Rethinking retail loyalty programmes


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Part 1 of this article discussed the prolific growth of loyalty programmes across the world’s consumer markets. It also looked at why, despite their ubiquitous pre-valence, doubts had emerged about whether loyalty programmes were really paying off. And there was always the question about how loyalty programmes could sustain their value in the new digital era. 

Part 2 now examines how Asian retailers can re-engineer their loyalty strategy to be relevant and aligned with what are certainly seismic paradigm shifts happening now.

Last month we discussed the prolific growth of loyalty programmes in consumer markets across the world. In the Nielsen Global Survey of Loyalty Sentiment, published last November, a sizable 60% of Asia-Pacific consumers said that the retailers they shopped with offered a loyalty programme and an overwhelming 92% of them said they preferred shopping at retail stores offering a loyalty programme.

The bullish demand and supply situation had driven up loyalty programmes by leaps and bounds. However, despite their ubiquitous prevalence, doubts had emerged about whether loyalty programmes were really working well. Are they really paying off for the programme owners?

Going forward, arguably, the single biggest issue is how loyalty programmes could sustain their value in the digital era.

What are industry analysts’ prognoses of the implications of the digital era to loyalty programmes? What are the key forces and dynamics involved? And more importantly for Asian retailers, how can they re-think and re-engineer their loyalty strategy to be relevant and aligned with what are certainly seismic paradigm shifts happening now?

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Game changer 

The digital era has huge big-time game changer clout. Two dramatic phenomena in recent times have had largely been the cause of the digital era and its clout.

First, the huge advance of IT from techno-centrism to a human-centered ecosystem. That paved the way for the “consumerisation” of IT globally – smartphones, tablets, PCs, apps and the likes became the norm.

Second, there was the convergence of the online, social and mobile realms. This launched social media among other things and sparked epic changes in the way human beings communicate and interact with one another and with organisations.

All of a sudden, the world became digital and a generation of connected consumers emerged along with paradigm shifts affecting consumer lifestyles and business processes. 

The trends were already telling since the phenomena began unfolding. Many of them exert huge impact on consumer marketing and such functional areas as market positioning, communications, media and customer relations management. Retail loyalty programmes is obviously no exception.

Much has been said of the digital revolution trends by industry experts and analysts.  A case in point is a succinct McKinsey presentation at the Forum des Médias Sino-Français in Paris in April last year. Although primarily focused on trends affecting the media industry, the presentation charted interesting groundbreaking changes among digital consumers.

One example of such a change is the exponential growth trends in video traffic and advertising spend. McKinsey projected digital video traffic and digital video advertising spend in the European market will register a whopping six-fold and four-fold increase respectively in just over five years from 2011 to 2016.

Clearly the bottom-line issue is the tremendous change in consumer psyche, behaviour and value emerging in the digital era. For loyalty programmes, this has in turn led to the inevitable question of whether the traditional construct and design are now passé in the new age? Even if they are not, industry watchers believe they are inadequate and somewhat disconnected with the times now.

There are obviously plenty of challenges ahead. There are also exciting upsides ahead. The digital era or more specifically social media is providing opportunities in communicating, understanding and engaging customers in ways unavailable in the traditional regime. There are now also entirely new dimensions in business processes and management. Business analytics is a case in point – they now enable retailers to manage their loyalty programmes with much greater breadth and depth than ever before.

Rethink needed

How should Asian retailers re-think their loyalty strategy?

Essentially, there are two critical pieces involved. The first piece concerns identifying key technology factors and forces of the digital erathat arepertinent to a contemporary loyalty strategy– “consumerisation” of IT; convergence of the online, social and mobile realms; business analytics; etc. This piece is clearly critical as businesses need to leverage technology to support and to play an integral role in designing and operating the loyalty strategy.

The second piece is conceptually a back-to-basic approach in retailing: ensuring a distinctive and compelling experience for customers time and again. A McKinsey article published in March pointed out, “Consumer-facing businesses must think beyond the concept of a ‘me-too’, points-based loyalty programme. To reap the full benefits of customer loyalty, they must create a differentiated experience, consistent with their brand, to provide a step change in brand preference.”

Many other leading analysts and industry watchers share such thoughts.  Imaginasium Inc., a US brand experience consultancy firm, said: “Begin with the end in mind… For brands, this calls for a truly integrated customer experience strategy.”

It added, “Begin to expand your media mix beyond its currently defined scope. Include new and dynamic audience-centred media, such as streaming services or on-demand video. Your audience is becoming more and more connected, often with multiple devices at the same time.  The lines between digital and physical mediums are quickly blurring.”

Both pieces are obviously easier said than done. Both also have a myriad of derivative pieces concerning a variety of operating, logistics, process issues. To forge a sound new-age loyalty strategy that is effective, profitable and sustainable is therefore quite an onerous mission. But so it has to be – a loyalty programme is simply not a discount sale or price promotion campaign that often is just a one-off initiative that shaves price and margin to buy sales volume.