Guest Post: How customer loyalty programmes are ripe for disruption

The steady evolution of brand loyalty programmes is ripe for revolution, as e-commerce platforms pave the way for increased value and improved customer experience.

By Guy Deslandes, e-commerce director at Collinson Latitude

The steady evolution of brand loyalty programmes is ripe for revolution, as e-commerce platforms pave the way for increased value and improved customer experience.

With personalisation increasingly used to improve customer engagement, it can be easy to forget that loyalty marketers were pioneering data-driven approaches more than twenty years ago. With consumer behaviour changing markedly as omni-channel retail grows unabated, the loyalty industry needs to grasp an emerging opportunity.

In 1994, Tesco called on data analysis startup Dunnhumby to provide the intelligence to fuel its new Clubcard loyalty programme, giving members money-off coupons and special offers while Tesco obtained detailed insights into customers’ shopping habits.

Two decades later, loyalty programmes have become much more sophisticated. Brands have embraced first demographic and then behavioural targeting to generate bespoke rewards, and have used digital and social channels to increase consumer engagement.

But ever-increasing competition for consumer attention raises questions.

What is loyalty in the modern landscape? Why stay loyal to specialists when online mega-marketplaces have become cost-competitive one-stop-shops? Why fly with one airline when price comparison websites can uncover cheaper flights at more convenient times?

Cost and convenience, not brand loyalty increasingly drive consumer decision-making.

This does not just affect retailers. Long-established loyalty programme models in the travel and hospitality industry are also being challenged. Texas International Airlines launched the first ‘air miles’ frequent flyer programme in 1979, and the objectives of such programmes remain largely unchanged.

The cliché of membership cards and inflexible catalogues of “new barbecues and golf clubs” came under fire at a recent conference, with Ryanair’s CMO Kenny Jacobs characterising air miles programmes as increasingly irrelevant as low-fares and new routes shift some consumer focus away from rewards.

Yet while low fares and new routes are important, rewards still have a part to play: our research found that for three-quarters of travel loyalty programme members, travel purchasing decisions are sometimes, often, or always influenced by those programmes.

The game has undoubtedly changed, driven by the modern consumer’s desire for more – and more flexible – control over how and when they earn and redeem rewards, as well as the nature of those rewards.

As a result, brands are devising new ways to keep consumers coming back, typically relating to providing more relevant and accessible rewards, whether through increased personalisation and digital integration or, as in the case of Waitrose, by giving consumers the autonomy to define their own rewards.

The average consumer is signed up to 13 brand loyalty programmes, but regularly shops with just seven of these brands.

With the stage set for disruption, the challenge is obvious: brands must make loyalty programmes more attractive and immersive – perhaps even embedding them within payment processes – so that consumers will be motivated to shop with them rather than their competitors.

In the saturated and commoditised coffee market, Starbucks has found success by combining mobile payments and a loyalty platform in a single app.

To make loyalty programmes more attractive, brands need to address both the “earning” and “redemption” sides of the equation. Programmes must be valuable to the consumer, making a brand’s currency easier to collect and use, particularly in comparison with competitors’, and connecting it to relevant content – whether rewards or offers.

There is, however, a delicate balancing act to be performed: brands need to encourage the collection of points, but must be careful not to unwittingly enable the ‘gaming’ of their programmes by savvy consumers who exploit them to the extent that they spend little actual money.

‘Air miles’ programmes in particular have occasionally fallen victim to such practices, steps taken to mitigate them often resulting in overcomplicated programmes that risk alienating consumers.

The way forward lies in integrating loyalty programmes more tightly with consumers’ broader e-commerce activity. An airline enabling frequent flyers to bolster their air miles balances with everyday purchases they make with high street retail partners, for instance, or to spend those air miles not on flights but fashion, consumer electronics, or whatever else is on top of their wishlist. And these options being highly personalised, based on consumers’ previous brand interactions or even more contextual real-time factors such as the weather.

We call it ‘loyalty commerce’, and a number of forward-thinking airlines (and their customers) are already reaping the rewards of the next generation of loyalty programmes.

Members benefit as they gain access to a wider range of more relevant and attainable rewards, designed to suit them. Airlines and hotels achieve greater engagement with their programme members, generate incremental value, and will also be helping to secure future purchases on core inventory such as hotel rooms and flights.

Travel brands face a challenge to keep up with changing consumer expectations as e-commerce grows and evolves; loyalty commerce can hold the key to greater satisfaction and value for consumers and brands alike.