We’re already nearly halfway through 2017. A year that could see a tipping point for customer loyalty programs. We’ve seen plenty of articles over the last couple of years about how the traditional loyalty program is falling short. Effectively, these are articles telling us that less people are signing up, or bothering to take their loyalty cards out of their drawer. But to understand why this is happening, perhaps we need to examine why both brands and customers bothered with loyalty programs in the first place. We need to ask ourselves – do traditional drivers of customer loyalty still apply to the modern consumer?

Most loyalty programs today are still designed for the customer to demonstrate their loyalty to a brand in exchange for some rewards. However, even a “loyal” customer today struggles to spend enough with each brand to earn a meaningful amount of value in loyalty points. Why? Because there are just too many programs with fragmented loyalty currencies.

Given how much technology has changed both the market and consumer behavior in the last 10 years, that is pretty shocking. The business model has barely evolved. Businesses continue to assume that customers will sign up to their program, regardless of the fact that personalization is still lacking and interesting rewards lie largely out of reach for most.

While it’s true that people do still sign up to programs, the disillusion tends to set in fairly quickly. It doesn’t take long for the majority of customers to realize that collecting dozens of loyalty point currencies leads to dispersion of value across many programs.

So something is clearly going wrong. But how can we first explain it, and then try to fix it? Well, we first need to look at the drivers for customer loyalty.

About 15 years ago, Paul Lawrence and Nitin Nohria wrote Driven, laying out their idea that all humans essentially have four main drivers that need to be satisfied. To acquire, to learn, to bond and to defend.

Clearly when they devised these four drivers, Lawrence and Nohria had more in mind than customer loyalty. However, here at Currency Alliance we thought that by studying these four essential human drivers within the context of drivers of customer loyalty programs, we could figure out where the industry has gone wrong, and what needs to change.

If we think about the history of customer loyalty, the driver that stands out more than any others in Lawrence and Nohria’s list is to defend.

Historically, brands have wanted to defend what is theirs. Namely their customers. They don’t want their customers going to the competitor, and have often seen a loyalty program as a way to tie people in.

This tactic might have worked some years ago, but not anymore. Customers are too savvy and have simply too much choice. But, above all, there’s been a shift in the balance of power – consumers don’t belong to brands anymore. They aren’t the brands’ to defend.

This isn’t to say that from now on brands shouldn’t focus on customer retention and work hard to keep existing customers. Rather they should do so in a way that is more in tune with the modern world. By realizing that the customer doesn’t want to feel tied to something, but will favor those brands that treat them well, and communicate with them openly. Someone once said “If you love someone, set them free.” That resonates!

Open communication should be a goal for all companies – which brings us to another of the drivers on the list – to bond.  Customers want to associate themselves with brands that share similar values. According to the 2017 Bond Loyalty Report, 76% of Americans surveyed agreed that loyalty programs are part of their relationship with brands.

Years ago, brands would attempt to shout the loudest in order to acquire and retain customers. But to the modern consumer, this can turn them off a brand. Millennials, especially, are now used to engaging with their favorite brands on Twitter and Instagram. Social media and the mass consumption of media on smartphones has led the modern consumer to expect a more personal experience in almost all interactions. That wasn’t the case with the average consumer just 10 years ago.

This is crucial for brands to understand today when planning their loyalty strategies. All too often, an initial bond is created when a customer registers for the program, but the bond is severely weakened as soon as the customer starts to receive generic information and offers. A bond is built between people or with brands based on a constantly improving relationship – which in turn is based on greater knowledge of each other. In spite of relatively cheap and easy to deploy technology being available today, I still get over half of my newsletters and offers without even my name on them.

The bond between a brand and a customer is a dimension of their loyalty. The act of issuing loyalty points can further a dialog through which the brand can better understand the customer´s needs, show empathy, and build engagement. Of course, this becomes more challenging to do at scale – and risky if the only thing you know about your customer is what they buy with you (because what they buy from you may not reflect their broader lifestyle).

Linked to bonding is another driver referenced in Driven – to learn. The more a brand knows about its customer, the more personalized an experience the brand can offer. This is more crucial than it has ever been. The future of marketing will increasingly be based on personalization.

Brands tend to have a great deal of information about their customers, but have not made the most of the data available due to internal constraints.

Social media continues to make it easier and easier for brands to communicate with and learn about their customers on a much deeper level than was possible in the past. If this learning is utilized in the form of personalized information and offers, the customer will be much more likely to keep coming back, as well as talk positively about the brand.

Something that’s often overlooked is that customers also have a keen interest in learning via their relationship with a brand. Often they’re interested in how a company operates. Sharing insights with customers can strengthen the relationship and even encourage the customer to talk about their new insights with friends.

