Fixing Loyalty: How Brands Are Shaking Up Rewards Programs

In a sense, loyalty programs have nothing to prove. Since the first S&H Green Stamp was handed out in 1896, customers have been drawn to the notion of getting rewards for transactions, and merchants have liked their power to retain good customers.

But a tool that arose in the early days of mass marketing may not be suited for today’s era of personalized precision marketing and brand advocacy.

Consider a loyalty survey of both marketers and customers conducted in early 2010 by the CMO Council. The survey found marketers offering three top benefits in their loyalty programs: discounts and savings (39%), free products or premiums (34%) and acquiring points (33%). But asked what benefits would most lead them to join a rewards program, consumers named savings first, but more than half also said they would value more relevant offers and more compelling personal inducements. While deals are obviously important, members say they want to feel that loyalty marketers know them and tailor programs to their needs and preferences.

That customization is not likely with the low level of data marketers most often capture in loyalty programs. The CMO Council survey found that loyalty marketers tend to collect basic demographic information, location and/or ZIP, and transactions. Fewer than half said they collected data with greater potential to target their loyalty efforts — such as preferred methods of contact, product preferences, satisfaction levels or personal insights.

“Some marketers have gone in with an idea not to just reward loyalty but to activate advocacy,” says Liz Miller, vice president of programs and operations for the CMO Council. “They want to provide programs that not only are worthwhile to the customer but give the company a deeper, faster, wider inroad into customer insight and information.

“If you have customers who are willing and able to freely give you back information you can use, that’s a gold mine. But if you don’t dig into that data, you don’t have that 360-degree view of the customer, and that makes it very hard to deliver relevance.”

Listening to Loyalists

Last year, JetBlue Airways faced up to the erosion of value in its TrueBlue Rewards frequent flyer program and after extensive consultation with members revamped its program in September 2009. Basically, the company eliminated blackout dates so that every seat on every flight is available for redemption. It also changed its points system from one based on number of miles traveled.

“Our research showed the greatest customer frustration came from the inability to use the points earned,” says Dave Canty, JetBlue’s director of loyalty marketing and partnerships. “Users were also frustrated because points would expire after a year. While they were earning points at the front end, old ones would be falling off the back.”

The airline already had an online panel of 15,000 customer advisers, so last year it handed them the project of helping to overhaul its loyalty program.

“We worked hard to get the value proposition right,” Canty says. “The economy was just making people more conscious of how much they spent on airfare. And we incorporated some accelerators into the rewards program, so as not to penalize people who were consistently flying on low-cost fares.”

To make sure members would always have somewhere to spend those points, Canty and his team convinced JetBlue’s revenue managers to open up every seat on every flight. “We have literally closed the door on capacity controls and blackout dates,” he says. As for point expiration, taking just one JetBlue flight a year now keeps a member’s points alive.

The response has been “remarkable,” Canty says — and good for business, too. “In the old system, redemptions most often came on our long-haul routes. Now we’re seeing redemptions on short- and medium-haul routes, which takes a lot of pressure off our long routes.”

Go Big

Gaming power Harrah’s has parlayed user data to make its Total Rewards program into a highly regarded loyalty program. In essence, the company took a system intended to reward high-rolling gamblers with perks and services and opened it out, starting in 2008, to include rewards for non-gambling spending on its properties.

“A few years ago we added the ability to track non-gaming spend, which has become a much bigger part of our business,” says David Norton, chief marketing officer at Harrah’s Entertainment. “We wanted to make the program meaningful to a broader audience.”

The changes involved installing card-swiping technology in other parts of the casinos, but that expense has allowed Harrah’s a better look at what its loyalty members value and how the company should be allotting its promotional budgets.

“We’ve always done a ton of analysis, but now we’re being even more disciplined about which marketing programs are driving truly incremental profitability,” Norton says. “Have we caused more frequent visits, or have we simply shifted someone from a Saturday stay to a Wednesday? Have we induced a guest to use one of our restaurants rather than going to a competitor? Once we get to know what they like, we can engage in CRM on a deeper level.”

Continue to Page 2: Direct and Personal

Direct and Personal

Consumer packaged goods companies have always been cut off from their advocates by the need to go through retail merchants, and in-store trade promotions are a multi-billion-dollar industry. But CPGs are starting to open up direct channels to their fans with loyalty programs that carry more trackability and accountability than the old couponing campaigns.

Pepsi recently rolled out an iPhone app that will use GPS to show “Pepsi Pop Spots” in a user’s vicinity — restaurants where they can go, check in and earn points (one for every three check-ins) that they can then redeem over their phones for exclusive music tracks. Reportedly, some of the restaurants participating in the program will also offer their own promotions, such as a free Pepsi with the purchase of an entrée.

“Through loyalty programs, CPG firms have an opportunity to create a direct dialogue with their customers, says Luc Bondar, senior vice president of loyalty strategy, Carlson Marketing. “Pepsi, Coke, Nike, Procter & Gamble are all setting up loyalty programs that let them learn who their best customers are and apply those learnings to the rest of their business.”

Financial loyalty is currently under pressure; impending laws may change the business case and force big card issuers to cut down on the size and number of rewards. But at least one smaller regional bank has opted to fill the vacuum with its own loyalty program emphasizing its local brand strengths.

In June, Birmingham AL-based Regions Bank debuted “Regions Relationship Rewards” to reward customers with points for a wide range of everyday banking activities — from taking out a new mortgage loan down to paying bills online, signing up for direct deposit and using their Regions check card in stores. Members also earn rewards points based on their monthly combined checking, savings and money market balances.

“Previously we had a program that gave cash back for online purchases with certain merchants,” says Tom Brooks, Regions head of cards and payments. “Frankly, that didn’t appeal to all customers, and it really wasn’t rewarding them for their relationship with us but for spending through us. Our approach is to deepen and strengthen the overall relationship with customers. By looking holistically across the bank franchise and not just at the product level, we think we can achieve that.”

Rewards start at 750 points and include both experiences and discounts on Regions services.

“It’s a win-win over single-product financial programs,” says Barry Kirk, director of strategic consulting for Maritz. “The bank can bring in other products that have their own profit margins and contribute to the cost of the program. And customers can feel somebody finally recognizes the full value of their relationship with this bank.”