Loyalty Strategy 2019: How to Win in the Next Decade

This is our 2019 Strategy Guide. Click here to read our updated document for 2020 as a blog, or PDF.

In December 2018, we published what we consider will be the Top 10 Trends in loyalty marketing during 2019. Some are sexy, some are practical, and some have been underway for years – but far from perfect.

We believe these trends will occupy most brands’ efforts in 2019.

Having benchmarked and talked to hundreds of loyalty programs in the past few months, what we think program leaders ought to be doing during the next 3-6 months is preparing a plan to realign their loyalty program design with the broader business strategy and core value propositions.

Businesses, their markets, and customer behavior have evolved dramatically in the past 10 years, yet most loyalty programs have only made incremental changes (in some cases to the detriment of customers). Many bells and whistles added in recent years are actually a distraction for customers – yet many cheerleaders in the industry blindly call it innovation.

The gap between the behaviors influenced by current loyalty program design and the real goals of the business (in many cases) has become wide enough that even customers sense the disconnect.

A great loyalty strategy runs in sync with the business and permeates virtually every customer-facing aspect.

The loyalty program is not a barnacle that has been attached to the business.

Therefore, we offer this fairly extensive summary of what most brands should be doing with their loyalty programs to maximize business impact this year. This realignment will also set themselves up to win in the next decade.

The most important priorities are:

Align with corporate goals: update loyalty program design to support current business objectives
Customer data: maximize ROI
Partners: optimize the mix to appeal to a broader array of customers
Tech: break dependencies on slow or expensive vendors that are restricting agility
Emotional loyalty: add incentives along many touchpoints in customer journeys

The reality is that there are a lot of people slapping each other’s backs about incremental gains, while most brands still have less than 1/3^rd of customers active in their loyalty programs.

How can we call that success?

A loyalty program should be relevant to 80% of customers.

Every sector is different, but if your customer engagement levels are not in the top 10% of your industry, you have work to do.

A little more context

Loyalty marketing has become the runt of the litter compared to other marketing disciplines.

You can see this in the Gartner CMO survey:

Loyalty marketing has traditionally suffered from the difficulty in measuring ROI (especially in the short-term). Furthermore, given the historically high entry costs to deploy a comprehensive loyalty system, faster payback is often found among many of those other marketing disciplines cited by Gartner.

But high implementation cost is no longer a constraint for loyalty programs, as the major loyalty technologies are now cloud-based (although not all embrace a low cost SaaS business model).

And in my experience, almost any strategic flaw in an organization can be mitigated, if not solved, by one inspired professional with the data to back up their position and the energy and persistence to see it through.

In spite of the many negative connotations that loyalty has taken on over the years, what could be more important to a business than establishing a large base of loyal customers?

The battle for mindshare and share of wallet is heating up, and brands need to have every weapon in their arsenal aligned.

The first step is to get your ducks in a row.

1. Update Loyalty Program Design to Align with Current Business Objectives

There are many methodologies for defining or re-evaluating strategy, so choose your preferred approach. The problem with achieving results, is often not in developing the strategy, but rather in execution.

Roughly $38B is spent per year on management consultants developing business strategy for clients – not counting the investment of employee time.[i] Yet most strategies fail in the execution phase due to poor communications, lack of employee (or customer) buy-in, or overly ambitious objectives around the technology.[ii] XPlane has published excellent advice for achieving results, so I won’t repeat that here. Since the report went live a few months ago, there have been multiple employee reward businesses showing up in the corporate market. Advertising themselves to boost employee motivation and morale. One business called Blueboard has been offering business holidays for the hard-worked and dedicated employees of the likes of fortune 1000 companies.

In reviewing your current program design, to identify any gaps between the current implementation and the customer behaviors that the broader business wants to drive, these are your key steps.

Set clear objectives

Ideally, you have one primary objective and 2-3 secondary objectives. Keep the list short – since it is hard for all contributors in your organization to remember more than 2-4 things and keep them top of mind.

For example, maximizing customer Lifetime Value (LTV) might be the primary objective.

Define the strategy

The strategy is what needs to be done to achieve your objective(s).

This might include things like increasing touchpoints with customers, obtaining data from business partners that complements your own, improving the mix of complementary partners that are relevant to your target customer segments, or breaking dependencies on vendors that are holding you back.

For example, to maximize LTV, you need to increase share of wallet among not only existing, frequent customers, but also grow the business with those mid- to long-tail customers that resemble your best customers – but just don’t shop with you as often as they could.

Of course, your strategy cannot be developed in a vacuum. You will need to evaluate what your competitors are doing and possibly copy the best features, while still ensuring you differentiate your approach.

