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Rethinking Loyalty Programs

May 2024
  • 45% of loyalty program members find it too time-consuming to earn a reward, with 31% believing it’s nearly impossible to obtain any reward at all
  • 57% of consumers are inclined to engage in rewards programs offering different tiers and exclusive rewards at every tier. With that said, loyalty programs need a refresh, one that prioritizes a tiered approach inclusive of experiential rewards at every level
  • By democratizing access to experiential rewards, brands become curators of exclusive experiences, creating a sense of belonging and value for every loyalty program member

 

INTRODUCTION

Loyalty programs have been a cornerstone of customer retention strategies across industries for years. Despite their prevalence, many loyalty programs fail to strike a chord with customers, with only half of enrolled consumers actively using loyalty programs and a mere 52% of US consumers satisfied with their current programs (Source: The Bond Loyalty Report 2023).

In this Direct Hit, we delve into the reasons behind this sentiment, shedding light on the challenges posed by the current status quo.

THE CHALLENGE OF UNATTAINABLE REWARDS

45% of loyalty program members find it too time-consuming to earn a reward, with 31% believing it’s nearly impossible to obtain any reward at all (Source: The Tech Report). This disparity arises from traditional programs often setting reward thresholds that are unrealistic for the average customer to reach.

For instance, consider an airline loyalty program requiring 50,000 miles for a free flight, while the typical customer only earns around 10,000 miles annually. The issue is so prevalent that the U.S. Department of Transportation and the Consumer Financial Protection Bureau are investigating airline loyalty programs for potential deceptive practices (Source: ThePointsGuy).

Clearly, some traditional programs are failing to engage all participants within the loyalty framework. In the last year, 33% of U.S. consumers have switched away from a brand they previously liked to buy from, with 25% citing a competitor having a better loyalty program (Source: Marigold 2023).

It’s evident that a revamp is overdue in order to create deeper engagements across all tiers.

THE NEGLECT OF EMOTIONAL GRATIFICATION

Traditional loyalty programs often prioritize monetary incentives for repeat purchases, thus overlooking the emotional aspect of customer loyalty. Which brings us to the difference between reward programs and loyalty programs. While reward programs offer instant gratification through transactional incentives, loyalty programs should aim to foster a deep bond with customers over time, resulting in enduring loyalty and advocacy.

Research indicates that 75% of consumers develop stronger loyalty to brands that forge personal connections with them, as highlighted by Amplifiloyalty. Additionally, after a positive experiential encounter with the brand, 50% of consumers are more likely to become advocates, according to Retail Dive.

 

EXPERIENTIAL REWARDS AT SCALE

Experiential rewards aren’t a new emotional gratification tactic to loyalty programs. What’s novel, however, is the imperative to broaden their accessibility and attainability for all loyalty members, not just those at the highest tier. Stampme reports that 57% of consumers are inclined to engage in rewards programs offering different tiers and exclusive rewards at every tier.

This approach challenges the conventional norms of loyalty programs and expands the horizons of what’s achievable, unlocking the genuine potential of experiential rewards, especially resonating with members seeking distinctive experiences that are only made possible through the reward program.

It’s not merely about reserving exclusive experiences for a select few; rather, it’s about crafting a loyalty program that delivers meaningful, unforgettable experiences to every member, regardless of their tier.

By democratizing access to experiential rewards and offering relevant, exclusive, not-readily-available experiences, brands cultivate a deeper sense loyalty among all members.

Case Study: Sephora’s Beauty Insider

Boasting over 25 million members, this program stands out for its tiered approach, where experiential rewards are a cornerstone of every tier. While free products and discounts are enticing, it’s the experiential rewards like free makeovers, beauty classes, and exclusive event invitations that truly make the program desirable. These experiences align perfectly with the interests of Sephora’s customers, offering a unique and valuable way to engage with the brand beyond monetary transactional rewards.

Across all tiers, experiential rewards create a strong emotional connection with customers, fostering a deep sense of loyalty and encouraging shoppers to engage more with the brand. This focus on experiential rewards has been a key driver of the program’s success, with members spending an average of 15% more than non-members. By offering attainable and desirable experiences, Sephora’s loyalty program sets a new standard for customer engagement and retention.

RETHINKING LOYALTY PROGRAMS

To breathe new life into loyalty programs and genuinely captivate customers, brands need to focus on emotional gratification through experiential rewards, across all tiers of the program.

This entails:

  • Incorporating experiential rewards that go beyond the transactional nature of reward programs.
  • Establishing a tiered reward structure and providing more frequent rewards that acknowledge and appreciate customers’ time, dedication, and loyalty.
  • Leveraging data and personalization to craft tailored experiences and offers that resonate with individual customers.
  • Partnering with noncompeting organizations that can help expand offerings and meet diverse customer interests.

CONCLUSION

Loyalty programs need a refresh – one that prioritizes a tiered approach inclusive of experiential rewards at every level. This shift is crucial to making loyalty programs desirable for all members, from average loyal customers to the most loyal and engaged ones. By becoming curators of exclusive experiences, brands win the hearts and minds of consumers across all tiers and can create a sense of belonging and value for every customer.

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