If our company was a tree, loyalty marketing would be the roots. Whether you're looking to improve customer experience, increase lifetime value or retention rates, create better business economics, or differentiate your brand or product, loyalty marketing will forever support and nurture these goals.
Crucial to any loyalty marketing effort, is the need to know your customer. Through collecting and studying the data, you’ll be able to implement the right strategy for your brand and your customers. This could be something as traditional as building a loyalty program or something more revolutionary, like creating a seamless customer experience. At its core, customer loyalty marketing is about meeting—and then exceeding—customer needs. To do this, you need to put your customer at the center of your business.
As more companies adopt a customer-centric approach, the concept of loyalty marketing becomes less of a theory and more of a fundamental. At rDialogue, we look forward to the day that loyalty marketing is the foundation of all companies—and not just our own.
Given that the first modern customer loyalty program, American Airlines’ AAdvantage, launched in 1981, it’s clearly time to rethink loyalty marketing and the role of loyalty programs. There is a need for a fundamental shift in what loyalty marketing really means. A change whereby brands pay attention to customers, and act accordingly. We call it Loyalty 3.0.
“We are living and working in the age of the customer.”
According to Forrester, we are living and working in the “Age of the Customer.” At rDialogue, we believe it has always been that time. Yet many others are only now understanding that customers are the ultimate lever to achieve organic growth. It’s time to accept that customer marketing is much harder than it appears, and utilizing loyalty and relationship marketing to achieve success is paramount.
While there are brand and brands leaders who recognize achieving the pinnacle of customer marketing (customer loyalty) is not easy, some espouse reaching this pinnacle is impossible as there is “no such thing” anymore. There is plenty of customer loyalty, but there is very little brand loyalty. After 35 years, establishing customer loyalty has evolved way beyond earning points and getting free or discounted “stuff.”
The old loyalty model, initiated by the airlines starting with American’s AAdvantage, was based on customers proving their loyalty to the airline, who, in turn, made the customers’ flying experience somewhat better than it otherwise would have been.
A Loyalty 1.0 program was, and largely still is, a program without any data-driven relationship marketing attached to it. In other words, “value” for the customer – and for the business – is limited to being transactional, mostly undifferentiated, and thus relatively unproductive in terms of building sustainable brand attachment. Brand attachment, if you believe in the classic definition of a brand, implies there is some kind of emotional bond between the customer and the brand. The traditional “spend and get” model falls short in creating that bond.
Ironically, current leading airline programs like Delta Air Lines SkyMiles have evolved well beyond Loyalty 1.0, adding elements of service to differentiate the customer experience and extending utility beyond their brands through partnerships. Not so for most brands in many other categories, including retail, credit cards, telecommunications and most restaurants (where much of the growth in program memberships has occurred in the last two years).
Loyalty 2.0 reflects the advent of social media, strategic partnerships and coalitions, though clearly the latter has yet to take hold in the U.S. Strategic partnerships started with airlines, other travel providers and credit card companies. They evolved to include everything from restaurants and telecom providers to utilities and numerous other categories. These partnerships are, for the most part, transactionally-focused, allowing members to earn and burn across brands. Leading programs offer members benefits tied to cooperative partnership marketing efforts designed to encourage purchases from partner brands (as an example, in airline programs, rental car and hotel prompts are served up when you book a flight).
Coalitions evolved from early loyalty programs, expanding through partnerships to inspire standalone loyalty “businesses” based on a shared currency, with the brand (and ownership) being separated from participating organizations. Examples range from early coalitions, such as AirMiles and Nectar (mostly successful outside the U.S.), to more recent entrants such as Fuel Rewards Network and Plenti in the U.S. It is also reasonable to think of American Express’ Membership Rewards as the first (and, in our opinion, still the best) true “coalition”, along with Citi’s ThankYou program.
While coalitions haven’t fully taken hold in the U.S. the way many have long espoused (i.e., hoped), partnerships were really the catalyst for the growth of modern loyalty programs and, yes, loyalty marketing. When American Express funded triple miles for members of Delta Air Lines Frequent Flyer in 1988, it was clear that these initiatives were not going anywhere but up. Pun intended.