And, you may be able to steal some great ideas from other industries that can work well across your target customer segments – so a bit of benchmarking should also be included in the review of your program’s opportunities.

Define the tactics

The tactics are how you will achieve your strategic goals, and may include the channels for engaging with customers (such as apps, web, physical stores, channel partners), the value propositions you will emphasize, whether incentives such as loyalty points or recognition efforts will be part of the mix, the systems in your technical architecture, etc.

If your objective is to increase customer frequency, these are some suggested tactics.

Offer ‘special’ incentives for non-frequent customers. This could be a loss-leader in the first few months, but may establish habits that are favorable to your brand over time, which enables you to increase frequency and LTV, and ultimately earns you more share of wallet. A good way to achieve this would be to combine complementary services with complementary partners to meet broader customer needs, leveraging shared data to improve personalization.
Allow customers to earn the loyalty currency they really want. Ideally, you maximize the perceived value of your own loyalty currency across all your customer segments. It is likely that your points/miles are valuable to frequent customers, but considered useless by the mid- and long-tail customer – yet these customers are spending their money somewhere. If those people can earn other currencies in your program, or if you enable your currency to be exchanged into those programs with which they engage, you will offset any direct costs with the value of additional data and the likely increase in customer frequency and basket size. And don’t worry so much about what they will do with your points down the road. 95% of customers given the opportunity to spend their points elsewhere will still spend them with the originating brand.
Talk directly with customers and ask what they want. Even talking to only 25-50 customers may not produce statistically significant results, but it will be a strong indication of whether your loyalty program is meaningful to them and what could be changed to enhance relevance.

Whichever tactics you choose, removing friction along customer journeys should be a particular area of focus since customers are increasingly impatient with unnecessary or broken processes.

Evaluate Resources

“Resources” often means budget. We believe most loyalty programs can reduce cost by simplifying their programs and changing the mix of systems that enable day-to-day operations. So, extra budget is unlikely to be required.

Your greatest achievements will derive from how you manage your people: evaluating the skills your own team will need (or that should be acquired from 3^rd parties), and how collaborations across teams could help you get more done.

For example, you could set up cross-functional teams that collaborate closely around agile methodologies to test and learn – and achieve many more iterations of experiments each quarter than you can achieve on your own.

A no-brainer for cross-departmental collaboration should be between the CX and Loyalty teams. I have seen way too much conflict in objectives between these disciplines during the past 4 years. If the customer is really at the center of the business model, how is it possible that the two (if they are really different in the first place) aren’t fully aligned?

In your own team, invest in staff development.

Loyalty is a complicated science that requires a combination of training and hands-on experience. If your team members have passion to serve customers and a degree of creativity to find solutions (rather than only spot problems), then they can make a difference over the next year and well into the future.

You may find some highly motivated people in other departments that would like to join the loyalty team for a while.

Of equal importance are the resources to measure results.

Data speaks louder than words. Given how sceptical some executives and boards have become about the soft benefits derived from the loyalty program, you are going to need to show evidence of contributions to the bottom line.

Vanity metrics, such as total membership, are no longer an indicator of success. Profit is derived from engagement that links directly to incremental sales.

Ideally, identify a short list of metrics that tie directly to financial benefits and complement those with a few metrics that measure emotional engagement.

If loyalty programs are run professionally (like profit centers), it should be easy to obtain support for your objectives from all areas of the business.

So, in summary, there is a lot to consider as you review each element of your loyalty program design, but finding the sweet spot between aligning with current business goals and meeting customer expectations will likely drive a very significant boost in ROI.

As you prepare for change, simplify everything as much as possible – for the benefit of your team members and your customers. Research study after research study states that the majority of customers do not understand large parts of the loyalty program.

Strategy succeeds when everyone buys in to the same vision, believes it is achievable, and starts rowing in the same direction.

To build real equity in the relationships with customers, your program needs to be relevant to customers across all their touchpoints with the brand.

And, your brand needs to be present in marketplaces beyond those sales environments controlled by you.

We have championed the idea that loyalty coalitions need to evolve into marketplaces – but that does not mean you need to create a marketplace like Amazon, Alibaba, Booking, or Expedia. Rather, it implies you need to embrace marketplace dynamics and be active and highly visible in marketplaces (your own and others).

Any business that cannot make this transition will likely end up like Kodak, Blockbuster, Xerox, Sears, or PanAm.

The days of standing alone are over. The future represents much more collaboration among brands to serve common customers more effectively.

An example of effective alignment of strategy with tactics include Australia’s Coles Supermarket chain and its flybuys reward program.

