If the table stake in 21st century retail is to offer a customized omnichannel shopping experience, the emphasis in loyalty programs may shift toward rewards of hard value. Finding the right balance is critical.
Is there anything your smart phone can’t do? Price comparisons. Product suggestions. Recipes. Personalized e-coupons. Shopping lists. In-store navigation.
Self-checkout. No checkout.
The tentative trickle of shopping apps has become a tsunami. Scores of recent articles and a study by the Harvard Business Review have focused on the
swelling tide of handheld consumer helpers.
Amazon and others proffer proprietary apps that empower the consumer with instant price comparisons…and offer discounts and bonuses for purchasing from their
own stores while start-ups work on business models, which can be white-labeled for retailers. These apps clearly put more control at the shopper’s
fingertips, inevitably weakening marketers’ pricing power and neutralizing the advantage enjoyed by discounters. The potential result is a race to the bottom – a no-win game in which neither price nor basic shopping experience is a reliable differentiator.
While there is debate about how broadly, deeply and rapidly the new apps will be adopted by shoppers, there is little question that the retail experience is
rapidly changing. Writing in Harvard Business Review, Darrell Rigby of Bain & Company predicts that successful retailers must adapt to the new “omnichannel”
nature of retail or fail.
Given the evolution of these dynamic new tools, marketers should be asking:
What do I need in my loyalty program to differentiate my offering?
Reward vs. Experience
Most retail programs have put members-only earnings, rewards and/or discounts at the heart of their loyalty programs. The most successful programs, such
as Neiman Marcus’s InCircle, have offered a mix of rewards and experiences. High-touch establishments like NM have lots to offer as program perks: trunk
shows,members-only shopping nights, parties, auctions and more, in addition to“traditional” points or dollar-based rewards.
While most broad market retailers don’t have such an attractive menu of offerings, we’ve long been advocates of making experiential rewards part of the
loyalty mix for retailers – to keep program costs down and to keep the program fresh and differentiated from the competition.
But with the mobile-driven evolution in the shopping experience, when does the enhanced shopping experience cease to be an appropriate “members-only”
offering or a privilege which must be earned? When does the premium experience, enabled by technology, become so pervasive that it is simply the way a
marketer does business with its customers?
Program vs. Business Model
This question has grown in importance since online retailing first allowed marketers to use data in ways direct marketers could only dream of back in the day.
Excellent examples of retailers delivering a premium experience for all shoppers include Amazon and Zappos.com (which is of course now owned by Amazon). Both
companies were among the first to offer “extras” like recommendations, shopper reviews, participation in communities, free shipping and returns (in the case of
Zappos) as a way of doing business. Amazon Prime offers extra services for an annual fee, but could hardly be viewed as a loyalty program, at least not in the
traditional sense (although it does drive stickiness; once I’ve prepaid for free shipping, I’d be inclined to shop Amazon first).
Neither Amazon nor Zappos has a traditional loyalty program. And as observers, we tend to think a loyalty program could be superfluous for companies that deliver
such a great shopping experience. The experience itself becomes the most powerful loyalty tool.
Time to re-think the role of material rewards?
We have always advocated a mix of reward and experience, and believe in rigorous financial review and economic justification of any program that proposes to
offer rewards with a substantial real cost. The best material rewards are those that are highly leveraged, i.e., the perceived value is much higher than the actual
cost.
Today’s economic environment has made consumers more conscious of value than ever. And today’s technology environment allows marketers to offer a data-driven,
personally relevant shopping experience at little or no cost other than the development of the applications. Why should such an experience require membership or
qualification?
Customer loyalty programs that offer tangible rewards are often a tie-breaker when all else is equal. If the table stake in 21st century retailing is to offer a
customized omnichannel shopping experience, then the tie-breaking balance may shift toward material rewards of hard value.
Smart marketers will provide added value to loyal shoppers, combining
leveraged rewards of hard value as well as targeted “super-premium”
benefits for the most engaged customers. A well-balanced strategy
will become more important than ever.
Like everything else in loyalty marketing, the winners will be those who read their customers best and proactively offer the optimum mix of relevance, value,
experience and reward.
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Copyright 2012 Metzner Schneider Associates, Inc.
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