Payments (or the platform used to facilitate transactions inside the program) were and remain the key partnership category for brands pushing into loyalty marketing. It was payments that provided a much-needed source of funding and incremental value for all parties, customers included.
As Loyalty Marketing shifted from 1.0 to 2.0, the biggest variable was the integration of payments. Programs expanded into industries like retail to include not just (proprietary) “tender only” as they traditionally did, but they eventually opened themselves up to all tenders. Sadly, while omni-tender loyalty programs are table stakes today, especially in the retail industry, there remain a number of brands who can’t do any more than play catch-up to this paradigm.
In Loyalty 2.0, programs have moved further away from their original purpose, which was to track customers and collect data for database and relationship marketing. Today, many leading loyalty programs support little more than mass marketing through direct channels.
Like the underlying loyalty programs themselves, many of today’s partnership marketing and coalitions are still mired in transactional value versus relationship-building value. While there are some noteworthy exceptions – such as Delta and Starwood’s Crossover Rewards, and some of the American Express proprietary card benefits, anything beyond transactional is still the exception. Sadly.
Inside Loyalty 2.0, even the introduction of social media and platforms like Facebook and mobile in general have not transformed loyalty marketing to any significant degree. Yes, there are plenty of examples of programs offering points for social activities, but nearly all of these strategies still fall under the category of “transactional” rather than experiential. Very little has been done to use social as a loyalty engagement channel versus distribution or acquisition.
Today, this leaves customer marketing at a cross roads: continue the status quo that started 35 years ago, or take a new approach. For us and an increasing number of other customer-centric leaders, we emphatically opt for the latter.
There are three key factors (among others) that have transformed loyalty marketing, all of which underscore the need for a new approach.
1. Despite all of the changes in technology over the past 35 years, the loyalty program propositions and mechanics remain relatively unchanged. Today there are new tools to identify and track customers, often in ways that are less cumbersome than traditional models.
2. There are too many programs, exacerbated by the fact that they are so undifferentiated in terms of design and likewise in terms of the customer experience. Most remain purely transactional, so it is no surprise that we have seen a 20% decline in membership activation over the last two years, given that there are now around 30 program memberships per household. Who wants to offer that household program number 31?
3. We are now in an age of Big Data and Internet of Things (IoT). Look at the success of Amazon, both in terms of retail and overall share of customer engagement; especially relative to loyalty program participation. While 20% of affluent customers are disengaging from loyalty programs, Amazon Prime now has nearly 75% of affluent households in the US as members, and it continues to grow at a double digit pace! Whether a brand competes directly or indirectly with Amazon, customers increasingly see Amazon as setting the bar for customer experience.
LOYALTY 3.0: IT’S TIME FOR A NEW APPROACH
The new Loyalty model, which we first introduced in 2014, starts with a 180° turn: rather than customers proving their loyalty to brands, it’s time brands demonstrate their loyalty to customers. Loyal brands, companies with leadership that without exception prioritize the customer as part of a business strategy, create loyal customers.
While we have long said (and it’s worth repeating) that loyalty marketing is not a program, it does not mean that loyalty marketing cannot be programmatic. In May, 2012, we argued that “The Revolution Won’t Be Televised”, meaning not all of your loyalty marketing efforts should be published, even the unpublished (e.g., surprise and delights, treatments that not all customers get) benefits can be automated, at least some of the time.
Appropriately for today’s Age of the Customer, and the world of Big Data (which is nothing new to those of us in the loyalty marketing world) is our longstanding definition of loyalty marketing:
Paying attention to customers and acting accordingly.
This is the most succinct and simple way to define what creates customer loyalty and, more importantly, what brands need to do to be loyal to customers and earn that loyalty in return.
BREAKING DOWN LOYALTY MARKETING
Paying attention means acting on your customer data, both in terms of collecting the data and more importantly, using it to generate not only insights but actions and outcomes (for customers). This is where IoT and related new technologies transform the role of traditional loyalty marketing and programs – both tracking customers (the paying attention) and ultimately, being able to recognize and deliver value in real time to customers (the acting accordingly part).
It is quite possible these new capabilities will phase out the role of traditional loyalty programs. Indeed, if there is not more differentiation and relevance delivered to customers, they will soon be extinct, as customers will continue to disengage as they have since 2014. Today, programs are merely irrelevant for a majority of consumers.