This past summer, the supermarket decided to offer reward points to customers who bring their own re-usable carrier bags.

This sounds remarkably simple, but this action delivered multiple benefits:

driving program engagement
demonstrating environmental responsibility
altering customer behaviour to support corporate objectives, without upsetting people

…not to mention reducing the front-line cost of carrier bags.

It’s possible that this was the brainchild of one sole loyalty marketer, but I don’t think so.

The plethora of savvy moves coming out of the flybuys team, and other pioneering loyalty brands, paint a picture of businesses where the loyalty team works hand-in-glove with other departments to meet – and benefit from – corporate goals.

After all, the problems faced by loyalty departments aren’t really any different to those of the broader business.

Being better than startups in your sector, and retaining market share, can increase the lifetime value (LTV) of each customer. But the challenge is meeting that customer’s increasingly lofty demands.

Choice Hotels’ Smart Privilege scheme is another good example.

Choice Hotels introduced a Book. Spin. Win. promotion whereby customers can enter a draw for 3,000 bonus points when they book via the mobile App.

Think of the problems this solves:

an incentive to book direct, rather than through an OTA
savings on points. Most customers wouldn’t have won the bonus – good news for the finance department
the customer kept the App on their phone, keeping the software engineering team in business…
…and supporting marketers such as CRM specialists, who can use the App to keep issuing personalized, location-based offers via the customer’s device.

Another area of low-hanging fruit will likely be around the considerable arbitrage that exists between the peanuts that are often offered by brands in the form of loyalty points, and the significant discounts or cash-back offered to non-loyalty customers. This is the result of teams not working together to meet enterprise objectives.

Certainly the value of a customer in the loyalty program is greater than the fickle customers attracted with discount schemes; but, it is routine that brands spend way more on acquiring the same customers again and again than they do on retention.

To re-iterate: a good loyalty program runs in sync with corporate goals.

2. Maximize ROI from Customer Data

As a loyalty professional, I join a lot of programs and services to check out the competition and remain abreast of what’s going on in the industry.

99 out of 100 of these services either miss calling me by my name altogether, or they call me Charles. My mother calls me “Charles” – when I’m in trouble.

Almost none have picked up on the fact that my friends and associates call me “Chuck” despite countless interactions with customer-facing personnel who might have updated my details – if they could.

This kind of thing happens because brands’ data is typically spread across multiple siloes in the enterprise – and many touchpoints (such as customer-service staff) don’t capture information about the customer.

Getting all customer data into a single enterprise CRM platform must be a top priority.

Correcting this problem makes marketing simpler for brands, and also opens up lucrative new opportunities for marketing personalization.

Over the past 20 years (maybe 30), organizations have tried to achieve this by creating data warehouses – where disparate systems ported data into a central system to enable more comprehensive analytics.

But this approach doesn’t work very well with legacy loyalty systems.

Legacy loyalty systems can capture a lot of customer data, but it is generally kept within the loyalty platform. Getting that data out and into the enterprise CRM is challenging – if the vendor will even permit it – and that makes analytics difficult.

Better to just have all the customer data generated from the loyalty program go directly in the enterprise CRM in the first place. This is now possible and it’s how Currency Alliance works.

And beyond the CRM, organisations will now strive to break up the loyalty program management system into micro-services for each of the five key functions.

The result will be the points bank feeding data directly into the enterprise CRM. The CRM system will then drive all customer communications through a single, omnichannel campaign management system – that in turn feeds additional response data back into the CRM to optimize future campaigns.

Segmentation

With all your data in place, you will then be able to achieve smarter customer segmentation.

In the long-term, hopefully you can end up knowing each customer so well, they are in a segment of one.

In the shorter-term, create as many segments as your system and teams can manage.

In practice today, it seems like most organizations have only three segments (although they claim to have many more):

highly frequent customers
fairly frequent customers
everyone else.

Frequency is important, but the best buckets would be based on customer lifestyle preferences – which is probably why personalization efforts in loyalty typically remain poor.

A useful set of segments might include:

For Travel	For Retail
Frequent business travelers	Gender-related
Occasional business travelers	Age-related
Luxury holidaymakers	Frequency-related
Budget / millennial travelers	Education level-related
Friendship groups	Geographic-related
Family groups	Lifestyle-related

This will help you to identify who, in the less frequent segments, are actually like your most frequent customers, and could spend considerably more with you – given the right incentives. Reading into this article and others on the topic of marketing to students could show businesses the population powerhouse that is the millennials and gen Z generations, many marketing techniques and strategies will have to be personalized and aimed towards these age ranges considering they will make up the majority of the population in the near future.

