How Retailers Can Differentiate Their Loyalty Program

As third-party data sources dissipate, retailers are turning to loyalty programs as a source of valuable customer information. Such is their popularity that Gartner predicts that a third of businesses without a loyalty program today will establish one by 2027 to ensure access to first-party data and retain high-priority customers.

As more brands adopt loyalty programs there's a risk that consumers will become fatigued. Retailers will have to work harder to stand out from the crowd. By following three steps, retailers can differentiate their loyalty program to provide real value to customers, boost engagement and, ultimately, drive more sales.

Focus on Attitudinal Loyalty, Not Just Transactional

Consumers and marketers tend to think about loyalty differently. For marketers, loyalty is mostly about repeat purchases, while for consumers it’s much more than that.

Beyond fundamental elements that are a basic requirement to gain loyalty, like product quality, consumers think of loyalty in both transactional and attitudinal terms. Consumers articulate transactional loyalty in terms of buying preference and frequency. Attitudinal loyalty encompasses drivers of repeat purchase behavior such as brand trust, recommending a brand to their friends, and feeling good about choosing a brand.

Attitudinal loyalty offers deeper, more resilient customer relationships.

Transactional loyalty takes advantage of habitual purchase behavior, but can be easy to disrupt. If the preferred option is unavailable or a comparable alternative comes in with a better offer, consumers can switch without much thought. Attitudinal loyalty, while more challenging to develop, can help guard against that switching behavior.

Attitudinal loyalty metrics, such as customer satisfaction and customer referrals, offer an upstream view of meaningful customer loyalty — loyalty driven by sentiment as much as intent to purchase. Determine if existing loyalty metrics align to behavioral incentives, and adjust accordingly. Brands should regularly measure a comprehensive set of loyalty metrics that includes both transactional and attitudinal metrics to identify if customer needs and brand loyalty are shifting.

Find the Right Balance of Experiential Benefits

One way companies are innovating their loyalty programs is by combining experiential benefits with traditional, transactional benefits, which matches what customers are searching for. This also helps to reinforce attitudinal loyalty as discussed in the previous step. According to Gartner research, interest in experiential benefits has grown by 5 percent since 2018, while interest in transactional benefits has shown a slight decline during the same period.

Loyalty programs often focus on transactional loyalty to help encourage desirable behaviors and build customer loyalty and engagement. Consumers certainly enjoy transactional rewards benefits, too — everyone likes free stuff, after all! Transactional benefits can be highly effective in encouraging customer sign-ups; nearly half of consumers told Gartner they would join a rewards program just to get a one-time deal. Transactional benefits can also be used to incentivize desired behaviors, such as encouraging repeat purchases.

However, offering a regular cadence of coupons and freebies isn't without risk. Retailers offering too many rewards can devalue brand equity and can increase the costs of sale. This is because already-loyal customers will accrue rewards without changing their buying habits.

One way to mitigate this is to balance transactional benefits with experiential rewards — those that afford an experience to consumers (e.g., early access to new product arrivals or priority service). Experiential benefits and earning opportunities are also a key way to increase customer engagement between purchases, which is essential for retailers in categories that naturally have lower purchase frequency.

Focus on Your Highest Priority Customer Groups

A laser focus on customers’ wants and needs is vital for building a best-in-class loyalty program. Examine your highest priority customer groups, identifying their different needs that help drive loyalty and determining which behaviors of that group you want to change to drive business objectives. Center your loyalty program objectives around those specific customers by ensuring that all program decisions are made with that group's needs and expectations at the forefront.

Your loyalty program shouldn’t try to appeal to every customer.

Use first-party data to segment members and deliver hypertargeted messaging. Use these efforts to deepen engagement and provide additional data capture for improving programs that can also potentially attract new customers.

Feedback is also key. Loyalty program managers must implement a closed-loop feedback system, building flexibility into their programs through continuous feedback from their most valuable members.

By ensuring that customer feedback is heard, retailers can build a loyalty program that truly serves the needs of their customer base, providing value that other brands can’t match.

Brad Jashinsky is a director analyst in the Gartner Marketing Practice, specializing in the retail and hospitality industries.