The Changing Nature of Consumer Loyalty

Share:
Customer Experience
Customer Experience
Customers are no longer signing up for every loyalty program, but are instead choosing the one that best fits their needs and lifestyle.

Consumers' loyalty to loyalty programs is changing. Five years ago, consumers weren't picky about the loyalty programs they joined. They signed up for just about every program offered to them - no matter what rewards could be earned or what they had to do to redeem them. The opportunity to get something for free or at a discount was once a novelty. But today, deal and rewards fatigue has set in. The average consumer has 18 loyalty cards in her wallet. With loyalty cards piling up, a trend is emerging that stands to impact merchants' loyalty strategies. Consumers are picking from the top of the stack and concentrating their rewards earnings in the program that provides the most return: the one linked to their favorite credit card.

Merchants, acknowledging their customers' shift from loyalty breadth to depth, are now looking to partner with the nation's largest banks and airlines to ride on the affinity they're developing with their cardholders. These "card-linked" rewards programs allow merchants to achieve the same objectives of their own loyalty programs-driving customer frequency and spend-without forcing them to manage rewards in another program. Consumers simply earn extra points, cash-back or frequent flier miles in their favorite rewards accounts for using their existing payment cards with a participating merchant. Because the top, card-linked offer networks reach hundreds of millions of credit and debit cards, they provide merchants with incredible reach and precise targeting.

According to loyalty data juggernaut Colloquy, while today's consumer participates in 18 loyalty programs, he or she is only active in eight. As a result, consumers are seeking more ways to earn more of the rewards they favor versus spreading participation across dozens of programs.Data from Cartera Commerce on the 2012 holiday shopping season found that online sales driven through card-linked rewards sites shot up 88 percent from the same timeframe in 2011. This was a growth rate of more than four times the 21 percent ecommerce growth comScore cited during the same period. This heightened interest in earning extra rewards by redeeming card-linked offers is proof that today's rewards-collecting, time-strapped consumers are pooling their purchasing power, likely at the expense of merchant-specific loyalty programs and co-brand cards.

Merchants who think they've already conquered loyalty should take a step back and evaluate how they are driving brand affinity among all segments of their customers, including the long tail, which can represent a significant portion of revenue. This isn't to say merchants' own loyalty programs won't still thrive and drive profitability. It's just that brand-specific programs appeal only to a brand's best customers who actually earn enough to get something of value from that merchant.For the rest of that merchant's customer base, card-linked marketing is a supplemental loyalty strategy that maximizes spending and market share from consumers who prefer to earn alternative rewards.

The initial appeal of card-linked offer networks was purely customer acquisition.And, while acquisition remains the primary draw, merchants are now adding loyalty offers to the mix without cannibalizing their own loyalty programs.Card-linked marketing enables merchants to target specific segments of customers using the transactional data from partnering card issuers. Maybe companies want to reach out to customers who don't shop with them frequently, or were shopping frequently but then lapsed. Card-linked networks offer the power of private, anonymous transactional data to help merchants both acquire new customers and lure light spending customers to spend more. In a sense, card-linked rewards are a perfect on-ramp into a brand-specific program: As customers frequent the merchant and enjoy the experience, they may be more likely to join the merchant's loyalty program.

Today's rewards- and offer-centric consumers are forcing merchants to rethink not just their customer acquisition strategies, but also their loyalty and retention strategies. Merchant marketers who tap into the big data knowledge and marketing prowess of national credit card issuers and airlines-whose card rewards programs have become top-of-wallet and top-of-mind-are now able to precisely target not just non-customers, but also their hidden "split loyal" customer segments.With frictionless offers in those customers' favorite currencies, merchants now have a way to get these fickle customers back into the stores, which is ultimately the objective of any loyalty program.

EXPERT OPINION
EXPERT OPINION