Loyalty programs have existed for a long time. Traditional loyalty programs were based on customers collecting stamps that could be redeemed for goods and services. Later on, stamps were exchanged for loyalty cards that customer could use to collect benefits, often in the form of points. In the last decade or so, loyalty programs have evolved and retailers endeavor to integrate their loyalty programs into the overall shopping experience, which today takes place as much online as physically in the store. During the last year or so, I have seen a clear trend in the evolution of loyalty programs. Retailers seem to design their loyalty programs according to the type of business they are in. But can we identify different characteristics of loyalty programs according to three different types of retailers? The term retailer in this context applies to any business activity that sells goods or services to the general public, including grocery stores, gas stations, travel companies, cafés, and hairdressers to name a few.
1. Volume retail: volume fashion, grocery, duty-free etc.
Loyalty program: Rewards as monetary benefits by collecting and using bonus points. Online platforms.
Rewards are traditionally based on monetary benefits. Retailers in this segment also focus on using online platforms and personalized incentives to improve the customer experience. This includes the use of social media, customized portals and smartphone apps where the customer receives targeted offers and promotions. Promotions can, for example, be based on customer preferences or location, as identified by the smartphone. The customers themselves can even customize the offers by selecting products. In general, the retailer tries to increase loyalty by offering not only good value but also improve the overall shopping experience.
2. Network retail: travel, entertainment, communication
Loyalty program: Provides additional services (such as priority lanes) that come at a low marginal cost to the retailer. Loyalty program is a natural extension of online service platforms.
Network retailers have in common that the marginal cost of providing additional services is limited. The value of the service may even increase with the number of customers, as is the case for a discotheque or a telephone operator. Rewards are not solely based on monetary benefits as the retailers strive to improve customer experience by giving their most loyal customers access to special services. This includes access to priority lanes, lounges, and flexible change and upgrade policies. In many cases, customers seem to prefer such benefits to direct monetary benefits, perhaps because they usually come at a fairly high price. However, the marginal cost to the retailer is often limited. Many retailers in this segment already interact with their customers online in the form of online bookings etc. and the loyalty program is a natural extension of the online service platform.
3. Advisory style retail: high-end fashion and electronics, jewelry, various services
Loyalty program: Excel in customer service by providing superior knowledge on customer preferences as well as the product.
The customers often visit advisory style retailers in search of service and expert knowledge. The focus is not on direct monetary benefit but rather on knowing the customer and his preferences. Customers may seek advice on size or style in a fashion store or want jewelry that matches a previous purchase. The main focus of the retailer is to provide superior customer service by knowing the customer (for example what size is required) and to be able to find matching items. To facilitate this, retailers may offer the customer to register information on his/her preferences in a loyalty system and give sales associates access to this information for example on a tablet on the store floor. In a fashion store, a sales associate may bring a selection of products to the fitting room, help the customer to select one and even finalize the sale. Sales associates often know the customer by name, but sophisticated member management solutions have in some places replaced the black books holding customer details. Of course, retailers mix these different types of loyalty programs but the focus varies depending on the segment. A large football club may offer its loyal supporters access to special ticket arrangements (network style) as well as the ability to collect points when purchasing food and drinks on-premises (volume retail). A garden center could offer the customer to store details of which trees and flowers they have bought or are planning to buy (advisory style retail) while at the same time offer points for every purchase (volume retail). Advanced member management solutions help retailers to implement sophisticated loyalty programs. Data mining and complex promotion engines help to offer personalized incentives, but they never replace the insight that a good retailer has into his/her business environment.
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