Beyond those broad categories, try to understand why customers would engage with your brand so you can appeal to those rational and emotional levers.

This approach seems to be woefully lacking across the industry.

Most loyalty programs focus the vast majority of their efforts on the 2%-5% of customers who are big spenders and then the next 10%-15% who are fairly frequent. Those segments are important and deserve special attention, but there are many customers in the less frequent segments that could be significant contributors to incremental revenue and profitability.

Organizations need to allocate more effort to finding and motivating these longer-tail customers, or their existing level of business is likely to disappear altogether, as competitors improve their own marketing capabilities and capture the share of wallet in play.

Certainly there are things within your control that you can do to appeal to these less frequent customers – including offering them alternative loyalty currencies that are perceived as more valuable than your own.

Most likely, 40% of your customers that are not active in your loyalty program are active in other loyalty programs. Collaborate with those other brands to give customers a reason to choose you in your category.

Hertz and Avis-Budget offer loyalty currencies in 60+ loyalty programs.

“Loyalty” itself is not a program, but rather an outcome based on the perceived value each customer gets from your business.

If you don’t collaborate with other brands to learn how customers behave beyond their purchase activity with you, it is likely you won’t be able to appeal to them on an emotional level.

You need the data in the right place, but you also need the right data to understand their lifestyle preferences – which may not be clear from their relationship with your brand alone.

In any case, there must be one source of the truth about your customers. Getting that source of truth in one enterprise-wide CRM platform will pay endless dividends.

3. Optimize the mix of partners to appeal to a broader array of customers

The largest loyalty programs have a mix of partners for earning, and a selection of items in their redemption catalog, that appeal only to their most frequent customer segments.

Perhaps it is because of this, that less frequent customers are less frequent.

Limited engagement in the mid-tail and longer-tail may be a self-fulfilling prophecy.

More generally, brands have been deterred from adding new partners to their programs when it entails expensive, hard-coded integrations each time.

If high integration cost can be removed from the equation, you will find a great many potential partners, that your customers shop with, that can be tested to see what appeals to each segment.

I’ve blogged extensively about how partnerships are crucial to an effective loyalty program. You can read our blog on loyalty coalitions here.

What’s interesting now is how some brands are making far better use of these partnerships.

Choice Hotels’ Smart Privilege has positioned itself as “A Faster Way to Rewards”, allowing customers to select perks such as $2.50 Uber credit or a $5 Starbucks voucher as they check into the hotel.

The benefits are immediate. Rather than having to faff around collecting points over time, the value can be realized moments later in an Uber in the hotel forecourt or in the Starbucks next door.

The customer feels the benefit of the reward.

The simplicity and immediacy of Smart Privilege led to a major boost in enrolment, the brand claims[iii], as well as engagement metrics.

If customers prefer to save for a more aspirational reward, they should have that choice too.

We use the word ‘coalition’ loosely here because we are not advocating that most brands give up their own loyalty program to join a common currency program run by a 3^rd party. In fact, we see the end of coalitions as they have existed over the past 20 years. Rather, Version 3.0 of the coalition model enables brands to collaborate as peers, using simple and low-cost technology, in order to better serve customers and allow them to capture sufficient value to make their active engagement worthwhile.

Differentiation through partnerships

You need breadth of earning and redemption options for each segment of customer – not only your most frequent customers.

I am convinced that loose coalitions between brands that have their own loyalty programs could rapidly pluck premium customers from British Airways, Lufthansa, and Hilton. For example a collaboration between easyJet, WizzAir, Wyndham Hotels, Virgin, SNCF, Deutsche Bahn, and Just Eat could appeal to frequent business travelers and deliver much higher value during the course of a year than the Version 2.0 coalitions operated by large travel suppliers.

These collaborating brands would not abdicate their loyalty programs or loyalty currencies to a central party. On the contrary, in such a collaboration (based on marketplace dynamics), they would continue to promote themselves in a highly differentiated way and try to optimize the environment to serve their own self-interests.

EasyJet and WizzAir are direct competitors on about 2% of their flights, but potential collaborators on 98% of their flights. At first blush, few people would expect them to collaborate in a loyalty scheme, but the value they could create for customers (and themselves) by sharing partners, granting customers more freedom, and accelerating the path to rewards would be considerable.

However, enabling customers to exchange currencies between these brands with very low friction (perhaps 10%), would shift share of wallet considerably because the partners (together) might represent 30% to 50% of a consumer’s discretionary spending. Add Carrefour, Tesco, or Aldi to the mix and it could represent 75% of a consumer’s discretionary spending. That would produce at least a few hotels stays or flights a year, or a new TV, say, in benefits.

