Merchant success is largely predicated on customer loyalty. Recurring revenue is a driver of bottom-line growth, but it's easier said than done when it comes to establishing a reliable base of buyers. The fluidity of consumer demands makes it difficult to predict what shoppers want, but loyalty programs have helped harness client commitment in the retail space.
Loyalty programs have become a benefit for domestic retailers and small businesses, and their popularity is expanding fast.
A 2011 Colloquy census revealed loyalty-program members topped 2 billion shoppers in 2010. Two years later, that figure jumped to 2.65 billion. More recently, participation has declined, as 74 percent of the U.S. population is enrolled in at least one loyalty or rewards program. In fact, the average American household participates in nearly 22 loyalty programs, but fewer than half of those memberships are active.
Those figures beg the question, is there something missing from today's loyalty initiatives? If so, what is it?
Loyalty rewards are maturing
Traditional rewards programs relied on certain incentives and gimmicks, such as point accumulation, punch cards, and certain or limited discounts. While once successful, these methods are no longer proving to be as useful, says Andy O'Dell, co-founder and chief strategy officer of consumer management platform company Clutch.
"Loyalty has a definition to it that's dated," O'Dell told industry website Retail TouchPoints. "A lot of people consider loyalty a one-dimensional experience: I spend money and I get points or I buy a certain number of things and I get something for that."
It's widely known that consumers enjoy a deal, but there remains a dichotomy between the active loyalty members and the nonactive members. The discrepancy may lie in the fact that despite the merchant's best efforts, they're not actually doing enough to connect with the customer at the right time. Another reason loyalty programs aren't yielding the best results may lie in the fact that retailers over-segment their customers. These programs have traditionally been predicated on tiers and a hierarchy of purchases, but some consumers may not see the overall value in reaching a certain purchase level or threshold.
Further research from Colloquy found nearly one-third of consumer respondents don't know what level they belong to in their favorite loyalty program. Instead of improving the overall customer experience, it seems as if retailers may occasionally be adding to the confusion.
Personalization is the key
Although merchants create loyalty programs with the best intentions, they have to leverage modern-day analytics capabilities if they want to establish more personal connections with buyers. The latest POS technology comes equipped with real-time reporting and analytics software, both of which give insight into customer buying habits and prior purchases. In looking at this data, merchant owners are able to send patrons more relevant offers, and send these deals at times that are best for the customer.
Small businesses can create engaging loyalty programs by harnessing the power of data analytics from a POS perspective. Loyalty shouldn't be predicated on segmentation and reaching a certain threshold. This mentality can actually isolate shoppers and leave them confused in the end. Loyalty is established through more personal engagements and sending relevant information to the buyer when he or she is ready to make a purchase.
Businesses are focused on driving loyalty via better value for the customer, but it doesn't necessarily increase brand allegiance. Traditional programs are only more slightly evolved than a paper coupon - they are just aimed at buying more sales with little incentive. The key to creating a strong loyalty program that buyers actually want to take advantage of is rewarding them with offers that match their needs and desires.