The CMO Council put these questions to the Loyalty Academy, a unit of the Wise Marketer Group, which offers training, certification, and upskilling courses to the growing number of loyalty leaders worldwide:
- How do you expect rising inflation and cost of goods to impact customer loyalty, retention as well as brand switching rates in 2022?
- What factors most influence enrolment and active participation in customer loyalty and rewards programs across generational, cultural, and socioeconomic groups?
- What is required to run an effective loyalty and rewards program in today’s mobile device-centric, always connected, on-demand economy?
- How are companies using purchasing and loyalty data insights to create customer value, personalized experiences/benefits, and better business performance?
- Why is it essential for corporate marketing teams to have dedicated and certified loyalty marketing leaders? What qualifications do they need?
We are seeing a definite connection around the globe between the current inflationary environment and loyalty marketing programs. There are many correlations between the two – some positive and others negative – but the connections are real.
- Consumers seek more value during inflationary times. This is especially prevalent among younger consumers and those at lower ends of the economic spectrum. Loyalty program benefits inspire greater program enrollment, uptake and participation, plus the inevitable add-on effect of word-of-mouth and social advocacy. Certain categories with strong inflationary trends – grocery, fast food, fuel for example – are seeing record numbers of new members joining in an attempt to help offset rising prices.
- Cash-back credit card programs remain popular and are accelerating as cardholders can offset a portion of their inflationary monthly payments with the cash-back feature.
- Programs which issue points tied to spend face a dilemma. Spend increases as inflation affects prices. While the same units are sold, more points are issued, increasing the ultimate cost of the rewards program and the underlying points liability. Brands either need to deflate the point value (more points needed to redeem) or lower their point earning charts – both negatively perceived by members.
- Programs which issue percentage-based discounts face the same dilemma. The absolute value of the discount increases as prices rise. With higher cost of goods, and higher labor costs, the margins may have already been affected and the potential for reward discounts to further erode the margin balance is real.
- Programs which issue free goods (in-kind rewards, meaning their own goods) also face potential trouble. The cost of the free goods is rising for the merchant, creating a possible imbalance in the value proposition as it relates to consumer transactional value.
Relevance of the program to the individual consumer has always been a factor. Each socio-economic and age group have always held different perceptions of value. The difference today is two-fold.
- Greater individuality in accepting, enrolling, and participating. No longer can we assume that most consumers in specified audience segments will likely react in similar fashion. This places even greater burdens on the program to develop sound personalization strategies and tactics that can be enabled. Choice and transparency must be built into the program design.
- Demographic shifts at the macro-level require re-adjustment for program operators. Millennials do not behave the same way Baby Boomers behave when it comes to loyalty programs. The next generation will be different still and the Boomers will eventually fade from the loyalty game. Some brands and categories will be affected more than others, but change is inevitable.
Foundational principles and best practices associated with the loyalty marketing discipline have not fundamentally changed in the past 25 years. They are firmly rooted in consumer psychology that still seeks value for customer patronage. What has changed and what is causing the greatest amount of disruption is the enabling tech environment. Coupled with the demographic shifts mentioned above, and the corresponding attitudinal differences that exist among generations, programs need to make sure:
- Everything is digital-first.
- Mobile is at the heart of the operation and communication of the program.
- That one size fits all value propositions are replaced by a variety of benefits fitting the individual choice of the consumer.
- All friction must be removed. Jumping through hoops to enroll, earn, redeem, etc. must be replaced by ease, convenience, and total transparency.
- Social media is embraced. Advocacy and referral peer-to-peer is much more powerful today than advertising, regardless of medium. Social and community connections need to be enabled, celebrated and void of brand manipulation, interference, and technical spying.
- Green sentiments are real; charitable sentiments are real; how does the new age loyalty program support these sentiments?
Data-driven Use Cases
The data advantage of loyalty programs is becoming increasingly clear to marketers. The opt-in, permission-based concept associated with loyalty database information make it “zero-party” data that a customer intentionally and proactively shares with a company in return for program benefits. This information is increasingly being used to gather insights about transactions, spend, recency, frequency, advocacy, referral, redemptions, preferences and a host of survey and web site information associated with the program’s web properties. In the age of GDPR, CCPA, compliance and increased regulatory scrutiny, zero party data is of paramount importance. Use cases include:
- Scoring customer value across a variety of attributes which present a composite, algorithmic-based view of true customer worth. These models go beyond spend and may even include profitability (especially in DTC or B2B markets) to drive the allocation of marketing resources against those value segments of greatest potential ROI.
- Sophisticated churn models, typically using regression techniques to predict the likely attrition of any specific loyalty program member. Intervening retention tactics deliver far greater results vs. subsequent win-back campaigns.
- Dynamic pricing models which seek to maximize the retail price and subsequent profit margin based on a loyalty program member’s tolerance/sensitivity to price vis-à-vis the benefit package offered by the program.
- Increased use of machine learning and true AI platforms to serve members, gather insights about members, refine segmentation, drive personalized offers/communications and a host of other financially oriented loyalty program metrics.
Loyalty marketing is a discipline not an adjunct tactic in the marketing arsenal. Brands that assign loyalty responsibilities to existing marketing staff, especially MarCom professionals, quickly find that the staff is overwhelmed with incremental work and often under skilled for the task. It is essential that the loyalty team is dedicated just to loyalty. While it is also essential that this team is fully connected to brand marketing, and under the Executive Management of the CMO, it is a requirement that they receive the specialized tools, budgets, inter-departmental resources, and training required to be the most effective they can be in delivering value for customers and the brand.
- Loyalty marketers today must not only be skilled in understanding customer behavior, but they also need solid foundations in analytics, technology, rewards, loyalty communications and finance.
- For a profile of the ideal candidate for a loyalty marketing position download the attached PDF.
- If you need information about the Loyalty Academy’s educational service offerings, contact us. Along with CMO Council, we are here to help.