If you run a hotel group with less than 50 properties, or a retail chain with an average customer frequency of less than once per month, a standalone rewards program is simply not going to appeal to very many of your customers.

Customers need to earn about $25 per year in value to justify active participation – likely to mean spending between $1,000 and $3,000 per year.

If that is not possible for many of your own customers, join with some partners with whom they can reach this level of spending.

Most of your customers are active in somebody else’s loyalty program.

Show customers some love (and freedom) and you will get paid back in spades.

Quality vs. quantity

I heard many times, during 2018, that large travel loyalty programs are reducing the number of partners because they want ‘quality over quantity’.

Of course, the partners need to be quality partners – from the customer’s perspective. But I’ve interpreted the ‘quality over quantity’ argument to actually mean getting rid of smaller partners for simplicity’s sake, and to reduce short-term costs, i.e., on marketing inventory to promote smaller partners.

This comes at a significant cost to customer choice, and it isn’t necessary. Brands can reduce costs and operational demands in other ways.

In my experience, it goes over fairly well to tell smaller partners that they won’t get any marketing support unless they spend $50,000+ per year on your points/miles. Those potential partners would love the marketing support, but even without it, they understand that offering your currency still leads to greater customer appeal.

Operational demands can be reduced, meanwhile, by using a connectivity platform for lower volume partners.

A European ‘flag carrier’ has stated the most effective way to recover our market dominance is to compete with low-cost carriers – not based on price, but by being more relevant through loyalty program partnerships.

So if you choose the right platform, the workload can be reduced even if the mix of partners grows.

I would also question the ‘quality’ of some of those bigger partners.

The current mix of partners for most loyalty programs is the result of 20 years of one brand approaching another saying “hey, let’s do business together”, and in the hey-day, both brands got on with building an integration.

There has not been any type of systematic evaluation of which partners provide the most appropriate mix of products and services for each target customer segment.

This of course, is the exact opposite of how a retailer defines what goes on their shelves.

Walgreens, Target, Carrefour, and nearly every other retailer methodically invest one year deciding what to offer their customers.

The people doing this work are typically called buyers, and they are highly trained merchandizing professionals who get bonuses based on ‘sell-out’ – not cost savings or negotiating prowess.

Hotels and airlines have this type of person too, but they are not in the loyalty department. They are the professionals who design aircraft cabins and hotel rooms.

You may remember when Hilton launched Garden Inn – which was the result of meticulous research and led to great initial results. Of course, many other brands then copied the idea and Garden Inn drifted into what has become an undifferentiated category.

How much do you think United Airlines invested in designing and bringing to market the Polaris Business Class Cabin?

A lot!

I’m sure Polaris appeals to 100% of United’s customers, but only 4-5% of them will ever experience it.

At a higher level, MileagePlus (i.e., the loyalty program) may appeal to 90% of United’s customers, but if a customer does not expect to fly very often, they may skip joining for doubt of ever earning a reward. If MileagePlus spent even a fraction of what was spent on Polaris in optimizing the partner mix, the loyalty program could appeal to customers who want to fly somewhere aspirational, and may be able to earn the necessary miles during the course of a year from partner retailers.

The vast majority of airline (or hotel) customers simply do not have a need for the services more than a few times per year. But, these customers can be highly motivated to collect your currency – thereby contributing huge indirect profit.

In fact, MileagePlus claims to have over 800 partners, but I doubt more than about 20 of them were actually selected because of common customer relevance – and perhaps fewer are really delivering on the broader opportunities for sharing data to improve customer insight.

Even their on-board and in-airport advertising is highly skewed toward frequent travelers – as opposed to trying to draw in the less frequent traveler.

This is a missed opportunity.

It is easy to put Colgate toothpaste on the shelf – because everyone knows it will sell, and customers expect it. However, professional retail brands also experiment with items that differentiate their brand by keeping things fresh and appealing.

Many of those experiments fail, but some lead to great customer engagement. This is called controlled testing and loyalty teams should be doing this too.

When you had to rely on expensive integrations and expensive intermediaries to integrate new partners, this could only be justified for large partners.

Not anymore.

Now you can easily add partners (at the partner’s cost) who are motivated to invest the five days of integration. Even better, these partners will promote your collaboration to their customers through their customer touchpoints.

One brand (which I’m afraid must remain nameless) forced all partners to integrate with their connectivity hub by the end of 2018 in order to renew the point-issuing contract.