Acting accordingly goes right to the heart of loyalty and relationship marketing, a.k.a. differential marketing. “Accordingly” is the X factor – the variable that is a function of customer behavior and value, both realized and potential. After all, if a brand is going to be loyal to a customer, that has to be both ex-post and ex-ante. Loyalty 1.0 and 2.0 are ex-post approaches to loyalty. Literally, the past.
LOYALTY 3.0: THE END OF TRADITIONAL LOYALTY PROGRAMS?
The value customers want and increasingly expect has – and will continue to be – transformed beyond rewards (i.e., offers, discounts, etc.) so it is more intrinsic to the experience itself. This means brands must push beyond monetary incentives into saving time, making things easier, and adding knowledge and access, to build personal, unique brand attachments. This is where the science of big data meets the art of creativity. For us, it is the fun part.
The alternative for most brands – more of the same – will mean a continuation of operating in an environment where it is increasingly challenging to engage customers, drive growth and profits.
UNDERSTANDING LOYALTY 3.0: AMAZONIFICATION
The proliferation of data – first, second and third-party – along with emerging and less expensive technology, makes it increasingly easy (at least compared to Loyalty 1.0 and 2.0) for brands to start changing their value proposition and how that value is delivered to customers.
The best example (in our opinion) is Amazon. While the average person does not think of Amazon Prime as a “loyalty program”, there is no questioning the strength of Amazon’s customer loyalty – both the brand’s loyalty to its customers and its customers becoming increasingly loyal in return.
Whatever you think about Amazon, it is worth understanding its approach to customers and how intertwined this is with the company’s long-term strategy.
Customer-centricity is not new to Amazon. It was explicitly shared in the company’s shareholder letter in 1997, after it went public. It’s also worth noting that back then Amazon had just achieved a record $115MM in revenues and recognized that “www” stood for the “world wide wait”. Amazon set a clear go-forward strategy, obsessing over how to meet the (then latent) core customer need for immediate gratification and simply making it easier to buy things. They set about building their business to meet this core need from their logistics footprint to their checkout process.
“Check-In is the new Check-Out.” – Patrick Gauthier, VP External Payments, Amazon
Amazon has done three things over the past 20 years that we believe are fundamental to Loyalty 3.0. We consider these to be essential best practices and requirements for any loyalty marketing strategy:
1. Make customer-centricity an explicit and consistent business strategy. Leadership, starting with the CEO, must be steadfastly committed to customer-centricity.
2. Use data aggressively to deliver relevance, recognize customers and, in turn, make it increasingly easy for them to do business with you.
3. Recognize that customer loyalty drivers are much more than just financial. They are experiential. Think IoX (Internet of Experiences) not IoT.
None of these three things fall in the category of rocket science. They are common sense, and reflect what you might think of as a “Golden Rule” of loyalty marketing: treat customers the same way you want and expect to be treated. Remember, Peter Drucker said that the purpose of any business is to create customers. Hence, it is essential that retaining customers is necessary to achieve organic growth.
We have adopted the term Amazonification for this as we believe it embodies the core of both the rDialogue definition of loyalty marketing – paying attention to customers and acting accordingly – and what we as humans seek from those we invest with in relationship building. We want and appreciate others thinking about us as it makes us vested and likely to think similarly about them. It is the same way with brands.
Amazon recognized the opportunities to make shopping faster, easier and more embedded with information and “guardrails” that removed the cognitive dissonance that so often accompanies shopping. This was key, especially if Amazon was going to compete with brick and mortar retailers. The company is obsessed with this aspect of the customer experience and connected it to the brand, resulting in leading products like Amazon Echo and Amazon Echo Dot to further facilitate a true “Amazon” experience.
Accelerating this approach with data is what set Amazon apart, unlocking the ability for Amazon to recognize customers, anticipate what they might be shopping for and be more relevant than almost all other retailers. The company also realized the value of reviews and crowdsourcing insights that further made the shopping experience better informed, easy and increasingly risk-free. All of which happened before Amazon Prime was even launched in 2010.
