How to build stronger relationships and increase customer lifetime value with retail loyalty programs. What does it take to earn customer loyalty in retail today? The answer is straightforward but historically difficult to achieve: Treat each customer as an individual, not a faceless number.
Loyalty transcends products and services: It creates an emotional connection between customers and the brand — one in which customers feel seen and heard. Customers prize brands that cater to their needs, provide exclusive shopping experiences, and offer tailored promotions. These types of personalized experiences transform customers into vocal brand advocates, driving even greater reach and influence. And brands can take a cue from these customers to attract more people with similar value sets to boost acquisition and retention.
So why is this so hard? Because this is not the value exchange retailers are used to. Traditional loyalty programs are transactionally focused and impersonal — customers earn points, redeem rewards, and repeat the cycle. Loyalty today, however, is more than a singular program based on tiers, currency, or points — it is an overarching strategic initiative driven by retention across all touchpoints. To be successful, retailers must embed loyalty across the entire organization, from the frontline staff who bring loyalty programs forward to the merchandising team that selects the products as part of a promotion. Free shipping, sneak-peek product previews, surprise-and-delight, and personalized experiences all serve as levers to boost customer loyalty.
We created this guide to help retail leaders evolve their approach to loyalty. Each section peels back the layers of a successful retail loyalty strategy and offers ways to move from a transactionally focused program to human-centric experiences that improve customer lifetime value.
How are retail loyalty programs changing?
Traditional retail loyalty programs born out of convenience to capture customer data are no longer working. Here’s why:
- Customers have member fatigue from belonging to over 14 loyalty programs
- Brands leave as much as $100 billion on the table in unredeemed points annually, reducing engagement and satisfaction
- Only 2 in 10 members are very satisfied with the level of personalization in their loyalty programs
The pandemic brought a new set of shopping behaviors and customer expectations that further put existing loyalty programs to the test.
In Q2 2020, consumers shopping from home sent global digital revenue skyrocketing 71% compared to the previous year. Consumers also changed how they shop online. For example, they are turning to social channels more frequently (purchases from social channel referrals were up 104% in Q2 2020). They are also more willing to change brands due to value, availability, and convenience.
Many consumers intend to keep these habits even after the health crisis ends (with increased expectations for convenience, access, ease, and hyper-personalization). That means a good loyalty strategy is more important than ever. Retailers must ask themselves:
How do we drive value for our customers and our business? Is it easy for customers to engage with our brand?
Yet the majority of customers (66%) still feel like they are treated like a number, not an individual. It’s time to right the ship. Well thought-out retail loyalty programs are critical ballast in this effort.
How can retailers enhance customer loyalty?
Loyalty programs set up the perfect blend of rational and emotional benefits. Customers agree to share their information in exchange for personalized incentives and experiential rewards. That value exchange drives some of the most successful loyalty programs today. For example, beloved coffee brands offer rewards for purchases, free birthday drinks, and surprise-and-delight offers on select days. Hotel chains make it easy to build and redeem rewards for free nights and additional surprises, like meal vouchers and spa discounts, on check-in. These experiential loyalty programs cater to preferences, which make each customer feel special and go far beyond the standard earn and burn of many retail loyalty programs today.
Customers interact with an average of nine channels to browse inventory, seek advice, and make purchases. Embedding loyalty throughout the customer experience helps brands make each touchpoint remarkable. (That does not always mean spending more money either — it can be as simple as saying “thank you” or offering an upgrade; anything that can make customers feel a strong affinity to the brand.) This enables retailers to focus on the relationship and nurture loyalty by creating connections at every interaction, whether that is online, in-store, or on mobile.
Transforming retail loyalty management
- Passive data capture → Active engagement
- Transactional → Experientia
- Rewards based on activities and tiers → Rewards tied to customer lifetime value
- Fixed rewards → Personalized, dynamic experiences
- Disparate currency exchange model → Seamless currency exchange model
- Member retention → Member engagement and advocacy
Build a data strategy for retail loyalty programs
The retailers winning the loyalty game are those with a strong foundational data strategy. They have a unified view of their customers and members that enables them to embed loyalty throughout the entire customer experience.
To get this view, integration with front- and back-office technology systems is key. Retailers need to connect behavioral data from retail loyalty programs with purchase data from point-of-sale systems, the ecommerce storefront, and mobile apps and tie it together with systems like inventory and order management for the most complete view. This strategy turns loyalty into a key principle running throughout the organization.
Building a strong data strategy does not require an entire overhaul of existing technology systems. Platforms like Loyalty Management offer end-to-end loyalty lifecycle marketing with application programming interfaces (APIs) that connect loyalty with existing systems of record across digital and physical touchpoints.
From the single platform, retailers understand customer needs and create the right experiences around genuine interactions. Data is scalable and readily available to everyone in the organization, whether they are in the back office or on the sales floor, so that teams can take the steps to enhance loyalty:
- Identify target segments: Determine the kinds of customers that the loyalty program (and loyalty levers) should cater to. Does the program target high-value customers only, or should it boost second-tier customers to top-tier status as well?
- Assess incremental behaviors: Uncover the dynamics and drivers of current loyal customers. Understand the behaviors that drive the behaviors of high-value customers and the features they value the most.
- Evaluate the ROI: Perform a financial analysis to gauge current customer ROI and determine if the loyalty program justifies its cost. If the program is not driving behavioral change, it becomes a cost center and an unsustainable program.
- Prioritize loyalty levels: Survey customers to get a sense of their most important loyalty levels (like free shipping) or test out options with a small group to assess actual behavioral impact.
A holistic view of data also helps retailers track and measure the business impact of loyalty programs, such as increased spend and higher net promoter scores (NPS), and fine-tune the approach.
Bring new retail loyalty programs to market quickly
Highly customized loyalty programs of the past required heavy investments and took years to deploy, often resulting in outdated functionality by the time they hit the market. To help retailers get their programs live quickly, Loyalty Management uses the underlying Salesforce customer relationship management (CRM) infrastructure to configure loyalty initiatives from setup to accrual and redemption. Teams continuously iterate programs to deliver a great customer experience in these ways:
- Setup the program: Determine multiple loyalty currencies to track activity on each engagement by brand. Set fixed durations and activity-based models and manage tier models and processes from a single screen.
- Create an end-to-end member lifecycle: Set membership types with individual and account memberships. Use the 360-degree view to target the right offer at every point in the decision-making process and follow-up based on events or activities.
- Define and track member behaviors: Assess behaviors based on loyalty program objectives and member engagement. Configure rewards and experiences and use data visualization to see point rewards and experiences and trigger follow-up actions.
- Review performance and take action: Analyze program insights, including revenue, program liability, and promotion effectiveness. Analyze member insights as well, such as acquisition, engagement, and revenue influenced by the program.
Increase customer lifetime value
The most successful loyalty programs make customers feel that they are individuals with specific needs — not just a number. But the program itself is only one piece of an overarching loyalty strategy that aligns everyone in the organization and enables the kind of engagement that makes customers feel like they are a part of something exclusive.
With customer data as the bedrock, retailers make smarter decisions on customer segmentation, create experiential loyalty programs that are economically viable and highly relevant, and improve loyalty — the ultimate outcome of great customer engagement.
To take your next steps and start improving customer lifetime value, learn more about Salesforce’s Loyalty Management platform.