This is a wise objective because it would lead to real-time issuance of the brand’s loyalty currency, but they did not provide a low-cost method to partners to achieve that goal, so many partners (and the associated volume of points) were lost. We will see over time how much impact that has on customers who enjoyed earning points with those partners who had to leave the collaboration.

Partnerships also enable greater cross-selling opportunities through contextual commerce, so you can have your brand present not only in your own customer journeys but also in those offered by partners. The ability to be present, in context, will unlock tremendous experiential opportunities that tie a customer’s memory to your brand.

A little magic can make points look much more valuable than their cost

Partnerships also help make the value of points appear much greater than their cost to the business. The trick is in finding the right partners to offer their products or services at wholesale, or even distressed inventory prices so the cost is only 25% to 50% of the customer’s perceived value.

This is not very challenging to achieve, because partners will offer redemption options in order to acquire new customers – and for them, this channel is cheaper than the cashback or discounting methods they are using today.

Within your own portfolio of products or services, there are certainly items that have higher margins, which customers would appreciate. In fact, the higher the margin on the product or service, the more aspirational it is likely to be for customers.

Most businesses have distressed inventory at various times during the year. Work with other departments to offer those things at the opportunity cost, rather than the desired selling price.

Everybody wins.

With good revenue management capabilities, your company knows within one standard deviation how many rooms, seats, or SKUs are likely to be unsold a month in advance. If 10-20 units are likely to go unused, the variable cost to offer them to loyalty program members as a highly motivating redemption option is probably quite small – but the liability you can burn off can be quite significant – not counting the customer satisfaction you achieve.

You can’t do everything yourself.

Just accept that, and find the complementary partners that can help you deliver a more comprehensive offering that is meaningful to each of your target customer segments.

For airlines, ideal partners will exist in destination markets, to make the brand more relevant away from the hub. For hotels, they key is to tap into the neighborhood, and build partnerships that are relevant to residents and guests.

For all large, hard-to-differentiate loyalty programs, some partners need to be the local brands that are ‘loved’ by customers. Relatively small partnerships with very special brands can have a huge impact on differentiation.

In fact, once the cost of humans is removed from local transportation services (through autonomous vehicles), airlines, hotels, restaurants, and other retailers are likely to provide the transportation services to get customers to their place of business as an extension of their core offering. This has existed for decades among hotels near airports that provide a free shuttle.

Bundled services will expand.

What do your customers do just before or just after engaging with you?

It is not too soon to start building the relationships with brands that can get customers to you or take them to their next destination (physically or digitally).

For all brands, the best partners will be those that customers interact with daily, helping you better understand lifestyle preferences through the sharing of data.

On that note, however, be cautious about co-branded credit cards.

Interchange fees are under pressure worldwide, and if you operate in Europe, you will know that most bank-related programs largely disappeared in the past two years after interchange fees were reduced from about 2.5% to 0.3%.

For the largest travel loyalty programs, reliance on co-branded credit cards has become an addiction – one that will cause a great deal of withdrawal sometime soon – so consider diversifying revenue streams.

A well-considered mix of other partners, who are more than willing to buy your currency, can diversify business risk, while also increasing the relevance of your currency among many different customer segments.

4. Break up dependencies on slow or expensive vendors that restrict agility

IT departments almost everywhere are now actively pushing to break up monolithic applications into micro-services, so that their systems architecture is more flexible.

This should be fully supported by the loyalty team.

Breaking up the loyalty program management system will increase agility, reduce operating cost, break dependencies on specific vendors, and accelerate your efforts to improve customer engagement.

You need a flexible ecosystem of micro-services that can enable rapid adaptation to changing market circumstances.

In the context of loyalty program management systems, legacy systems include five key modules, each with one (or a few) primary functions:

Points bank – for capturing loyalty transactions
Loyalty rules engine – defining under what conditions customers earn points
CRM/analytics module – for capturing all the customer data and attempting to analyze it
Campaign management module – for orchestrating omnichannel communications
Redemption catalog – aggregating rewards for customers

By breaking the loyalty system into these 5 modules, many things become easier.

You can start to orchestrate the most personalized engagement through appropriate channels.

You can embark on your own digital innovations, or those available from new channels, to make real-time promotions a possibility.

One brand doing just this is Accor Hotels.

Last week, it launched Accor Live Limitless (“All”), a loyalty platform based around experiences such as hotel stays, bar and restaurant offers , as well as sporting events and live entertainment – with a new mobile app and website launched to help customers maximize these new opportunities[iv].

In the past year, how times did you consider testing equally exciting new approaches – only to give up because the initial cost (in time or money) was too high?

