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Consumers aren’t as loyal to loyalty programs as they used to be.
Since 2008, the number of consumers who feel that such initiatives don’t offer any real value jumped by 50%,according to a study by Forrester Research. The same study also found that almost one-third of consumers say that loyalty programs don’t influence their purchase — that’s up from 22% in 2008.
Why the dissatisfaction? Let’s call it the Groupon factor. Since 2008, there have been a flood of daily deal merchants, like Groupon and LivingSocial, that have filled customers inboxes with irrelevant offers. (Groupon itself has recently employed a Pandora-like “thumbs up, thumbs down” rating system to tackle this problem, which is best illustrated by the example of middle-aged men getting offers for bikini waxes.)
Proponents of loyalty programs, however, believe help is on the way thanks to two factors — better targeting and mobile payments.
Imagine pulling in to New York City, pulling out your cell phone and seeing a message directing you to a handful of local restaurants and stores that are just right for you — and have some hefty discounts.
There’s nothing fanciful about this vision. All a marketer needs to do is take into a account a user’s history of spending, plus his or her current location. Yet no one is doing that right now. Why not?
“It takes work,” says Bryan Pearson, CEO of LoyaltyOne, a loyalty marketing firm. Such work includes “freeing data from the marketing department,” Pearson says, noting that this type of information isn’t usually shared with other parts of the organization. You might think that loyalty programs are part of an overall marketing strategy, but that’s often not the case. “Too often, the loyalty strategy sits apart from the marketing strategy or the business strategy,” Emily Murphy, an analyst with Forrester Research, said in a webinar last year. “This leads to siloed customer data, where customer insights aren’t being shared across the organization and in some cases aren’t even being collected.”
Suresh Vittal, Forrester’s customer intelligence analyst, says better targeting will change customers’ views about loyalty marketing. At the moment, though, too many are addicted to mere discounts. “It’s not just about discounts,” Vittal says. “It’s about designing benefits that different segments care about.”
Such campaigns are fairly rare. Canadian supermarket chain Sobeys ran a campaign in 2010 that was highly individualized — out of one million pieces created and mailed, 987,000 were unique, with a dozen customized product offers and coupons. LoyaltyOne crafted that campaign based on each member’s specific purchasing behavior. Tailoring such messages netted a 37% unique open-rate for emails and a 26% click-through rate. (The industry standard is 23.8% and 5.5%, respectively, according to Epsilon’s “Email Benchmarks” report from Q3 2011.)
The good news, however, is that mobile lets marketers craft effective campaigns without a deep dive into data mining. For instance, a 2010 program in Finland allowed McDonald’s to pitch relevant offers to consumers based on proximity. Since users had to opt in for the program, they already identified themselves as being in the market for McDonald’s food. But if they were within a certain distance of one of the 82 McDonald’s outlets in that country, they’d get see a deal for a 1-Euro cheeseburger flash on their mobile phones. The program netted a 7% click-through rate.
Industry watchers say the advent of mobile presents a one-time opportunity to insinuate loyalty programs into new habits. Perhaps the greatest of these occasions is mobile payments. In early 2012, programs like Google Wallet, Pay with Square and Bump Pay are still rolling out to early adopters. While most of those companies would be happy just to get consumers to use the programs, LevelUp, a unit of SCVNGR, hopes to hook those consumers up with merchants looking to cultivate repeat customers.
LevelUp‘s deals are basically digital versions of the punchcard programs that many mom-and-pop restaurant chains run. For instance, if you sign up for LevelUp’s deal with Dos Toros Taqueria in New York, you earn $3 for every $50 you spend there. While a 6% savings may not prompt a return visit by itself, finding a place that takes mobile payments and offers a discount may be a winning combination. In fact, 65% of LevelUp users who visit a participating restaurant once return within the month, says John Valentine, vice president of LevelUp’s East Coast division. “We are rewarding multiple repeat business,” says Valentine. “If you go to a coffee shop, you might get the 10th cup free. That’s not brand killing. That’s rewarding people for loyalty.”
In a sign that LevelUp may be on to something, Google is looking to get in on the business as well. The company bought digital loyalty card service Punchd last July at around $10 million. Meanwhile, Square last fall gave merchants the ability to set up loyalty programs.
Still, for Vittal, mobile’s wealth of opportunities are tempered by the high-stakes nature of marketing your brand in such an intimate medium. “Mobile has its own unique challenges,” he says. “It’s both a boon and a curse because it’s more contextual, but consumers aren’t very forgiving when you fail.”