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Why You Need to Build a Loyalty Program Right Now?

, created by Sachin Pande

Why You Need to Build a Loyalty Program Right Now?

Or Re-examine the One You Have

Nordstrom. Macy’s. J. Crew. Target. What do these brands have in common? They all introduced new loyalty programs in the last year, either by revamping their existing programs or launching new ones. Why this focus on loyalty overhaul? As customers wield more and more purchasing power, with practically infinite choices of where to spend their dollars, loyalty is worth its weight in gold. Allied Market Research reports that the global loyalty management market is projected to reach $6.95 billion by 2023, with the most growth in small and mid-sized organizations.[1]

The numbers speak volumes: Attracting new customers is five times as costly as retaining existing ones, and increasing customer retention by 5% can increase profits from 25%-95%. Loyal customers are 50% more likely to try new products and they spend 31% more.[2] They’re also more likely to evangelize a brand and pay full prices—not just wait until sale time rolls around.

But what goes into a strong rewards program in this saturated market, and how do these new initiatives differ from past incarnations? Unsurprisingly, the key is enhancing customer experience. Traditionally, loyalty programs have felt a bit rote, glorified marketing tactics with a more palatable name: Get your customers to sign up for an account, often by making them use a store-branded credit card, let them earn points or cash back on purchases and periodically offer special discounts. Mostly these have been one-size-fits-all programs, with blanket promotions covering all customers, rather than targeting individual behavior. Today, the advent of data technologies has drastically changed this landscape.

Better Data for You = Greater Rewards for Your Customer

Recent research has found that 87% of Americans are open to brands monitoring their activity in exchange for more personalized experiences and rewards.[3] This is where a strong rewards program, and the data architecture to go with it, can give you key insights into your customers and how best to engage them on a personal level. Call it the Loyalty Cycle: When a customer signs up for a rewards account, thereby opting into data collection, a brand can pinpoint what she is buying, where and how she’s buying it, what types of promotions speak most to her, and what additional experiences will bring her closer to the brand. With this data at hand, brands can then enact better marketing and merchandising initiatives that target the consumer personally, enhancing her shopping experience and earning her continued loyalty.

Target realized it was missing out on a huge swath of data from customers who did not use a Target credit card and last year launched “Target Circle,” a rewards program for all customers, not just card holders. It is currently expanding to new markets, offering shoppers 1% back on future purchases and free next-day delivery, among other perks. Meanwhile, the store can collect data on approximately 75% of the customers it previously missed. Now Target can track more members’ spending habits and send them targeted promotions and personalized outreach like birthday gifts, while providing the conveniences of free delivery and store pickups.[4]

Make It Convenient, Make It Personal, Make It Mobile

First and foremost, a rewards club is only effective if people use it. Programs that have a high barrier to entry or confusing tier structure will keep consumers at bay, and many brands have been streamlining their loyalty plans to make them easier to access. In addition to Target, Macy’s and other retailers have separated their credit card programs from their loyalty clubs, inviting greater enrollment numbers and increasing targeted marketing opportunities. Consumers are increasingly turning to mobile shopping platforms for their ease and convenience, and smart retailers are giving them rewards apps that make shopping fast, intuitive, and personalized—all while collecting ever-important data, of course.

Mobile apps that offer streamlined purchasing save consumers time and make it easy to keep up with their reward status and perks. With Starbucks Rewards, customers can order and pay through the Starbucks app, and have their drinks waiting for pickup when they arrive at a café. Customers enrolled in Rite Aid’s wellness+ program have access to members-only pricing, 24/7 chat with a pharmacist, and specialized benefits for seniors, and they can use the drugstore chain’s app to track their rewards, order prescriptions, link their accounts to Apple Wallet, and store digital coupons that can be redeemed directly from a phone at checkout.

This kind of frictionless shopping is becoming more and more the norm, where rewards are immediate and you don’t need to remember to bring a card or coupons with you to a store. Mobile wallets are gaining traction, as Nielsen data shows that 67% of participants worldwide favor the technology, and 38% of US participants use third-party apps to store all their loyalty information in one place.[5]

Delight Your Customer, Don’t Just Sell to Them

Yes, everyone likes saving money, but sales and promotions aren’t enough to establish true customer loyalty in today’s climate, especially among Millennial and Gen Z consumers. 27% of rewards members increase their spending when they feel an emotional connection to a brand.[6] These shoppers value experiences and are more likely to identify as “loyal” if a brand offers something beyond discounts and is able to create an emotional connection—or, to use the latest parlance, “customer delight.”

Amazon Prime is obviously a Goliath in this space; besides shopping perks like free shipping, members have access to Prime’s growing catalogue of streaming television shows and movies, making Amazon trenchant in the greater cultural conversation. It’s very effective, but luckily a company doesn’t need those deep pockets or a separate media arm to delight its customers and run a successful rewards program.