Many factors in our complicated world produce situations where the right offer, with the right message, can generate significant uplift in sales if you are able to pounce quickly. Incorporating the right marketing methods, especially to your websites could help to increase the number of sales that your business makes. These free sales funnel templates will allow potential customers to be able to navigate your website more efficiently, increasing the likelihood of your business making a sale at the end of it. When it comes to new strategies, you may want to think about implementing them as quickly as you can to give you a better chance of being successful.

Brands are already giving themselves the gift of agility by adding flexible, cloud-based technology to their martech stacks.

Spend on marketing technology rose from 22% of budget in 2017 to 29% in 2018[v] – a trend that will only accelerate as software becomes more deeply engrained in the workplace, and costs continue to fall.

Emerging technologies

This will also increase because traditional retailers and banks are re-inventing themselves as tech companies.

If you fail to migrate your loyalty stack to agile micro-services, you risk your loyalty program being frozen out of a growing amount of commerce in the next decade.

Artificial Intelligence (AI), for instance, will permeate nearly every marketing function.

AI is highly important because it can help you spot opportunities in the customer’s evolving context and react to them much faster.

A report released jointly by HSBC and a technology company, Moritz Motivation, claimed that “by using AI to predict our consumer’s redemption behavior, we’ve refined our loyalty program to ‘speak’ to our customers by promoting the perfect reward or experience for them.”

AI-driven tools enable API connectivity for just that reason; only a microservices-based loyalty stack will allow you to harness this potential for your loyalty program.

As AI matures, we will also soon see the emergence of AI-enabled personal digital assistants, that ‘shop’ on behalf of their master.

Our digital agents, clothes, and environments will soon be able to understand our emotions, physical conditions, and predisposition to act on various types of stimulus, as well as ‘why’ we are in a geolocation in the first place.

These AI agents (such as Amazon Alexa) won’t be influenced by all your brand marketing, but they can be influenced by the net economic cost of products or services, after loyalty currencies are calculated into the equation.

Your goal should not be to “do something with AI”. Rather, there must be business objectives that can be met with this technology and then it can be evaluated and implemented with purpose.

And then there are payments.

Historically, brands accepted cash, checks, or credit card payments from a few global payment networks. That has changed dramatically.

With modern payment platforms, customers have much more choice, and brands have the opportunity to reduce financial transaction charges.

But there is more.

Payment processes enabled by digital systems (mobile wallets, etc.) enable the identification of customers as well as the ability to initiate related actions. Allowing your customers to earn the loyalty currency they want as part of the payment process is now quite simple.

And we are at the cusp of enabling customers to pay for things with the value of their loyalty currency. Regulatory constraints aside, if you choose the right partners, you can retain complete control of the value earned or redeemed in a dynamic way that can drive desired behavioral changes.

Furthermore, allowing the amount of loyalty points to vary dynamically based on time of day, product margin, perishability, competitive pressure, etc. can be a way to incentivize conversion while maintaining price integrity – because you can deliver more value without discounting.

Additionally, you should drive for real time reporting of points transactions. Sending files around for batch processing was a cost-effective workaround when partner integration costs were high, but the processing delay leads to depressed customer satisfaction.

Too many brands are burdened with customer complaints that they did not get their points. In fact, some rental car companies claim that 30% of the call volume to their call centers is from customers asking a week after the rental, “where are my points?”

Most airlines report that 60% to 70% of partners are still sending flat files on a periodic basis – which delays customer gratification and introduces significant indirect cost.

Equally, blockchain – when it becomes a viable loyalty marketing technology – will be best harnessed via an agile loyalty stack.

Blockchain will not be a topic of much discussion for loyalty use cases in 2019 (and probably 2020 either) since most people are now quite familiar with the limitations, cost, and lack of partners to collaborate with.

At Currency Alliance, we have provided a rules engine that incentivizes purchases as well as non-purchase activities for several years – and offering points for customer referrals, product reviews, check-ins, social media engagement, etc. has proven very popular. We also delivered a blockchain project for a huge, global payments organization in 2018 that demonstrates ease of connectivity and collaboration between brands.

Nearly all the barriers that limited flexibility and collaboration across brands are coming down fast.

The only way the loyalty program can keep up with changing business priorities and customer expectations is to break down the tightly-integrated loyalty stack of software into agile components, that can be modified in a matter of days/weeks without breaking other components in the technical architecture.

That can only be achieved with modern micro-services.

Fortunately, migrating to such an infrastructure does not imply ripping out existing systems in dramatic fashion. Rather, the migration can be managed over time – and most likely will lead to significant cost savings.

