Despite the fact that companies are spending tens of billions of dollars on loyalty programs every year in the US alone, a study conducted by Accenture suggests that consumers are increasingly impervious to the effects of these programs.
The consulting firm polled 25,000 consumers around the world, of which 10% were located in the US, and found that more than three-quarters (78%) say they’ll pull their loyalty more quickly than they would have three years ago, and slightly more than a third (34%) indicate that what drives their loyalty today is the same as it was three years ago.
Despite the prevalence of loyalty programs, over half (54%) reported switching a provider in the past year. As reported by AdAge, “Retailers, cable and satellite providers, banks and internet service providers were the most likely victims of switchers.”
For many brands, loyalty programs have been seen as a potent driver of sales for years, but there’s evidence that the effects of these programs are dwindling. That evidence includes slowing same-store sales growth and ”millions of points that are laying dormant” in various rewards programs.
According to Robert Wollan, a senior managing director at Accenture Strategy, “You have to really look at whether you’re suffering from the loyalty illusion – that it worked before so it will keep working – or is it time for a fresh look?”
Giving consumers what they really want
Here are several ways that brands can take a fresh look at their loyalty programs.
1. Offer rewards that really appeal to customers
One of the most obvious implications of Accenture’s data is that brands are failing to deliver rewards that appeal to their customers. Knowing that consumer preferences and expectations are rapidly changing, brands operating loyalty programs should constantly be polling their customers and performing market research to determine what components are most appealing.
Given the growing consumer preference for experiences over things, in many cases brands might find that their customers value experience-based rewards, such as event invitations, adventures and early access to new products, more than they do cash-based rewards or free “stuff.”
2. Don’t seek to buy loyalty
The Beatles had it right: money can’t buy love. While there is clearly opportunity for brands to encourage loyalty through rewards to customers, many consumers expect more from the brands they choose to patronize.
Accenture found that younger consumers in particular are highly influenced by an emotional connection to a brand and the brand’s alignment to their social values.
While there is risk in getting political, to build loyalty in their relationships with consumers, it appears that brands will increasingly have to find ways to create emotional connections, so savvy brands will identify causes and lifestyles with broad appeal that aren’t too controversial.
3. Focus on product and customer service experience
For consumers aged 18-34, product and customer service experience are two of the three biggest drivers of loyalty today, a reminder to brands that if they’re not delivering a quality customer experience overall, a loyalty program isn’t likely to make up for it.
The perfect case study?
A great example of a brand that is doing much of the above is REI. The retailer, which sells outdoor gear, operates as a co-op and allows its customers to become members.
With a $20 lifetime membership, customers receive 10% cash back in the form of an annual member dividend, member-only special offers and exclusive access to REI Garage Sales, semi-annual events at which returned products are available at hefty discounts.
In addition, REI members receive special pricing on the brand’s services, which include classes, rentals and REI Adventures – tours that offer participants trips to “extraordinary places with handpicked local guides.”
Beyond the benefits REI offers its members directly, the company actively supports conservation efforts, donates millions of dollars annually to non-profits, purchases green power and carbon offsets, and releases an annual Stewardship and Earnings Report. In 2015, it made headlines with its #OptOutside campaign in which the company chose to sit out Black Friday, instead giving its employees the day off and encouraging consumers to enjoy the outdoors.
REI’s formula appears to be working: its membership has swelled to more than 6m, with more than 1m new members being added in the company’s fiscal year 2015. That was the first time ever the retailer, which was founded in 1938, gained more than a million members in a year.
And those members proved loyal and willing to open their wallets, with fiscal year 2015 revenue growing by nearly 10% to nearly $2.4bn.