating the need to carry a card, Starbucks has turned their loyalty experience into a customer lifestyle tool that seamlessly integrates into their customer experience instead of merely being added on top.
These types of experiences are one of the biggest reasons retail loyalty is effective. Instead of sacrificing function or enjoyment, customers are treated to effective loyalty programs that meet them where they’re at instead of demanding they adapt. As mobile commerce continues to grow, having an integrated experience will keep retail loyalty programs relevant, current, and competitive.
3. Build Partnerships
Increased demand for mobile apps has made it clear that loyalty programs are more appealing when they’re expanded beyond the confines of the store. By extending value, brands are able to use their program to make the convenience, location, and price of their brand go even further to attract and retain new business.
A huge part of this extension is building loyalty partnerships. In 2015, Plenti was launched in the United States. As the first U.S.-based loyalty coalition, Plenti allowed huge retailers like Macy’s, AT&T, and Rite Aid (all of which are members of the Top 100) to offer valuable rewards no matter where they shop. With oodles of ways to redeem points, these partner relationships allow brands to deliver customers lucrative loyalty experiences for every type of customer.
The same goes for rewards credit cards. Allowing customers to earn rewards virtually everywhere they shop gives retailers the chance to combine their retention efforts with non-competitors. These relationships automatically expand the convenience of any brand, making it lucrative for shoppers to use the loyalty program as often as possible. For these reasons, it’s no surprise that 25% of the Top 100 currently offer this type of program!
Through relationships with credit card companies and loyalty coalitions, retailers are providing personalized rewards experiences for their customers. With endless earning and redeeming possibilities, the power to control their own rewards program is put into the shopper’s hands. This expansive personalization is undoubtedly one of the most outstanding reasons that retail loyalty is effective.
Retailers understand that when it comes to customer loyalty, simple is always better. Customers don’t want to waste time signing up for yet another loyalty program. Retail loyalty is effective because it requires very little information to get enrolled and begin earning. Generally, brands require nothing more than an email address or a phone number to get a customer set up, and this enrolment process can be done in store or online.
Staff are hugely significant to this process. Unlike online rewards programs, retail loyalty has the benefit of staff on hand to demonstrate the convenience and value to each and every customer they interact with. This is hugely important for two reasons. First, it humanizes the brand, making it more accessible and relatable. Secondly, instead of relying on customers to come to the right decision, retailers use their staff to show them the benefits, making it an easy decision to sign up.
Staff also make it impossible to forget to engage or participate. Whether brands use punch cards or membership cards, the customer is prompted to interact with the program, raising engagement levels and increasing the value for the brand and consumer. This engagement cements the program into each customer’s daily shopping routines, making it an integral part of each transaction they can’t wait to use again and again.
5. Easy-to-Track Goals
Although you might think punch cards a bit outdated, they’re still one of the most effective forms of loyalty marketing. This is because they’re an easy way for customers to see and understand the value of participating in a rewards program. Food and beverage chains like 7 Eleven have been operating this way for years, encouraging customers to come back with the promise of a free drink or snack as a token of appreciation.
While these rewards might seem small, this clip from Seinfeld clearly shows how they can make all the difference to customers. With a visual reminder of how close they are to the next reward, customers are motivated to visit more often in order to close the gap. The physical act of putting stickers on the card (or punching holes, as the case may be) is also an extremely satisfying experience, making the loyalty program a physical component of the customer’s shopping experience.
Finally, these types of trackable goals are another way to let the customer know that the brand in question acknowledges and appreciates their business. By punching customers’ cards, retailers are publicly recognizing the purchases they’ve made with the promise of delivering something extra. This special acknowledgement goes a long way towards building emotional bonds between customers and retailers, instilling strong loyalty that is difficult to break.
Each of these simple elements are highly effective at delivering outstanding customer experiences. No matter how small the reward, these punch card and similar points per purchase programs highlight why retail loyalty is effective: it’s tangible, it’s measurable, and it’s valuable.
Fact: Retail Loyalty is Effective
After all looking at all of the data, I’m hoping you can now clearly see that retail loyalty is effective. By acknowledging customers’ needs for convenient, affordable solutions, offline retailers are building loyalty experiences that are easy to access and highly valuable. Mobile integrations, partnership programs, and trackable rewards enrich customers’ day to day activities and turn the mundane into something exciting.
So although loyalty may be changing, don’t count retail out! At the end of the day, offline brands still know how to improve the shopping experience and keep customers coming back for more. If $1.9 trillion in revenue isn’t enough proof, I don’t know what is.