In 1793, a New Hampshire merchant began giving his customers copper coins that could be redeemed for discounts on future purchases, essentially inventing loyalty programs as we know them. Copper coins turned into stamps, box tops, and eventually digital points that live in the cloud. Today, the average American actively participates in 6.7 different loyalty programs, according to Brand Bond Loyalty.
Over the years, these programs have changed in far more ways than their form of tender. Consumers have traditionally been loyal to brands, but now as the Internet has made it possible to shop anywhere, anytime, the reverse is true. The onus is on the brands to be loyal to their customers, in the hopes of getting that loyalty back. Embracing technology and making the most of their data is how these brands accomplish that.
The brand widely considered to have the most loyal customers—Amazon, naturally—also happens to have an outstanding loyalty program. Amazon Prime has more than 100 million members, all of whom gladly pay for the privilege. While they’re at it, they also spend more than twice as much on Amazon as non-Prime members.
Personalization and the price of loyalty
Frederick Reichheld, the Bain & Company Fellow who invented the net promoter score, found that increasing customer retention by 5% increases profits anywhere from 25 to 95%. In other words, loyal customers are the best customers. Additionally, it’s five to 25 times more expensive to acquire a new customer than to retain a customer, so loyalty pays off on multiple levels.
The dream team of data and artificial intelligence has enabled brands to take their loyalty to the next level. Last year, Sailthru (full disclosure: I work there) developed a methodology to evaluate a brand’s personalization capabilities and ranked 100 retailers. Sephora was the clear winner. There’s clearly a correlation with the fact that 80% of Sephora customers won’t consider a competitor, according to two years worth of data from 1010data.
Sephora Beauty Insiders get all kinds of special perks, including birthday gifts, custom makeovers and points that are basically crytocurrency. That ensures that most Sephora shoppers don’t make purchases without being “logged in.”
Starbucks doesn’t have as much of an opportunity to make recommendations, but its loyalty program is highly personalized just the same. VIP customers even receive personalized gold cards in the mail, which they can use as a form of payment. Most people probably pay with their phones anyway, but having that card makes them feel special, like they really are VIPs in Starbucks’ eyes.
Mobile payments and proximity
Personalization isn’t the only way Starbucks enriches its loyalty program with technology. Starbucks Rewards lives within the brand’s mobile app, where users can store payment information. Last year, the app accounted for 30% of Starbucks’ transactions. In fact, Starbucks holds more consumer cash than many banks.
Many people don’t even go to the bathroom without their smartphone, let alone to Starbucks. That mobile integration is a prime example of the program providing seamlessness, which is key.
Surveying 1,000 consumers, Kobie Marketing found that 48% are less inclined to sign up for a loyalty program if there are obstacles, such as brands asking for too much information. Increasingly, legacy brands like Macy’s and Target are removing that roadblock by allowing non-cardholders to sign up.
Of course, these loyalty-boosting technologies don’t typically work in a vacuum. They’re most effective when they complement each other, as Nordstrom Rewards does with personalization and geolocation. Nordstrom Rewards customers make up more than half the retailer’s sales. And if they have the app, Nordstrom may entice them to pop into the store more often.
App users can save their favorite items to a digital wishlist. If they get close enough to a Nordstrom location, the app uses beacon technology to send push notifications reminding people how much they love those items.
Bringing it back to data
The underlying theme here is data. Data that consumers happily trade for a more personalized experience. Without behavioral data, brands couldn’t target and personalize recommendations as well.
According to Salesforce, 7% of site visitors click on personalized product recommendations. Still, personalized recommendations account for 26% of revenue.
Without location data, Nordstrom wouldn’t be able to send relevant push notifications and invite people in, cementing their brand loyalty. The relationship that inspired the song “How Can I Miss You If You Won’t Go Away?” was not one about a retailer and a customer.