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Fair Game
It's time to level loyalty's playing field.

Ah, the virtue of loyalty. Loyalty has long had an aspirational, positive, virtuous connotation. But could it be turning into a vice disguised as a virtue with a one-sided value proposition?

In last year’s “loyalty” issue of the Hub, I began to explore the possibility of “The Loyalty Myth.” Even with the continued explosion of loyalty programs, technologies and platforms, the actual idea of loyalty is being exploited and lost. Loyalty continues to be more about what a manufacturer and retailer can gain from a consumer or shopper and less about what a consumer gains from his or her loyalty to a brand or retailer.

The loss of clear definition on the intent of loyalty programs has put it on a steep decline from a consumer-value perspective. Loyalty used to be more about meaningful value and rewards to an exclusive group of brand loyalists; it is now more about customer retention in order to amass the biggest heap of data in order to grow short-term value for the company. This is unrequited love at its worst. At a time when consumers have more choices than ever, it is risky business.

This paper could just as easily be about the proliferation of loyalty. Today, it is almost a given that every product, brand, company and retailer has a loyalty program. The days of it being about rewarding loyalty, however, are long gone. It is now a CRM strategy and tactic — a way of capturing information about the people who buy what, where, when and how (and, to the extent it can be determined, why).

The obsession to gather as much data (because we now can) on the people who buy our products is the primary driving force behind many of today’s loyalty efforts. And it shows. And the consumer can feel it. We’ve blurred the definition of loyalty and the reciprocity and relationship in the exchange. After all, isn’t that what the “R” in CRM stands for? Because of the shift toward investing in Big Data, companies have “analytic-ed” themselves into believing that more information on consumers is the best way to serve them.

The logic goes something like this: “If we can now mine all kinds of facts/truths about our most loyal consumers, we will most certainly be able to deliver to them more of what they want.” Or, for the more innovative companies: “… more of what they (our consumers) don’t even know they want and will love.”

tracylockeWhat’s gotten lost in all of this is a human component, where/when I believe the brands I love actually know me (not an algorithm I match or a unique identifier code that represents me). And, because the brands I love know me and how loyal I am to them, they will reward me with the kinds of value, experiences and service that perpetuate this virtuous relationship.

People create relationships, machines don’t. When the human element on both sides — or either side — of the exchange becomes completely obscured, the relationship begins to break down in value. However, humans armed with data and enabled by technology are powerful beyond measure. The power to personalize at a one-to-one level is where the future of loyalty lives.

If I told you a decade ago that a mysterious “amazon” would invade your life and demand to know everything about you, you would think I had quite the imagination. If I went on to tell you that it would create a disguised scheme to get you to somewhat unknowingly divulge all of your personal information and capture your actual behavior and other details of your life, you would most certainly raise an eyebrow at me.

Well, here we are in the year 2012, and that Amazon is now an integral part of our lives — so much so that it is stealing share from major retailers such as Walmart and Target, while also helping put out of business retailers including Borders, Tower Records, Circuit City and the now on-the-edge Best Buy.

Don’t get me wrong, Amazon and others offer value and clear benefits. There is something totally exciting and enabling about Big Data. As Amazon has demonstrated, there is great power and potential in knowing more about the consumer and using these new tools to offer up a better experience, deeper engagement, more of what you personally prefer. But when it comes to rewarding loyalty, consumers are giving way more than they are getting.

Unique Consumer Value

 The year 2013 needs to be the year that the equation looks something like this: Loyal User Data + Consumer Experience Experts = Unique Consumer Value (see above).

So, how do we get there from here?

Let’s first take a closer look at what’s going on. The current trend toward Big Data, and the science of capturing as much data as possible to make every corporate decision, inspires the insatiable quest for intelligence about consumers and shoppers. Loyalty programs and CRM strategies offer a perfect platform to feed this quest. From bots to cybersurveillance, companies have automated the collection of data.

As Gary Hawkins points out in a recent HBR blog post: “In this war for customers, the ammunition is data — and lots of it. It began with transaction data and shopper data, which remain central. Now, however, they are being augmented by demographic data, in-store video monitoring, mobile-based location data from inside and outside the store, real-time social media feeds, third-party data appends, weather, and more. Virtually every retailer recognizes the advantages that come with better customer intelligence. A McKinsey study released in May 2011 stated that, by using Big Data to the fullest, retailers stood to increase their operating margins by up to 60 percent — this, in an industry where net profit margins are often less than two percent.”

