Why a Winning Loyalty Program matter for Retail/CPG? And how to design and monetize one by Sidhartha Sharma
How the loyalty programs started?
The loyalty programs were initially popularized by the airline, hotels, and credit card companies that were trying to ‘nudge’ the consumer to spend more on their products and services.
As the loyalty programs became popular, ‘redeemable and transferable’ currency like ‘reward/loyalty’ point system emerged where the points could be used to purchase the issuer company’s and well as the ‘registered partners’ product or services.
This was in a way the true start of the ‘Ecosystem Strategy’
Ecommerce, Mobility, and Subscription players are reinventing the loyalty game in the mobile-first digital age. We all know how popular Amazon Prime with 150 million subscribers globally is. Grab Rewards programs is very popular in Singapore and Southeast Asia.
If I ask you what did you but at the mall last week, you may remember it.
If I ask you what did you buy last month, things may get a bit fuzzy.
If I ask you what did you purchase 6 months ago, chances are high you will forget a lot of details.
The problem is automatically solved when a purchase happens via an e-commerce platform, the customer can get all the details by visiting the ‘shopping history’ to know:
- Time of purchase
- Address of delivery
- Money spent on the purchase,
- Comparative products, and the current price
- Reviews and validate the purchase experience
- Mode of payment, and so on and so forth
Retailers, QSR’s and CPG companies are now beginning to realize the importance of a loyalty program. Some like Starbucks have already created a winning one leaving the digital-natives behind in some ways.
Why a loyalty program matters for companies that are not digital-first in their core business?
- Getting the attention and the mind share
- Customer data for feedback for marketing and personalization
- Direct access to the customer
- Product feature improvement
These elements also resonate well with why a D2C platform matters
How to Measure the Success of a Loyalty Program?
- Offline to Online Conversion- A good count to keep in mind is the Member base. This is especially relevant if you are an offline business, then how many of your consumers are your online customer too (directly, not via a platform)
- CAC < CLV — Customer acquisition cost should be lower than the customer lifetime value. Discount that reduce margins while keeping cashflow positive is still okay, but discounts that cause reckless bleeding of the ‘investor’ or the parent company’s cash should be avoided
- Frequency of visits (offline+online)and the Lift in Spend- How much did the customer shopping basket size increased since joining the loyalty program also a great way to measure the success. Are they buying more, newer categories?
- Reward redemption — How frequently are the customers redeeming their accumulated points? This can also serve as a way to measure your ‘personalized campaign’ success.
- Fall in Churn rates — At what rate are you losing your MAU’s and DAU? acquiring a new customer is always expensive than retaining a new one, so engage your current customers wisely through the right value, experience, and personalized service.
- Referral code usage — If your rewards/loyalty program referral codes are being used a lot, it means that the customers are happy and want to share your program with their network. CAC<CLV applies here as well, so use the right amount of incentive for the referral network.
Loyalty Programs: What works and what does not work?
- Work on your point system, keep it simple do not make it confusing — Do not treat customers like you would treat dumb mathematicians. They know why spending 1000 USD is not worth the .00001 point conversion rate or any other confusing hook you plan to give them. Have a transparent and simplified reward system.
- Create enough value to introduce a subscription — If you have strong delivery, content, network, or exclusive deal-related stickiness then totally okay to launch a subscription offering. First, create value that customers will be willing to enable the ‘autopay’ on the monthly/annual subscription plan.
- Keep it open for partners if your own value and universe is small- If you do not have enough value or hooks for your loyalty program customers then it makes sense to open your reward points to partner deals. Try to have non-cannibalizing and exclusive partnerships.
- Randomized rewards help- If your customers know every time what is the exact reward they will get, they lose the element of surprise. Random reward uses the ‘casino-behavior’ blindspot.
- Targeted campaigns based on personalization- Based on the data you get on customer’s shopping behavior try to personalize your campaigns and products.
- Integrated front end and back end for a frictionless experience- Your front end of the mobile app should be well integrated with the back end. Multi-platform and API ready architecture also helps in ensuring quick partner onboarding. How many clicks before the customer reaches the desired page and checkout matters more than you think. I am not going to touch upon the basic expected UI/UX and app-crashes as they are part of ‘MVP- Minimum Viable Product’ design tests.
- One-Stop solution- How many solutions, products or services can you give to customers via your single loyalty program?
- Competitive advantage or mind share-hooks — Amazon prime offers free shipping, exclusive 30-minute access, ebooks, content, free music, and a lot of other things to a Prime user.
Own your end customers, if you cannot own them at least keep direct access via a D2C platform or a Winning Loyalty Program
Sidhartha Sharma is a Digital Strategy Expert.
He writes frequently on technology and business topics (check #saidbysid #digitalplaybookwithSidhartha, views are personal)