At Sephora, a perennial leader in the loyalty space, “Beauty Insiders” can use accrued spending points for more than just products—points can be traded for makeovers, trips, meet-and-greets with brand founders, and other one-of-a-kind experiences. Additionally, all members have free access to beauty classes and a members-only online community, where customers can create personal profiles, post style ideas and preferences, and swap makeup tips. The intent is to make the shopping experience fun, interactive, and personal, a joy rather than a chore.

In addition to the “surprises and delights” that Target Circle offers—birthday and other life milestone gifts, personalized savings—the program lets members cast votes for where Target donates money in local communities. This not only makes customers feel more involved with the brand, but it also establishes Target as a valuable member of the community, not just another big box store.

The Relaunch: Nordy Club

So what does a rewards club look like that is trying to actualize all of these ideas right now?

Nordstrom launched its new “Nordy Club” last summer with a focus on personalization and experience, all driven by robust data analysis. “One of the foundational reasons we're able to do that is we can gather data from members to learn their preferences so we can curate their Nordstrom experience,” said Nordstrom Chief Marketing Officer Scott Meden. “For example, if we know what brands and styles a customer loves the most, then we can give them first access to shop that brand if they're launching a collection or having an event.”[7]

Members create a “Nordy Portrait” in the club’s mobile app, where they can store their style preferences, easily see their point status, and shop directly from the app. The tiered program encourages “stretch goals”—the more you spend, the more points you earn, the more perks you can enjoy. Nordstrom credit card holders automatically unlock rewards in higher tiers, providing incentive to acquire a card but not barring those who don’t from joining the club.

Rewards include typical shopping perks like early access to sales and collection launches, along with conveniences like free basic alterations, curbside pickups, and the ability to reserve items online and try them on in-store. All members have access to beauty and style workshops, while members with higher status receive priority access to special events and even house calls from Nordstrom stylists for personal “closet edits.” Nordy Club has ticked off all the boxes: data, personalization, mobility, convenience, simplicity, and relevant and exciting experiences. Meden reports that Nordy Club members now make up 56% of Nordstrom sales, up from 35% from their previous rewards program five years ago.

Of course, loyalty programs are only a piece of the puzzle, not a magic bullet. J. Crew also had high hopes for its relaunched rewards program last year, but still finished the year with a Q4 net loss of nearly $75 million due to excess inventory markdowns, and leadership has stated they are reevaluating their strategy for the coming year.[8]

In the end, the key to establishing a successful loyalty program is identifying what rewards model and perks make sense for your business while appealing to your customer. Crafting and employing any new program is a significant investment; if the content and experiences you’re offering don’t reflect your brand or enhance a customer’s interaction with it, it’s just more noise for your customer and a waste of time and resources for you. Moreover, if you’re not prepared to analyze and act on the data customers provide, you’re leaving money on the table. An engaging loyalty program makes your customer feel like an individual, not a number on a spreadsheet, while giving you important data that will help you craft even better targeted strategies for the future.

“Time-after-time…brands who focus on prioritizing customer loyalty and customer lifetime value experience immediate and long-term success,” said Stephen Collins, CEO of Monetate, a personalization software company who found that 93% of businesses with personalization strategies increased their revenues in 2018. “Many businesses struggle with tunnel vision, performing one-off tactics aimed to achieve short-term goals. While this may show a temporary lift in their metrics, the brands that are meeting and exceeding revenue targets are the ones that take a serious customer-centric approach to drive pervasive and persistent customer experiences.”[9]

If you can tap into that space where you’re making your customers’ lives easier and creating emotional stakes for them, you’ll see them coming back again and again.


[1] Sonawane, Kalyani, “Loyalty Management Market by Type, Organization Size, and Industry Vertical: Global Opportunity Analysis and Industry Forecast, 2017-2023,” Allied Market Research, 8/17

[2] Saleh, Khalid, “Customer Acquisition vs. Retention Costs—Statistics and Trends,” Invesp, 2/23/15

[3] “The Loyalty Report 2018,” Bond Brand Loyalty

[4] Meyersohn, Nathaniel, “Target expands its loyalty program. It’s about the data,” CNN Business, 2/5/19

[5] Burnett, Sallie, “Mobile loyalty isn’t coming, it’s already here,” Forbes, 3/1/19

[6] “The Loyalty Report 2018,” Bond Brand Loyalty

[7] “Nordy Club 101: Q&A with Scott Meden,” Nordstrom, 2/5/29

[8] “J. Crew Group, Inc. Announces Fourth Quarter and Fiscal 2018 Results,” PR Newswire, 3/20/19

[9] “Monetate Study Finds Brands Experiencing Highest Return on Personalization are Twice as Likely to Cite Customer Lifetime Value as Primary Goal,” Business Wire, 3/19/19

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