Loyalty Programs for the Data-Conscious Customer

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Customers have gotten accustomed to providing brands with their personal information—and brands haven’t even had to work particularly hard for it. Where they wouldn’t give it freely upon registration, they would give it up for an exclusive offer or privileged access to discounts and information about coming sales. For a long time, this was the basis of customer loyalty schemes.

Stricter regulations around data protection, such as the General Data Protection Regulation (GDPR) in Europe will, to some extent, change that. As a result of GDPR, brands both inside and outside of the European Union now have tighter restrictions around how they can use the personal information of citizens. And, while the United States may not have a centralised, national data protection precedent in the same way, there’s no doubt that customers all around the world are building a greater awareness of data privacy.

This has had particularly strong implications for loyalty schemes, which can’t rely on many of the tried-and-true older methods.

So how do brands operate these schemes in an environment where information is at once more important than ever—and harder to use legally, ethically, and commercially?

Today, most organizations are at one of three separate, but concurrent levels of sophistication when it comes to customer loyalty. But what are they, and what might the future hold?

Loyalty 1.0—Earn and Burn

When brands are at this most basic stage, there’s no meaningful differentiation between end users: All are treated equally once they’ve spent money via a “points” system, and all get the same early-access privileges, discounts, and credit. They buy something, they earn points for the purchase, they use the points to make another purchase—rinse, repeat.

Of course, the success of this system requires customers to actually keep buying, and many will forget about their points, the expiry dates of those points, and the rewards on offer. Accordingly, this stage could theoretically be called “Earn, Burn, and Churn.”

Loyalty 2.0—Individualized Marketing

Other companies are at Loyalty 2.0: where multiple channels are used, but it’s not multi-channel marketing—all activity is segregated in each channel, all programms work on their own, and points are still largely based on transactions.

Gamification and other advanced loyalty initiatives still play a part, but they’re usually relatively unsophisticated: Rewards are nonspecific, even when customers are incentivised to spend their loyalty points.

The overriding trait of Loyalty 2.0 is probably isolation. If a business is using direct mail for marketing, it may well achieve great success—but in Loyalty 2.0, these benefits will be forever limited by the siloed structure of these programs. Maximizing ROI requires more interaction: digital campaigns, social sharing, and more.

Loyalty 3.0—Customer Engagement

Loyalty 3.0 is more interactive: A customer might contact a brand via one medium—for example, a social media channel such as Facebook or Twitter—and get a response through another such as email or phone. This can even extend to automated discounts for certain products and services, so in the aftermath of a particularly damaging complaint, it’s possible to have rewards waiting for the customer the next time they log in.

The method by which this is achieved is one-to-one segmentation—and this poses several challenges of its own. To gain this level of segmentation, it’s necessary to form a Single Customer View (SCV) of each customer. This is often something of an ordeal for brands, which have to organize a number of data “buckets” within their organizational structures and can’t easily unite them to create a true SCV.

Data layer technology—and particularly data management platforms—can help resolve these challenges: They easily pull information from multiple systems and are built to address the problem of data latency. This latter point is particularly crucial: If purchasing behavior changes and user information becomes obsolete, it’s hard for brands to maximize ROI from marketing campaigns. A dynamic system that automatically adjusts to new data in real time is therefore highly worthwhile.

But it’s not enough on its own. Engagement and interaction is a basic requirement of Loyalty 3.0; essentially, you have to show that you value your customers’ time and their customs. So, if an end user is giving you shout-outs on social media or interacting with your team in any meaningful way, this engagement should be reciprocated—and incentivised further. Abercrombie and Fitch, for example, provide rewards for friend referrals and profile completion.

These are still generic, rather than specific, rewards, though, and Loyalty 3.0 is also about personalization. Build your platform to suit the individual needs of the customer and you will build a relationship with the customer that lasts. One cosmetics brand did just that, creating a preference center that enables the user to choose their favored hair and lipstick colors (among other things). The brand gets all the customer information it could want—and the user gets rewards that align neatly with their choices, behaviors, likes, and dislikes.

The Future

Data is still essentially transactional. There are several circumstances in which customers are more than willing to offer it up to the right brand and the right loyalty scheme.

What is going to change is the depth and specificity of these schemes. Brands may be at different stages of loyalty right now, but those looking ahead to Loyalty 4.0 see a future defined by the individual: something that—legally, securely, and to the mutual advantage of customer and brand—combines hundreds of data sets instead of two or three. Companies will waste less time and money; customers will receive more relevant communications. Hopefully, it’s a future we can all buy into.

Jason Lark is managing director of Celerity, a data, marketing, and technology consultancy. He cofounded Celerity in 2002, and continues to lead the company’s vision, strategy and operational performance.

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