Today, we see brands (across multiple industries) struggling to compete with Amazon and trying to emulate it, facing off directly with offerings like Amazon Prime and even Amazon Echo but falling way short when it comes to leveraging data for relevance.
Rather than trying to follow Amazon and its specific strategies, brands need to understand the drivers of loyalty in place and apply them to their own businesses. Loyalty 3.0 is what we believe will facilitate a brand-centric mechanism to establish a new business paradigm that brings the brand and customer together in a mutually-beneficial relationship. No one is going to catch up with what Amazon has spent two decades doing and continues to do. But don’t take our word for it.
“If you’re competitor-focused, you have to wait until there is a competitor doing something.
Being customer-focused, allows you to be more pioneering.” Jeff Bezos – CEO Amazon
rDialogue Loyalty Marketing Content
Jeff Bezos’ Letter to Shareholders: 100 Million Reasons Amazon Matters to Your Brand, and Your Customers - April 23, 2018 - Last week Amazon released Jeff Bezos’ letter to shareholders and for the first time announced the size of its Prime membership.
Flying High: Trying out Delta’s Gold Medallion - March 13, 2018 - Delta provides a textbook example of how rDialogue defines loyalty marketing: paying attention to the consumer and acting accordingly.
Saving Time During the Most Wonderful Time of the Year - November 22, 2017 - Time. It's arguably the most valuable asset any of us have, and we're constantly seeking ways to get the most out of how little we have.
In a loyalty 3.0 world, if you sponsor it… will they come? - May 24, 2017 - Here, we focus on the name on the side(s) of the ball park: SunTrust, along with the broader topic of sponsorships and activation of those sponsorships, with a loyalty 3.0 filter.
Evolve or Die: What other industries can learn from hospitality loyalty - April 6, 2017 - Today, the hospitality landscape is evolving from mergers and acquisitions and, as a result, brands are being forced to realign their hotel loyalty programs.
If you build it, they will come - March 30, 2017 - Over the last couple of years at rDialogue, I’ve seen how technology can be used to create a better customer experience. And, nothing combines these two things better than the rapid adoption of technology in stadiums.
Loyalty Marketing in a Trumpian World - February 10, 2017 - CEOs are declaring their support for, or opposition to, President Trump and his policies. In our always on, tweet-of-the-moment world, we are seeing brands and their leaders pick sides.
A New Media Company Provides a Textbook Lesson in Loyalty Marketing - January 10, 2017 - There is no shortage of challenges for those in the media business. From a loyalty marketing strategy lens, it’s noteworthy when a newcomer not only has a proven track record but also an antidote.
Looking Ahead After Looking Back: Effective Loyalty Programs - January 2, 2017 - Readers of this blog know that rDialogue has for a decade counseled and supported our clients to put customers at the center of their marketing strategy. Over the past year, we saw some significant third-party, independent research that has more than validated our long held views.
35+27+10 = 3.0r - October 25, 2016 - Thirty-five years ago, American Airlines launched AAdvantage and the era of modern loyalty marketing began. Loyalty 1.0, in Y2K speak. The difference then was relationship marketing.
Content is the King - September 29, 2016 - Relevance is a big part of who we are and what we do; hence our name, Relevant Dialogue. The idea of relevant content is one that can be found in everything we’ve done from 2006 until now.
Customization of Loyalty Marketing Plans - August 4, 2016 - Here at rD, we always have and will continue to look for brands that are willing to be leaders and push beyond the traditional loyalty program. This post is more relevant now than ever before.
Chipotle Loyalty Program: it's more than free burritos - May 10, 2016 - Chipotle: a leader in fast casual dining, known for its commitment to freshness, quality, sustainability and corporate transparency, until the company with cult-like brand loyalty and through-the-roof sales was knocked off its pedestal after a series of E. coli and norovirus outbreaks.
“But why do you need all that customer loyalty data?" - December 18, 2015 - Depending on customer frequency and average order value, the program probably needs a large amount of new customers (and customer loyalty data) in the funnel to be sustainable and profitable.
Customer Experience Is the New Loyalty. Or Vice-Versa? Or Both? - October 29, 2015 - Customer experience, like customer engagement, is a term that defines the white-hot space right now for marketers, much like CRM was in the late 1990s and early 2000s. But things are different now.
