What is the Future of Loyalty Programs?
Premium programs are not the only way to build a member-relationship with customers.
For the last fifty years or so, for many marketers, “Loyalty” has been synonymous with points programs. Nearly every hospitality organization and retailer has a points program to drive engagement in episodic businesses. The value on both sides is clear. Consumers “earn” rewards in exchange for frequency, recency, breadth and depth of purchase. Businesses enjoy greater Lifetime Customer Value (LCV) and also have a means of tracking consumer behavior by individual.
These programs have grown increasingly sophisticated — consumers are allowed to use their points not just with the points-issuing brand but with an array of partners, and can accrue points through a broad range of activities, with special accelerators and bonuses based on desired behaviors.
Consumers have kept pace with that sophistication. People spend hours understanding the implications of these rules and optimizing shopping and travel to maximize points. There’s a whole cottage industry or experts that has sprung up around these points-based programs, to help consumers quantify the value of their points, and use those calculations to determine which programs, cards and brands to use.
While these programs can be effective in driving revenue, they work in much the same way as promotions and discounts. In other words, they are financial transactions — discounts for frequency, recency, and depth of purchase. They aren’t really about loyalty, or “preference” at all — it’s not an emotional relationship. And these programs have become expected, a box to check, rather than a differentiated way of building connecting with one’s best and most loyal customers.
In the Membership Economy, with the rise of subscription pricing, organizations are moving away from points-based programs, and toward Premium Loyalty Programs (PLP). PLPs require an advanced payment to join a Membership Program, and in exchange for that upfront commitment, are entitled to a bundle of benefits designed to help consumers more fully and easily achieve the goal that brought them to the brand in the first place. A great example is Amazon Prime — Amazon’s Forever Promise to consumers is to remove friction from the buying process and become the everything store for the people they serve. Amazon Prime members pay an up front membership fee which entitles them to benefits that remove friction from shopping — initially around free 2 day shipping. Over time Amazon has layered in other benefits (music, storage, returns, etc.), with the goal being to make it easier and easier for members to get any product they need.
These PLPS are growing in popularity because they optimize around “best customers” and take a broader view of those customers’ ongoing goals. They take more of a “member mindset”, meaning that they are designed for long-term relationships.
While popular, Premium Loyalty Programs are not the only way to build a member-relationship with customers.
Subscription pricing of products and services is another option. This approach works well when customers have ongoing needs, and are willing to commit to a regular cadence of products and services in exchange for additional benefits such discounts, but also access, education, advice, community and many other features. There are two types of ecommerce subscriptions — continuity programs which replenish products in an ongoing way, and curated boxes, which provide access and surprise.
Again, subscription pricing can be a powerful way to build ongoing relationships, but it is not the only way, nor is it a guarantee of engagement or loyalty. A subscription is a pricing tactic, not a strategy, and without taking into account the unique objectives and challenges of the customer, it’s not likely to work.
The biggest challenge of continuity-based subscriptions is managing lumpy consumption, while the biggest challenges for curated boxes are margins (since the brand is often reselling other people’s products) and subscription fatigue (how many different lipsticks/socks/energy bars can one person try before becoming exhausted?)
Many organizations start out by wanting subscription revenue, rather than starting with a promise that justifies a recurring revenue relationship. It’s that promise to help the customer achieve an ongoing goal or solve an ongoing problem that motivates a customer to subscribe. They want that insider status, what the medical world might call “the feeling of having a doctor in the family”. But you don’t need to use subscription pricing to build that kind of trusted ongoing relationship.
Whether or not you use subscription pricing, a points program or a premium loyalty program, you can build a Forever Transaction with your customers by focusing on delivering on that long-term promise.
Here are a few tactics that might help you optimize for forever:
1. Define your best customer and not-best customer, and optimize EVERYTHING around building a relationship with the best. Keep asking yourself what more can you do for that best customer to help them achieve their goals and solve their problems?
2. Balance the benefits you provide between acquisition benefits, those headline features that get them to join you in the first place, with engagement benefits, those features that build habits, loyalty and trust. Engagement benefits drive, and should be measured by, recency, frequency, depth, and breadth of usage.
3. Pay special attention to onboarding. It’s important to understand the differences in attitudes and behaviors between your best long-term customers and the not-best customers (the ones who cancel, or who don’t extend the relationship with you). In the onboarding phase, you want to quickly give them value that they can see, reinforce the wisdom of their decision, and show them how to build habits to maximize the value they’re paying for.
4. Invest in ongoing customer success — it’s not enough to provide customer support — solving problems as they arise and fixing things as they break. It’s important to ensure that every customer is getting all the value they’re entitled to and that they are getting the results they wanted. If customer support is reactive, then customer success is proactive. It means reaching out to customers to make sure you’re making an impact.
More important than any tactic, pricing decision or program is the overarching mindset of the organization — a membership mindset. This is a relentless focus on building an ongoing relationship and ensuring that your most loyal customers get the best experience. This practice works in both a B2B and a B2C environment and is the quickest way to maximizing lifetime customer value.