Global Loyalty Now a $323B Investment. But is it Shaping Customer Behavior?
Across the globe, retailers and similar organizations invest more than $323 billion in their customer marketing initiatives. Yet when it comes to making critical decisions based on the customer data they collect, a surprising number do the equivalent of flipping a coin.
We surveyed more than 1,200 loyalty program operators and thousands of consumers in five markets across the globe, and this finding stood out above all else. Nearly half of all companies (47 percent) invest 2 percent to 3 percent of their annual revenue in loyalty propositions. That would shake out to as much as $18 billion among U.S. supermarkets alone, based on projected 2019 revenue of $605 billion.
Are they getting their money’s worth? Clearly not. Only 30 percent of all companies use the insights they gathered to better understand their customers through segmentation and other personalization strategies.
They’re basically flipping the loyalty strategy on its head: funding the growth of loyalty schemes, but squandering the rich shopper information those programs gather. By not investing in how to use their data (in addition to collecting it), retailers are not getting out of their loyalty efforts what they're putting into them, and it’s largely by oversight.
Among our research findings:
- Six in 10 companies said their loyalty members spend two times to three times more than nonmembers.
- Sixty-nine percent of C-suite executives told us they’ve increased loyalty investments over the past two years.
- Fifty-five percent expect their investments will grow in 2019 and 2020.
- Only 30 percent of all companies are increasing their investment in order to improve member value.
That last figure is confounding because 43 percent of executives told us they're increasing their loyalty investments due to growing membership numbers. We suspect their investment decisions are shaped by competitive pressures rather than customer behavior. Instinctively, retailers respond to the actions of their rivals rather than extract the behavioral breadcrumbs their shoppers leave — insights that would in fact distinguish them from their competition
Regrettably, they might be missing the true loyalty value equation. Loyalty programs are purpose-built to deliver the data that allows retailers to personalize channels, offers and communications on a one-to-one basis, but few are capitalizing on the asset to personalize at scale.
Most are throwing money into the wind when they should be bankrolling measurable return on relevance, or at least return on investment.
To get those investments back on track, this is our best advice:
- Treat customer data as a corporate asset, and unify the customer view to bring silos together. Retailers share their capital gains across divisions, so why not the wealth from their data? The team in finance could benefit as well as those in merchandising from knowing that the same customers who buy umbrellas in the rain tend to buy prepared meals at 5:30 p.m.
- Accept that personalization isn't a game of chance. In order to personalize, retailers must have a plan for the data. They can start by gleaning from the behavioral data all information that reveals immediate needs and preferences as well as anticipated or unmet needs. Then model the heck out of it to project where customers will derive the most value.
- See loyalty as a capital investment. Lastly, retailers would do well to recognize that loyalty programs are a mechanic to engage customers, gather insights and craft personalized propositions. Loyalty strategies are the starting points, not the end-all, to companywide customer understanding. Understanding customers is a first step in engaging them.
And genuine engagement is invaluable. That, our experience shows, can be measured in large denominations.
Caroline Papadatos is senior vice president of LoyaltyOne Global Solutions, a shopper analytics and loyalty program strategy and activation solutions provider.
Related story: Why Loyalty Programs Should be Identity-Driven Convenience Programs
Caroline Papadatos is senior vice president of LoyaltyOne Global Solutions, a shopper analytics and loyalty program strategy and activation solutions provider.