Tap their Loyalty

We all know the importance of the customer in retail. We also know that it is the customer satisfaction which will help us carve a niche for ourselves and our brand amidst fierce competition prevalent in the market today. No wonder, each retailer today is all set to woo his customer with attractive loyalty programs. But then, is designing and implementing a loyalty program as simple as it sounds and more importantly is it enough to just have a loyalty program in place relevant to just our brand when the customer wishes to redeem his cash / points earned? We get talking with Bryan Pearson, president and chief executive officer, LoyaltyOne and author of the book The Loyalty Leap to put our queries to rest.

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He calls himself a grandfather of loyalty and coalition loyalty programs, And by no means is he wrong. Not only is his knowledge on the history of loyalty programs impeccable but the insights he shares with regards to its current market dynamics, global trend and future potential can leave you wanting to record each word that he has to share. Says Pearson, “I think the original loyalty programs were airline programs going back to American Airlines and The British Airways. They were the pioneers. This was back in the 1980s wherein the frequent flyers could collect points and redeem it for something free. Post the airlines, it was the hospitality industry and it was only towards the early 1990s that the retail industry started having strong loyalty programs for their customers. So to speak, we are sitting on something that is just about two decades old.” Adding more to the history bit he says, “Originally it was just value add to the customers. Only later was it seen as a means of promotion and get people to consolidate more of their spending then they might have done in a more fragmented environment.”

Over the years, across the world, loyalty programs gained momentum and to encash on their growing importance and popularity, the concept of coalition / partner loyalty programs came into being. Shares Pearson, “Changes that this industry has witnessed have been enormous as people started looking to innovate around the programs that they had to offer. We had three dimensions – one is just the program itself – thinking about how do I take it to the next level – probably the easiest one of that is – once you started understanding the customers, it was time to reward them according to their spending patterns and segment them into silver / gold / platinum members. So I think you saw program expansion in terms of – So what do I get for joining / being a good customer to this brand / retailer? The second thing that quickly happened in the late 1980s and early 1990s was the emergence of a partner model which not only offered great learning’s to the brands / retailers but also incremental benefits to customers  – an ability to earn bigger and more aspirational rewards. The third dimension I think is really being driven more over time over the past 10-15 years with the internet and advent of database technology enabler which has given rise to what I call Relevance Marketing. This ability to actually deeply understand the profiles and segments of customers you have and connect their shopping behavior and be able to communicate and design the marketing activities on a one to one basis. This has been a trajectory that has really driven  various programs we see today.”

Retail Feature 02Ask him whether it is okay to segment customers according to their shopping patterns without offending them and he says, “If you don’t then you miss the opportunity.  It is usually 20 per cent of your customers who represent 80 per cent of your business so why wouldn’t you want to concentrate on them?”

With LoyaltyOne recently entering India to set their operations, Pearson and his team have had to face challenges considering the uniqueness of the Indian market and Indian consumers. As he shares details on this, “I think globally you face a challenge in every market you go to. The foundation of elements of what drives consumer behavior is based on his hopes and fears but once you get down into putting cultural filters on and see and understand how the economy works in different countries, the structure of business in different countries etc. then you automatically get the architecture of what you need to build. Every market has its own unique dimensions and how you need to put things together and the subtleties that need to be taken care of. India has two fascinating challenges – first is that unlike the other bigger markets, in India the payment vehicles are not as pronounced and the second is the distinction between the network on the organized retailers and the small kirana stores.”

Customers of a loyalty program can be segmented into 4-5 categories according to Pearson. There is a set which looks at ways and means to make the dollar stretch further through ways of the points earned. Then there is another set which usually just derives a sense of pride being a privileged member to have personal emails being addressed to her, the store being open an hour earlier for her during the launch of a new collection or a sale. The third set of customers belong to a category where they want to monetize quickly on the points they have earned and then the last set of customers belongs to the category of ‘aspirational customers’ who will redeem their points for goods or services they wouldn’t have spent their money on.

Sharing more insights on loyalty marketing, Pearson says in his book – The Loyalty Leap: True Loyalty marketing transcends the programmatic experience that occupies the wallets of most consumers – make a purchase, earn a few points. The best loyalty marketing leaders have come to understand that their programs are a way to connect with customers on a level elevated beyond mere transactions. The customer information and insights that arise from these loyalty programs is the fuel required to empower a new competitive platform. For over 20 years, programs developed at LoyaltyOne have affected the behavior of more than 120 million people around the world. We also operate the AIR MILES Reward Program, the largest loyalty program in Canada, where we work with two decades of customer spending information to bring incremental value to more than one hundred leading brands. In Canada, our brand has higher penetration than any credit card, higher usage than laundry soap, and higher retention than any wireless service.

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Coming to the discussion on coalition loyalty programs, Pearson explains, “If loyalty programs are a sophisticated way to develop deeper ties with the consumer, then coalition loyalty programs – in which group of companies band together to offer customers a common ‘reward currency’ and create a shared database – is loyalty on steroids. It is collaboration of dozens, or even scores, of retailers, airlines, banks, and other organizations all operating under one program – through one card – that allows members to earn their points wherever they want, and then to redeem them however they want. The basic premise of the shared database and cost infrastructure also enables each company to devote more energy to understanding its customers and developing the relationships that matter, using the funds and resources gained from the efficiencies of the coalition model to fuel the growth.”

Adding further, Pearson says, “Visibility also is raised in a coalition environment. Companies are able to better understand their customers, which products they buy, how frequently, and where. A company has visibility because the database is shared, and not only into its own customers; it can also understand the behavior of non-customers – those patrons of other coalition members who may live across the street but choose not to enter its store. Last, a coalition model can amplify the company’s voice in customer relationships. The conversation is much richer when companies from a variety of industries are involved, and the opportunities for communication multiply. Further, the richness of the data obtained from customer spending across categories enhances the ability of each participating company to fine-tune its marketing and communications strategies and ultimately acquire new customers.”

Pearson concludes saying it is important to see and recognize the real value of loyalty program as a means to gather relevant information about your customer and not just look at it as a below the line promotional activity. As he says, “Customers can only be acquired, churned and re-activated so many times before they tire of your brand. There is a proven marketing equation in which customers willingly share information with you in the expectation of being better served and valued during future transactions. Capitalizing on that equation is our business responsibility.”

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RAI
Retailers Association of India (RAI) is the unified voice of Indian retailers. RAI is a not for profit organization (registered under section 25 of Companies Act, 1956), works with all the stakeholders for creating the right environment for the growth of the modern retail industry in India. RAI is the body that encourages, develops, facilitates and supports retailers to become modern and adopt best practices that will delight customers. RAI has a three charter aim of Retail Development, Facilitation and Propagation.