Companies are scrutinizing the underlying business model of their loyalty programs.
Amazing as this may sound, not all loyalty programs are successful or really enhance the bottom line. Companies are starting to figure that out and are putting more pressure on these programs to substantiate their contribution to the overall business.
Many programs that use a simple frequency or distance model – that is, points awarded based on how many times you purchase or miles accrued based on how far you fly – are realizing this approach may result in a flawed definition of their "loyal" or "best" customer. Frequency or distance are not the best indicators of purchase value.
As a result some companies are shifting the model of their programs to award points/miles for actual dollars spent. This approach is more flexible and allows companies to create a more dynamic points/mileage pricing model that takes into account multiple factors affecting purchase price.
Companies are grappling with how to incorporate and manage social media.
Social media and how to use it is something all brands are trying to get their arms around. Ignoring it, though, is not the answer. Social is here to stay.
One way companies can and are beginning to incorporate social aspects into loyalty programs is by offering social media log-in options as part of the registration process for a loyalty program. This allows a customer to use an existing social identity (Facebook, Twitter, Google+) to sign up rather than having to complete an online form. Doing this enables a company to immediately tap in to a rich source of information about that customer and establish a more relevant interaction from the start. More importantly, when the customer makes a change to his or her social identity (for example, the customer's Facebook profile), it is possible to automatically update those changes to the loyalty database, too.
Other elements of 'social marketing' that companies are embracing include plug-ins that allow customers to comment, rate, review and refer either within a website environment or via a mobile app. Gamification, or the use of game-like elements to engage a target audience, is another big area of opportunity for companies to complement and enhance their existing loyalty program format.
On the other hand, because of social media, brands have much less control over managing the message they want to communicate to customers. What is meant to be a "special offer" or "exclusive invitation" for a discrete audience can, through one post or tweet, be blasted for all to see. Companies need to take these potential implications into account in the communication planning process.
Companies are also grappling with information overload.
Loyalty programs can generate terabytes of data every day; the tough part is understanding the right data. Everyone says "it's all about big data," but its really about cutting through that big data to understand what is working and what isn't, and to zero in on what you should be looking at.
A lot of companies still rely on metrics that were developed 10 years ago. Just as programs need to evolve, so do the metrics for success. An analogy would be a hardware manufacturer that makes desktops and laptops, but not smart phones or tablets. They could look at their sales data and think, "Oh, look, our share of the desktop and laptop market is increasing! We must be doing well!" But when you look at that data in context, that the desktop and laptop market is shrinking rapidly because more people are relying on smartphones and tablets, then you're heading toward 100 percent of a zero market.
Technology has dramatically increased the ways in which a company and its customers can engage and interact with each other, both positively and negatively.
Using technology to enhance the brand experience is becoming more and more crucial. For example, if you're a hotel chain, you can give your guests access to their rooms through an app on their smartphones, so they never even have to check in at the desk.
The trick of course is how can a company make sure they are "there for them" at just the right moment, when the customer wants to engage with you, when you are priority number one for them.
The challenge today is companies have to have their eyes and ears open across a myriad of touch points, not just the physical and digital locations they may control, such as their website, brick-and-mortar outlet or outbound marketing communications. The explosion of social media (YouTube, Twitter, Pinterest, Snapchat, Facebook) has dramatically changed the landscape. Customers are more likely to post something to these sites about their brand experiences than contact the company. One misstep in the way a brand handles the response, never mind a few, and the whole world will know about it – just ask GM and Malaysian Airlines.
Developing a multi-partner program may generate incremental revenue but how effective is it in building loyalty to your brand?
In addition to their own brand products, many loyalty programs offer their customers the ability to earn and redeem points/currency for purchasing products or services from complementary brands.
A great example of this are the airline and hotel programs, where, for example, members of American's AAdvantage program can earn miles for purchasing a range of both travel and non-travel related products -- including for purchasing a mortgage or buying flowers.
On the one hand, this offers a great proposition for customers as they can accelerate their ability to rack up miles and qualify to redeem a reward. Plus, for AAdvantage, this creates an incremental revenue stream – as the partner brands are buying the AAdvantage miles they are then offering.
Research suggests that for some airlines their loyalty programs, buoyed by the incremental revenue generated from their program partners, represent their most profitable division.
However, it does beg the question: Is this coalition approach really helping to build loyalty towards the airline or is the customer loyal to the program? Is the customer commitment to the airline in jeopardy once they have redeemed their miles? And what happens to loyalty to the airline if they spin off or sell their loyalty program division?