The top 5 ways to make loyalty programs more effective

The top 5 ways to make loyalty programs more effective

As consumers grow more empowered, with more control and choice than they’ve ever had before, their loyalty to a brand and preference for concentrating their purchasing power becomes even more crucial to merchants. Below, we look at the top 5 ways to make loyalty programs more effective – ensuring your customers can’t afford to miss out on membership.

Think “liquidity”

At Currency Alliance we believe that one of the best ways to make loyalty programs more effective is by creating more liquidity.

What do we mean by liquidity?

Essentially we’re talking about making life much easier for the customer – giving them greater control and choice, while removing friction around how people collect, redeem, transfer, or exchange the value associated with loyalty currencies.

Greater liquidity in loyalty is going to be crucial in the coming years as customers become increasingly accustomed to a more joined-up, friction-free, seamless shopping experience at other points along the customer journey. The trend is for customers to expect brands to make their lives easier by providing options and partnering with other brands that offer complimentary services.

The fear, at present, is that most loyalty programs don’t offer that liquid, seamless experience that is becoming expected rather than desired. Retail brands are worried about the expansion of Amazon, but have done little to transform their approach. As CB Insights so succinctly put it in a recent newsletter, “old-line retail incumbents are being overwhelmed by interrelated trends in retail tech, online shopping, and direct-to-consumer models.

However, it is possible to provide more liquidity without becoming Amazon. One of the best ways, as we’re about to explore, is for brands to work together and embrace a more open loyalty ecosystem.

Collaborate with others

In a recent Colloquy survey of US consumers, two-thirds stated that they would be open to using a site operated by a loyalty program if it kept track of their travel preferences. Consumers now encounter personalization in so many aspects of their everyday lives, that they expect you to put their data to good use and offer them services and experiences that are relevant to them.

We understand that it’s not always easy to personalize as customers expect. After all, not every brand has the digital infrastructure to make data actionable as Amazon has. But the power of collaboration is that it allows brands to share top level data to enable more targeted profiling.

A more useful loyalty program for the customer is one that offers them a loyalty currency that they desire. Customer engagement with loyalty programs would increase dramatically if members were able to capture the value accrued in exchange for their loyalty in a single account, with the freedom to spend it how and where they want.

At Currency Alliance we’re convinced that one of the best ways for brands to face the Amazon challenge, offer a more personalized experience, and make loyalty programs more effective in general, is to embrace a collaborative loyalty ecosystem. A coalition loyalty network that uses the same loyalty currency, or enables exchange, would not only make the customer’s experience from one brand to the next more seamless – it would benefit the merchant too. It would lead them to more actionable data, it would open their door to new customers, and it would allow them to re-engage with less frequent customers, which brings us to our next point for making loyalty programs more effective.

Top 5 ways to make loyalty programs more effective - woman on her phone in supermarket

Don’t just focus on your most frequent customers

There are plenty of members of loyalty programs who won’t really see a problem with the status quo, as they spend regularly and are well rewarded. But typically this group only represents around 20%-30% of your customers. The other 70%-80% may well have given up on the loyalty program you provide as they just don’t shop with you often enough to redeem for something of interest to them.

This is a problem, as more frequent customers aren’t necessarily more loyal customers. The collaborative loyalty network described in the previous section would help less frequent shoppers to have their loyalty rewarded too. They would be able to accumulate more loyalty currency across a variety of brands.

To make loyalty programs more effective, brands need to think differently about how to engage their entire customer base (including the mid-to-long-tail). If they don’t, it’s likely that this group will shop primarily based on price.

It’s also worth bearing in mind that there are some types of businesses that rarely have high frequency customers, and so a traditional loyalty currency from them wouldn’t appeal to typical customers. The open ecosystem loyalty network might be the best kind of loyalty program for furniture stores. It could also work as a loyalty program for pharmacies, or home decorating businesses, to name but a few examples.

Provide real customer welfare

The customer has evolved to expect a lot more from brands. However, rather than being intimidated by this, merchants should see it as an opportunity to truly offer customers the value they deserve – what we call customer welfare.

One of the easiest ways to achieve this is by making your loyalty currency more valuable. The three best ways to increase this value are:

  • Enable the customer to collect it in many different places (or allow it to be exchanged.)
  • Make sure as much of the ‘cost’ of the loyalty points is passed to the customer as possible, and isn’t lost to intermediaries.
  • Enable redemptions on high margin (typically aspirational) rewards – where the wholesale cost is much lower than the perceived value by the customer.

On the third point, if the merchant doesn’t sell high margin goods, they should allow redemptions with companies that offer more aspirational products or services. The customer will be motivated to collect the loyalty currency in the first place – precisely because they can use it to get something they really want.  Tescos and Sainsbury’s in the UK have demonstrated this style of engagement with great results.  In this way, we create a multiplier effect – where the loyalty units might cost 10.00, but the perceived value of 20.00 or 30.00 – if the cost of the redemption is 50% or 70% off the suggested retail price.

The coming years will see a sharp divide between the fortunes of those brands who accept that customers shop elsewhere and reward their loyalty with the freedom to redeem in a variety of places, and those brands who try to ensure customers don’t go elsewhere – a tactic that often backfires.

Top 5 ways to make loyalty programs more effective - teenager outside a cafe on his phone

Embrace future thinking

Consumers are changing rapidly. As loyalty marketers, we need to be prepared for an environment where the balance of power is firmly with the customer – and embrace it!

It’s telling that 20% of Google’s smartphone searches are currently done by voice. As smart digital assistants like Alexa become more sophisticated, it’s likely that this number will increase considerably. Consumers are using technology to save time for more important things. There are even apps now like Plum that automatically save money for you.  In such an environment, the customer’s emotional feeling for a brand won’t be as important, as the digital assistant will make purchase decisions in a totally rational way.

This is the kind of environment that we need to be planning to operate in. Namely one where consumers are increasingly able to manage different aspects of their lives by setting up algorithms on their phone or by seeking advice from their digital assistants.

Fluid communication between customers and the brand are likely to be quite normal in the coming years. Some smart hotels are already using messaging apps to communicate with customers – something that’s soon likely to be expected by consumers.

The future will be pretty unforgiving for brands that stand still. For brands that don’t provide customer welfare or take a lot of the heavy lifting from consumers while proactively helping them to achieve their goals.

Let’s ensure that the consumer of the future is motivated by more than just cost. The best way to do this is by allowing for an open ecosystem where people can transfer loyalty currencies with a swipe of a screen and where people associate their loyalty program with the same fluidity and seamlessness that they encounter in other aspects of their lives.

Profit margin in the future will increasingly be earned based on customers’ experiences with brands and not just the margin on products or services sold.  We all need to consider how we can deliver the greatest overall value to customers – so they can realize the best experience.


Talk to us to find out how we can help to make your loyalty program more effective.