The perks and perils of loyalty programs

SPECULATION differs as to the origins of loyalty programs. They were created to avoid price discounting and drive additional purchases by providing a reward to win over consumers’ hearts.

In the 1800s, trading stamps were given to people who paid in cash instead of on credit; the stamps could be used to buy other goods at that store. By the 1950s, the Sperry and Hutchinson Company in Britain had a virtual monopoly in this space with their Green Stamps. Many Brits in their 50s and 60s remember collecting them with their parents, and gazing into the glass box of toys and books they could redeem them for.

Fast forward to 2014 and the average American has 7.4 loyalty cards in their wallet; Australians are not too far behind. Brands are still trying to create the ultimate win-win. Despite operating in a far more complex marketing world, the basics are the same - make the loyalty program simple, relevant and valuable to its members. Brands that have done so have been rewarded.

Myer’s MYER One program has more than five million members - about 20 per cent of the population - and they account for more than 70 per cent of the spend in some Myer stores. When launched less than 10 years ago, it had a shopping credits system that meant that for every $1000 you spent, you received a $20 gift card. The program soon added surprise and delight by sending members a gift card for their birthday. And then it divided members into gold, silver and bronze tiers to provide additional rewards such as personalised offers and invitations. In more recent times, other businesses have come on board as partners so that members can earn additional points for buying at non-Myer stores. It’s a program that rewards the best customers while optimising the profit that can be made from them. Myer’s gold members love their $20 birthday gift, and Myer loves that they spend more than $70 when they visit a store.

Research backs up the need to balance the rational and emotional benefits - the inherent financial reward - with the ability to win overmembers’ hearts and minds. Today, so-called soft rewards such as giving points when members share news about a brand on social media, or sending gift cards for simply logging on their online account, are as important as the anticipated financial rewards.

Qantas’s recent decision to switch the way points of Frequent Flyer members are calculated, from how far they fly to how much they spend, should in the long run tick the rational benefits box, particularly for regular business travellers. It’s a decision other airlines have already taken. But announcing the change just after a half-year loss did not tick the emotional benefits box, according to social media feeds.

A recent Infosys retail survey shows that 78 per cent of members are more likely to spend again with a brand if it provides them with relevant personalised offers. Members expect that you will use the data you have on them to send them perfectly targeted deals. They expect your call centre to be waiting to answer their call or tweet, or that the answer is on your website. When they go to buy something, they expect a quick and easy sale and that you’ll know where to deliver. When they want to redeem their points, they expect to be able to do so in store, on the website, via the call centre, or on their mobile.

Some marketing, operations and IT teams have worked hard to set all of this up in-house, while others choose to work with external partners. Regardless of the internal-external debate, marketers must fight hard to keep their loyalty program simple, relevant and rewarding for their members, while having access to the latest software and hardware to run it successfully.

Originally published in The Deal magazine in The Australian, 16 May 2014,