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Perspectives

The New Rules of Engagement for Loyalty Programs

2017-04-06


Successful rewards programs show customers they’re valued and offer a brand-enhancing experience, according to our recent shopper survey. Here’s what shoppers say they want from a loyalty program.

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Loyalty programs are ubiquitous these days. They’re how retailers reward customers, right? Not according to our annual shopper survey. 

Conducted by Forrester Consulting on behalf of Cognizant, our study of 4,500 smartphone shoppers finds that while they are enthusiastic about collecting rewards, shoppers say most programs fall short on value and experience. A top complaint, according to respondents, is that too many offers are generic in nature and expire too quickly. (Click here to read the full survey, “Aligning Value With Key Capabilities To Drive Retail Success.”) By following the new rules of consumer engagement, your organization can build a loyalty program that meets shopper expectations while building affinity for the brand. 

Cognizant Shopper Study | Insights Into the Digital Retail Experience

According to the shoppers in our survey, loyalty programs are the most popular of retailers’ value-added services — and the one the largest number of respondents intend to keep using. 

Figure 1

That high level of interest is good news for retailers. But even as they invest heavily in omni-channel capabilities, many retailers continue to operate their loyalty programs in a stovepipe manner, with shoppers unable to, say, earn points for online and mobile purchases. And shoppers notice. (For more on retailers’ challenges, read our report, “Retailers’ Disconnect with Shoppers Is Costing Them,” which features the findings of our survey of 318 large retailers around the world.) 

Jumpstart Customer Loyalty 

Successful loyalty programs operate consistently across channels and adhere to the basics: They motivate consumers across the customer journey by rewarding engagement and transactions. To build a loyalty program that delivers the value and experience customers want, follow the new rules of consumer engagement.

Make no assumptions. 

The biggest takeaway from our survey? Don’t assume you know what your customers want. With customer opinions stronger than ever, the first step for a loyalty program reboot is to conduct surveys and focus groups of loyalty members and non-members. What do they like and dislike about the program? What would they add?

Consider whether your incentives suit your brand and appeal to your customers. Do they value price discounts or prefer one-of-a-kind experiences, such as special events and additional services? 

Explore how to motivate customers to engage with you. What messages matter most, and how can you reinforce them across the customer journey? How do customers research purchases, and where does your brand fit in? 

Examine best practices among the loyalty stars. Starbucks is the master of customization, ever-so-politely peppering loyalty members with targeted offers that, say, bundle their favorite food and beverages into a discount deal. Salon chain and retailer Ulta Beauty also works hard at customizing loyalty perks, choosing freebie eye-shadow kits for some members, and foundation for others. Amazon Prime is so good that customers pay $100 annually to participate, and its renewal rate tops 90%.

Analyze your competitors’ programs. Which retailers capture high loyalty numbers? Which strategies and tactics keep customers coming back? Include non-traditional competitors’ VIP programs, as well. All-digital businesses tend to run loyalty programs that are customer-focused and innovative. For example, luxury flash retailer Gilt pitches its loyalty program to site visitors in a way that’s sure to resonate with them: The information is styled to look like a page from a fashion magazine.

Create meaningful perks that reinforce your brand. 

Offer rewards for purchases that best represent your brand. Walgreens puts its tagline “at the corner of happy and healthy” to smart use by offering customers bonus points when they purchase healthy products or engage in physical fitness activities. This helps the retailer encourage a positive affinity with the Walgreens brand. 

Offering experiential rewards can help differentiate your brand. To match the interests of its affluent customers, for example, Neiman Marcus’s loyalty program offers high-end service offerings, such as wardrobe consultation and concierge services that reinforce the brand experience while promoting additional sales.

Non-monetary incentives can also be a loyalty motivator. Outdoor clothing retailer Patagonia launched its Common Threads Initiative to help environmentally minded customers repair and resell Patagonia clothing to keep it out of landfills.

Successful loyalty programs are about building relationships and engagement, not just accumulating rewards. While the instant gratification favored by today’s shoppers, especially millennials, might suggest lower hurdle rates, evolving a program to encourage simple behaviors can work just as effectively. Online retailer Zappos rewards its loyalty members with points for writing reviews and logging into its website. 

Build loyalty into your business model. 

The digital capabilities that your organization has worked hard to integrate into the customer journey are a boon for loyalty programs. They introduce new ways to build intimacy with customers beyond the transaction. Keeping members active and engaged is key. For example, members of Pampers Rewards, the loyalty program for Procter & Gamble’s largest brand, earn points for reading select articles and watching videos. Rewards become part of the engagement process. 

Neiman Marcus’s loyalty program reinforces the brand while also supporting the retailer’s business model, including its investment in fashion-forward specialists. While the VIP private and group wardrobe consultations only modestly impact revenue, they generate highly valuable positive word-of-mouth brand sentiment. 

Mine data obsessively while respecting and protecting it. 

Customer data presents unprecedented opportunity but also requires new approaches to data management and responsible handling of customer privacy and data protection. The data collected through loyalty programs offers retailers plenty of upside in the form of improved engagement and lifetime value. By mining it in more sophisticated ways for individualized recommendations and next-best actions, retailers can build increasingly positive experiences.

While many retailers can identify customers at the register, however, most can’t connect transactions across channels. Making the connections, applying analytics and executing across channels will enable personalized interactions that will generate loyalty throughout the shopping journey. 

Retailers also need to prioritize security to protect customer data. Stepped-up security measures need to guard against the data and privacy breaches that can damage consumer trust. Until a retailer earns a customer’s trust, concern over data security may be the greatest hurdle for establishing loyalty. 

Our research shows a path forward for meeting retailers’ and shoppers’ needs through loyalty programs that leverage real-time data to create value-added experiences and result in long-term, win-win relationships. 

To learn more, please visit the retail section of our website and read "Retailers’ Disconnect with Shoppers Is Costing Themand “Aligning Value with Key Capabilities to Drive Retail Success.” See how your organization can maintain customer loyalty and increase share of wallet with Cognizant EngagementONE.

Forrester Report, commissioned by Cognizant, 2016. 

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The New Rules of Engagement for Loyalty Programs