Finally, be careful of loyalty vendors claiming they have SaaS-based solutions. In most cases, this only means that their software runs on virtual servers in the cloud. The vast majority of loyalty solutions vendors have not embraced the Software-as-a-Service business model of low up-front costs, micro-services that can be used only as needed, or low recurring transaction fees.

All these are vital attributes of a truly agile technology stack.

5. Incentivize Emotional Loyalty along Customer Journeys

The majority of ‘rewards’ programs continue to reward only transactional loyalty.

In 2019, it is hard to comprehend why they would not extend their efforts to reward customers based on emotional engagement or non-purchase activities – such as various touchpoints along the customer journey.

A customer’s relationship with a brand is not entirely based on their purchase volume and frequency. In fact, we have argued that a customer’s loyalty is based on their overall perception of value and their accumulated experience interacting with the brand – not the points. At best, the points create lock-in.

For many brands, a customer will have numerous interactions before their first (or next) purchase. If you are not incentivizing the touchpoints which lead to a purchase, many potential customers are certainly falling out of the funnel.

When was the last time you followed the customer journeys that you expect your customers to complete?

I’d suggest that most of the people involved in CX don’t actually live the lives of their customers (or maybe they try to during the design phase, but then move onto something new and never go back through the processes and interfaces they designed).

For example, I’m convinced the CX team at Vueling has never tried to book a ticket on their desktop website (in English) because it still has the same bugs today as it did 2-3 years ago. The front-end UI has evolved, but the CX remains plagued.

Vueling even continues to promote a ‘Premium Club’ customer service phone number on their website, mobile Apps, and through emails – but it hasn’t worked for at least 6 months.

On the contrary, the first step a major cruise line took, in preparing for an enhanced loyalty program, was to have all project team members take a cruise to experience the product first hand.

Celebrating Success

We have reported on dozens of success stories in the past year, but the results that really stand out are just too few given the thousands of loyalty programs in operation.

Pick n Pay in South Africa, Choice Hotels, flybuys, Etihad Guest, and the entire teams at WestJet and Wyndham are the current rock stars of loyalty. They really moved the needle in the past 18 months in terms of customer engagement.

What they have in common is that they opened up their loyalty programs to be more inclusive and give customers greater freedom to collect and redeem points in a way that matters to the customer.

Of course, the Loyalty Magazine Awards celebrates the best loyalty initiatives in more than a dozen categories and these are notable as well. In particular, countries around the Mediterranean have been scoring very well with innovative customer engagement initiatives – perhaps because they must be creative to overcome the long-lasting implications of the 2007 financial crisis.

Maintain a competitive loyalty strategy

The enemy of becoming great in your sector is being good enough (today) – so that there is no massive threat forcing you to change.

Why would you want to wait for such a threat?

Looking at your loyalty strategy and rewards program, from the eyes of customers in all your segments, will be a healthy exercise – and undoubtedly turn up a number of great opportunities for you to proactively become a hero.

We acknowledge that change is hard, and it’s OK if the roadmap that comes from your program review takes several years.

But evolving is necessary to remain in-step with the competitive marketplace.

After all, it is not the internet, mobile, social media, AI, or blockchain that is driving the transformation in loyalty program design.

Rather, it is the fact that only knowing what your 20% most frequent customers buy from you is no longer enough.

To motivate 40% to 70% of your customers to actively participate in your loyalty program, you need to collaborate with partners – so customers can earn the loyalty currency they really want in many more places they shop.

This will imply some different costs, but the value of the 360-degree insight that can be gleaned from this customer engagement will enable most of your other goals: notably, much better personalization, open communications channels with a larger audience, and top-of-mind consideration that drives purchase frequency.

Good luck with your objective loyalty program review.

If you have questions, we’ll be only too glad to help.

Get in touch with Currency Alliance

Our free, simple, cost-cutting SaaS tech platform can be used to issue, buy, sell or exchange loyalty currencies with other brands – and you can be up and running in a matter of days.

This gives your customer the freedom to earn and spend their points as they wish – while you gain access to valuable new data, turn dormant points into profit, and maximise engagement with your loyalty program.

To discover the full range of benefits, explore the platform and find out more at CurrencyAlliance.com.

References:

[i] Consultancy.org, The Global Consulting Market

[ii] Robert Kaplan & David Norton, The Balanced Scorecard

[iii] https://hospitality-on.com/en/worldwide-hospitality-awards/choice-hotels/choice-privileges-loyalty-program-relaunch

[iv] https://www.phocuswire.com/accor-All-loyalty-platform

[v] https://www.businesswire.com/news/home/20181108005094/en/Gartner-CMOs-Remain-Confident-Leveled-Budgets-Uncertain