Why Your Loyalty Program May Not Be Up to Your Brand Standards

While many studies have assessed the efficacy of retail loyalty programs and their influence in driving desired member behaviors, little has been researched as to the consumer perception of these programs in relationship to the perception of the brands themselves.

Are these programs elevating the brand … or are retail loyalty programs damaging the brand when failing to provide features, benefits and experiences that members believe they're entitled to receive? Are the expenditures of tens or hundreds of millions of dollars suboptimal or, worse, are they actually counterproductive to brand building?

A Q1 2020 study by Voice of the Customer interviewed over 3,000 members of retail loyalty programs to access their acceptance of these programs in direct correlation to their perception of the brand. The research and analysis found significant negative consumer perception and acceptance of retail loyalty programs in relation to the parent brand — essentially concluding the programs are below their brand expectations!

Key Findings

There's an aggregate negative Retail Industry Loyalty Program mean rating of 15 percent below that of their parent brands against measured sectors. Department stores are at negative 11 percent, sporting goods at negative 15 percent, and pharmacy at negative 18 percent.

The study has enabled an understanding of brand/program variances and classified the membership audience into four segments: Acceptors, Borderline, Indifferent, and Rejectors. This yields a reliable, discriminant normative Index Score for every brand and loyalty program as well as a current driver analysis showing strengths and vulnerabilities of both brand and loyalty program.  Looking at Acceptors’ responses:

• Brand Acceptors' highest ratings are for value, ease of finding product, friendly and competent customer service, best prices, and having a loyalty program.
• Brand Acceptors' lowest ratings include inconvenient store locations, poor in-store experience, and customer loyalty program needs improvement.

Findings validate that having loyalty programs are important in brand acceptance. Indeed, one of the most important driving reasons why users are Acceptors of a brand is, “I am a member of its loyalty program.”

However, while loyalty programs are very important to customers, having perceived sub-optimal programs that disappoint members can drive members from brand Acceptors to Borderline, Indifferent and Rejectors. And this is happening.

Implications for Retailers

This is a central concern to both the efficacy of the programs and their effect on the parent brands. It makes sense that if customers find the loyalty program unfulfilling it will over time erode their view of the sponsoring brand. There are no other areas of the marketing mix which aren't immediately modified, refined or restaged once it's understood that those activities fail to meet brand standards. The report’s range distribution identifies specific retail winners and losers.

The post-COVID-19 future loyalty program landscape makes it even more critical that loyalty programs support and magnify the positive attributes of the brand. And right now, many loyalty programs are failing to do this.

Takeaway Tips: Prescriptive Actions Based on the Data

Loyalty programs can get stale and it can be difficult to take time out of the marketing calendar for periodic assessments. Most retailers have a diversity of customers and members, but lack vital differential treatment strategies to drive higher degrees of relevance and share of wallet.

And in today's COVID-19 environment, program members are changing their buying behaviors out of necessity. In many retail categories, product availability and enhanced e-commerce activities are inducing switching behavior. Accordingly, program managers focusing on limiting attrition must innovate to maintain and improve member spend and retention.

Although nothing is exactly comparable to the current COVID-19 situation, the aftermath of 9/11 taught both loyalty and brand marketers some lessons. Prior to 9/11, the U.S. airlines’ loyalty program members averaged approximately 45 percent of enplanements, and in the following months afterward program members were provided enhanced benefits and they accounted for over 80 percent of enplanements.

This can become a similar time for reflection and review of loyalty programs and an opportunity to make certain the programs deliver appropriately to a brand’s best customers both rationally and emotionally. Too many retail loyalty programs are wasting precious budget dollars because they're not maximized to support the marketing goals and have inappropriate key performance indicators. Retail marketers must step up to the challenge.

There's an opportunity to help reshape the future of how we think about loyalty program impact. This was a pilot effort for recent customers to directly compare the brand with its loyalty program. It works — and highlights an important strategic brand dimension on top of the tactical performance we demand of our loyalty programs. We plan to expand and shape this pilot study into an ongoing tracker for marketers to measure how their loyalty programs are impacting their brands over time.

Retail loyalty programs that meet customer expectations better than their competition have clear advantages in uncertain times. And we can't get much more uncertain than the COVID-19 crisis.

To receive detailed specifics and customer responses from “The Retail Brand/Loyalty Program Gap Report,” click here.

Lou Ramery is a recognized leader in brand and loyalty program development and CRM. His professional roles have ranged across senior corporate marketing, agency and consulting, inclusive of numerous retail brands.