Addressing Customer Loyalty in a Crisis - September 28, 2015 - As you likely heard last week, Volkswagen admitted to installing software in 11 million diesel vehicles in order to produce false emissions results.
Talkin' about my generation → Loyalty Marketing to Millennials - July 31, 2015 - Gen Y. Echo Boomers. Millennials. We’ve all heard of them, read the reports about their growing influence and buying power, and have met, at the very least, one of them. For marketers, “millennial” is the latest and most popular in a series of buzzwords.
Building Customer Loyalty: I’m Ready for a Change - May 22, 2015 Today's environment has changed. It’s no longer about customers being loyal to brands; it’s about brands being loyal to customers. If you really want to get your customers’ attention−consistently−you need to cut through the noise.
Connecting Fans to Brands through Customer Loyalty in Sports - February 27, 2015 - A diehard sports fan is a unique beast, and one in which his behavior doesn’t mirror that of a traditional customer because a deep passion and unmatched level of engagement exists. As an example, my love and hate for my favorite retailer doesn’t fluctuate by day.
Loyalty360 Thought Leadership Video - February 26, 2015 - Recently we had a discussion with Loyalty360 on the state of loyalty and customer experience. Check out the video and let us know where you think loyalty is heading.
The Benefits of Customer Loyalty is Very Much Alive - February 6, 2015 - Loyalty marketing has moved to the forefront over the past few years. However, there is still enormous upside in terms of creating meaningful relationships.
November Relevant Reads: Loyalty Marketing Articles - November 23, 2014 - At rDialogue, we like to share our favorite loyalty marketing articles with each other--and we'd love to share them with you too. Here are some of our favorite reads.
Creating Customer Loyalty from an Empty-Nester - November 20, 2014 - Times, they are a changin’. Certainly an old adage, but holds true as we move into different lifecycle stages. From young adult, parent and ultimately empty-nester, I’ve realized how our needs as consumers change and evolve.
October Relevant Reads: Loyalty Marketing Content - December 23, 2014 - At rDialogue, we like to share our favorite articles focused on loyalty marketing content with each other--and we'd love to share them with you too. Here are some of our favorite reads.
Back-to-school Season: A Stressful Time for Many Retail Loyalty Programs - September 5, 2014 - The collective purchasing power of college students and their families constitute a significant portion of revenue for retailers and online merchants. Retailers are making strides to build and sustain loyal relationships with their customers.
Effective Loyalty Programs are Founded on Customer Experience - June 10, 2014 - rDialogue recently attended CRMC in Chicago along with a number of clients and industry friends. We had two fundamental takeaways, both reinforcing what we have been promoting for some time.
Customer Loyalty Marketing is at the Forefront - April 15, 2014 - CMOs and other marketing leaders are finally becoming more accountable, working with CFOs and CIOs to deliver more of what is expected by CEOs and boards: profitable growth.
The Changing Nature of Loyalty Marketing - July 15, 2013 - We recently attended CRMC in Chicago and were struck by how the conversation has shifted on a number of fronts. There was increased discussion around the importance and usage of non-points-based loyalty programs and benefits.
The Right Focus at Loyalty Expo - May 20, 2013 - We just returned from a very successful three days in Orlando at this year’s Loyalty Expo – and would like to send a special thanks to Kimpton Hotels and Restaurants and Citi Retail Services for participating in great presentations with us.
Target's Loyalty Card Marketing Experience Falls Short - April 18, 2013 - Target’s smart branding, partnerships, apps, and merchandising set the bar high for other retailers. It brings low-cost retail to market in a way that makes the shopper enjoy buying and engaging with the brand.
How to Gain the Loyalty of Millennials - March 14, 2013 - Retailers are scrambling to secure the loyalty of the tech-savvy and fast-paced Millenial crowd, which spends $600 billion a year. But many retail card providers are falling behind.
Retail Outlets and Retail Customer Loyalty - November 5, 2012 - Retail customer loyalty outlets are re-emerging with prominent retail customer loyalty strategies, with retailers from Nordstrom to Gap investing in and expanding their off-price strategy.
