Rethinking Loyalty: Relevant Rewards for Changing Customers

For today’s retailers, loyalty programs can be challenging.

            In the age of disruption and changing consumers, conformist attitudes are risky. While a 2018 Oracle study finds that most brands are overconfident in their loyalty systems, the MIT Sloan Management Review claims that only 50% of shoppers subscribe to at least one program. The gap between expectation and reality is unsettling, particularly since the Center for Retail Management at Northwestern University shows that up to 15% of a brand’s most faithful customers can produce 55-70% in total sales.

            Consumers are changing, and loyalty programs should reflect this. Until now, most rewards were product-centered, offering goods in exchange for accumulated points. While shoppers still value such systems, they are increasingly asking for more engaging, meaningful, and personalized brand relationships, expecting non-monetary perks as well.

            According to Evan Neufeld, Intelligence VP at the business intelligence firm L2 Inc., experiential rewards are essential for today’s retailers, particularly those involving exclusive offers, VIP sales, special store events and unique services. Retail Week also suggests that 72% of shoppers prefer frictionless and automatically redeemable rewards.

            Beyond better sales, relevant programs can benefit brands in other ways. With data analytics feeding customer-centric retail, satisfied shoppers have a tendency to provide more access to their information. This can lead to a virtuous cycle where brands understand consumers better, offer increasingly relevant products and loyalty programs, further improve customer satisfaction, and thus receive more data to fuel their customer-centric strategy.

            For many retailers, Sephora’s Beauty Insider program in North America shows what loyalty schemes could look like. Receiving points for online and offline shopping, customers have a large selection of products and perks to choose from. Not only that, but the cosmetics brand also customizes offerings by having members add their personal beauty traits to their accounts. 

            Using a three-tiered system, Beauty Insider is divided into the Insider, VIB, and Rouge categories. Insider members spend less than $350 per a calendar year, receiving one point per dollar and having access to birthday gifts, seasonal savings, and in-store services such as hydrating facials and beauty classes. On that other hand, VIB members ($350-$999) receive 1.25 points per dollar and receive Insider benefits as well as personalized makeovers and monthly gifts. Last but not least, Rouge members ($1000+) receive 1.5 points per dollar, Insider and VIB privileges, a private beauty advisor hotline, 2-day shipping and invitations to exclusive events organized by Sephora.

 

            By combining product and experiential rewards, Beauty Insider offers more choices than other loyalty programs. Not only that, but its three-tiered system also encourages aspirational spending, increasing total sales. In order to create a sense of belonging, Sephora offers its Beauty Insider Community, an online space where customers can ask each other questions, receive recommendations, and find new ways to use products. 

            Neiman Marcus is another prime example. The luxury department store developed InCircle, a VIP program strongly emphasizing experiential rewards for its elite customers. As a five-tiered system, groups range from Circle One ($1-$999) to Circle Five ($10000+), with highest annual spenders receiving rewards such as free wardrobe consultations and concierge services. Concierge services are particularly remarkable since they can include reservations to exclusive restaurants, concerts, and personalized travels itineraries involving luxury hotels.

            As with Beauty Insider, part of InCircle’s appeal is its aspirational nature. Shoppers are encouraged to spend more in return for VIP treatment, and personalization deepens as members join higher circles. Given the perks offered by the loyalty program, it comes as no surprise that 40% of Neiman Marcus’ sales comes from InCircle members according to Dallas News.

            What are your loyalty challenges? Do you know other best practices?  How would you balance product and experiential rewards?

 

            Join us on November 8th for our Retail Tour in London on the Future of Loyalty! Information and registration : Anne-Victoire Napoly – anapoly@lemensearch.com