What about the final driver mentioned by Lawrence and Nohria – to acquire? Arguably, loyalty programs have appealed to this driver for decades, but now the perceived and actual value of points needs to be re-examined. This value should be maximized to compete in a marketplace that has so many loyalty programs with incompatible currencies.

If your loyalty currency is only available from you and can only be redeemed with you, then its appeal will be greatly limited because the vast majority of customers cannot spend enough with a single company to reach interesting rewards. Enabling the exchange of your currency or issuing a loyalty currency that is available from many merchants or travel suppliers will increase appeal based on the desire of acquisition.

So, let’s re-cap these drivers. Defending by itself doesn’t work anymore, given that the customer isn’t really the brands’ to defend. Perhaps a better term in the context of customer loyalty would be ‘to cherish’.

Bonding needs to be stepped up and prioritized given that the modern consumer is used to consuming such vast quantities of personalized media on a daily basis and expects to have a two-way relationship with a brand.

Learning has often been ignored, and, linked to bonding, needs to be embraced in order to offer customers something that is really of value to them – greater insight into your business or specific products so they feel they are making informed decisions.

And acquisition of real value needs to be made easier than it currently is. Acquiring some basic points is relatively easy, but if the perceived and actual value of the loyalty currency is low, this driver won´t influence purchase decisions. There remain too many barriers for customers to be satisfied with and active in a loyalty program; and, brands should strive for greater simplicity.

Consumers have evolved, but the majority of loyalty programs haven’t. The first half of 2017 has already demonstrated some leading loyalty programs are evolving to appeal to all emotional drivers. The market is unforgiving and without wanting to dramatize, time is running out for a lot of brands to act – given the current pace of change.

Appealing to evolving market expectations isn’t the only reason why customer loyalty programs need to change. For most companies, there’s also the fact that individually they will find it increasingly difficult to compete with companies like Amazon, which has rich customer insight on an enormous scale. Unlike Google or Facebook, who also have a huge amount of data, Amazon knows what people are buying. This gives them a huge competitive advantage over other companies.

Merchants and travel companies that participate in a coalition of suppliers that issue a common loyalty currency can share high level data in ways that let each brand better understand what really drives each customer. For the vast majority of merchants, only by joining a data coalition can individual companies hope to acquire the kind of insight that can lead to richer engagement with their customers. Without this engagement, there’s really very little point in having a program in the first place. In practice this might mean sharing top level data with other brands to obtain a more 360⁰ view of their customers and anticipate their needs or desires – but the trade-off is worth it.

Improving engagement does not require that you improve each of these drivers all at once. Simple steps can have a profound impact without changing technologies or hiring more people. Baby steps can include eliminating complicated or onerous rules, letting your loyalty currency be exchanged, doing something special for your top 20 or 50 customers, etc. A more significant change – but possibly the most impactful – in making loyalty programs more relevant is to tear down the standalone nature of most programs with restricted loyalty currencies. Companies should have their own highly differentiated loyalty program – and possibly a unique currency for their most frequent customers. However, they should also either offer a loyalty currency that is relevant to the other 80%-85% of their less frequent customers, or enable their loyalty currency to be exchanged for other loyalty currencies in order to appeal to the mid-tail and longer-tail customer.

The bottom line is the customer has to feel like they are getting value out of the program. If they don’t, their loyalty card will stay in a drawer at home.

By offering customers more choice when it comes to a loyalty currency, and collaborating with other companies to share top-level data, brands automatically give themselves a much better chance of meeting the drivers mentioned earlier in this article.

The more data brands have about their customers, the more potential they have in learning about customer motivations. The more brands learn about their customers, the easier it is to communicate with them through personalized engagement, thereby increasing the bond between brand and customer. Brands can then work on retaining customers by really putting them at the center of their business model and offering more choice of how to earn and redeem their points. Combined, these factors improve the acquisition driver, too, because the net result is that customers can more easily acquire what is important to them – and they will help you acquire more business from their social and business networks.

At Currency Alliance we enable businesses to evolve to a more open and inclusive loyalty model without abandoning their investment in existing systems and processes. We allow them to operate more efficiently and to drive down costs. We enable and operate data coalitions for brands to build loyalty networks and share data – while offering their customers more personalized, relevant engagement.

We think that for too long, brands have relied on a loyalty model that neglects to put the customer first. By reminding ourselves what the fundamental drivers are, and aiming to meet them, we believe that the customer loyalty industry can be rejuvenated – and the hundreds of millions of people who have quit being actively involved in loyalty programs will once again engage.

 

*This post first appeared on LinkedIn*