Making the Case for Loyalty Marketing Strategy to Senior Management - October 1, 2012 - Phil Rubin’s Q&A in Loyalty Management Magazine addresses the key points you need to know when Making the Case for Loyalty Marketing Strategy to Senior Management.
Your Brand’s Super Powers – Data & Data-driven Marketing - July 23, 2012 - Data is a pretty powerful concept. You could say it’s every brand’s hidden super power. Yet, there’s so much talk about the power of data, but in reality, there isn’t a lot of actual “doing”.
Social Gaming in Unpublished Loyalty Programs - July 16, 2012 - Panera recently rolled out a new social game called Eat Smarts. This is a great example of how game mechanics can be integrated into a loyalty program and brings to light several of the benefits of unpublished loyalty programs.
The Revolution Will Not Be Televised: Loyalty Marketing Needs to Grow Up - May 28, 2012 - Recently, I attended two important Loyalty Marketing conferences: Loyalty in Berlin and Loyalty Expo in Orlando. Both were well attended, yet both echoed a familiar and similarly disappointing theme.
Amazon.com: A+ for Engendering Customer Loyalty via Customer Centricity - April 4, 2012 - Our own Phil Rubin is a strong advocate for Amazon as evidenced by his numerous mentions and posts. His passion for this brand sparked an interest in me, and as a new Amazon customer, I wanted to share my perspective.
American Express Loyalty Program Made the Routine Exceptional - November 29, 2011 - It started with a failed card swipe and ended with what this cardholder thought was a superbly developed and executed customer service experience.
Burberry's Digital Marketing Strategy Paves the Way for Engaging Customers - November 14, 2011 - Preserving prestige is what sets brands such as Burberry and Hermes apart from Gap and H&M, but that same elitism has previously kept certain luxury brands from engaging in the digital space/social media.
From Microsoft to Jewel-Osco: How Companies are Leveraging Deal Vendors - October 4, 2011 - Consumers do not want to sort through the 6-10 different emails they are receiving daily from all of the deal vendors sites they’ve signed up for, so Microsoft has come up with a convenient solution for these users.
The Gamification of Loyalty - September 2, 2011 - What is gamification of loyalty? In practice, it looks like badges, leaderboards and achievement levels, but in theory, loyalty gamification uses a human being's innate love of playing games to encourage a certain behavior.
Many Happy Returns - July 22, 2011 - Birthday gifts have become a common element of loyalty programs. Sometimes this specific benefit is clearly stated upfront. Other times, it is deliberately not – thus leaving an element of surprise.
Tiered Loyalty Program Is Fundamental - July 11, 2011 - RetailWire wrote about Safeway Canada's Safeway Club Elite Customer program and we see that as a great illustration of one of the fundamental tenets of loyalty: that not all customers are created equal.
Will Loyalty Marketing Age Like a Fine Bordeaux or a Cheap Rosé? - June 3, 2011 - Even though the first modern loyalty program, American AAdvantage launched 30 years ago, loyalty marketing is only in its infancy and even after three decades it’s not always practiced in a strategic manner.
The Best Loyalty "Program" In the World? Or The Best Loyalty Marketer? - March 18, 2011 - We are often asked about who has the best loyalty program. It's a good question but not necessarily the right one, given our view that loyalty marketing is about much more than programs.
Citi Retail Partner Cards to Provide Differentiating Loyalty Solutions with rDialogue - November 14, 2010 - Citi Retail Partner Cards announced today it has entered into an agreement with rDialogue, a leading customer loyalty and relationship marketing firm, to provide customized end-to-end loyalty solutions to its retail partners.
The Customer Loyalty Lesson from the Toyota Recalls - February 17, 2010 - In the wake of Toyota's high-profile recalls, it is an opportune moment to recognize that every company's crisis communications plan should include timely contact directly with customers.
State of the Loyalty Marketing Industry - August 20, 2009 - We recently published our perspective on the current state loyalty marketing industry for Loyalty 360. Based on the very supportive feedback we wanted to share it here as well.
The Emperor Now Has Clothes - February 17, 2008 - For too long, America’s leading retailers and the investment analysts who track them have held “Comp Sales” as a sacrosanct measurement of performance. The number is expressed as the percentage change in revenue.