The ability to use this data to personalize and customize is powerful beyond measure. Therein surfaces the key: Data in the hands of experts that put themselves at the intersection of the tools/technology and the people/psychology of loyalty have the power to offer truly transformative value, almost in real time. There’s no question that technology enables the ability to monitor and learn more. With that comes a responsibility to think not only about the bottom line of the company but also the bottom line of the consumer.

 Millennials will most surely demand this. Already the least loyal generation, they are also digital natives. This means that they are less concerned with privacy issues. They recognize that allowing themselves to be tracked and observed enables a deeper level of personalization. They already associate this with value. However, because of these truths, they also have a higher level of expectation from the brands they buy and the places they buy them.

Because of the intense feedback that Starbucks receives from this segment of critical patrons, it has moved at lightning speed to make mobile payments available to its loyalists. Its “My Starbucks Rewards” program is constantly innovating its perks and making customers feel like Starbucks is listening to them personally. Its app fully replaces the need to carry a card and perks are automatically uploaded and updated. There is also the perception of listening to consumer wishes and desires. As always, your most loyal consumers are most vested in your success. Technology also enables input on innovation, improvements and, in return, advocacy.

Now is the time for more companies to rethink their approach to loyalty to maximize reciprocal value. The primary focus should be on how brands, manufacturers and retailers become more loyal to consumers versus the other way around.

This is not the Apple model of locking consumers into loyalty because their products and retail environment are so genius — even that model will hit diminishing returns. You might buy into the “iProduct franchise,” but over time you will have an even higher expectation for personalization. Millenials do! There’s little reward from upgrading for marginal improvements. It is not a sustainable model when consumers are manipulated into buying more stuff for more money more often. This becomes a perfunctory loyalty of compliance, not pride or passion for products that are extensions of our own personal identity.

The “gamification” of loyalty further lures you into sharing more information about yourself in the name of play and engagement with badge rewards of little to no real-world value. This may be fun and novel for a limited time, but it is neither sustainable nor a return on the consumer investment. This suggests a new, important measurement (ROCI) to add to the measurement of “Loyal User Data + Consumer Experience Experts = Unique Consumer Value.”

Brands and retailers must be proportionately and appropriately vested in their most loyal consumers’ investment in them. This becomes increasingly important in a multi-channel retail environment and with more brand choices than ever before. It forces us to rethink the definition we are giving to loyalty and the fact that it has become a means to an end, versus an end unto itself.

Loyalty retention (repeat buying) is simply not a rich enough definition. It must be about how people and companies get value from each other — the creation of meaningful value and rewards as determined by the recipient. If the unit of analysis is simply repeat purchase, we can easily lose the human connection.

 Another tension diverting the attention of companies from a consumer-centric loyalty view is the tug-of-war between retailers and manufacturers.  A new “game” is playing out à la “capture the flag” where “capture the data” is the objective. When both are battling to own, hoard and monopolize the data, neither side is innovating around how to serve the loyal consumer. Rather than making data capture a collaborative sport between the retailer and the manufacturer, it is a competition. If both sides joined together around a shared consumer, the value could multiply. Just as loyalty needs to work seamlessly across the online and physical worlds, so too does it need to integrate seamlessly between brands and retailers.

What the explosion of technology does is help us reimagine and explore the possibilities of how this can have a different outcome. These are dynamic changes for large and small organizations. Technology enables new opportunities for reciprocal loyalty. This creates an imperative to use technology to truly benefit the consumer, to use the data collected to provide meaningful value in return to the loyal consumer.

We can now know our consumers at a one-to-one relationship level. This allows for an entirely new set of benefits and a deeper relationship. Given today’s social platforms and tools, social data will further inform the understanding we have about consumers. When loyalty is done well, the consumer has a new powerful channel to share this message with friends, family, community and public. Conversely, the opposite is also true when a consumer has a bad experience. The possibility for enhanced experiences designed around the consumers’ preferences and desires is a promise worth delivering on. The companies that do so will be the companies that will win.

It’s time for “membership” to rethink its “privileges” in a more personal and meaningful way.

BETH ANN KAMINKOW is president and chief executive officer of TracyLocke. A strong advocate of insights-inspired marketing programs, she is a pioneer in strategic-planning research methodologies.

NOVEMBER / DECEMBER 2012 | PDF | Subscribe | Home