The Future of Loyalty Marketing for Consumers and Businesses

The Future of Loyalty Marketing for Consumers and Businesses

The Future of Loyalty Marketing for Consumers and Businesses

Guest Bio

Andrew B. Morris

Andrew is Chief Content Officer at Money20/20 and leads content development, including speaker selection/recruitment and all agenda planning, for Money20/20's flagship event in the U.S., which is scheduled for October 23-26, 2016 in Las Vegas.

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There is nothing more basic to business success than loyal customers. Fred Reicheld, author of The Loyalty Effect and founder of Bain & Company's loyalty consulting practice, reports that building loyalty with five percent more customers leads to an increased average profit per customer of between 25 and 100 percent.

A staggeringly large industry now exists to support programs designed to drive repeat purchases by existing customers. Colloquy estimates that there are nearly three billion loyalty program memberships in the U.S. and that more than $12 billion is paid in retail loyalty incentives each year. And if you include payment card, hospitality and travel reward programs, that number jumps to $50 billion.

In this increasingly competitive marketplace, retailers and brands require strong returns on their remarkable level of investment in loyalty programs. Here we explore four key trends that will drive the future of the loyalty marketing industry.

#1. "Small Business, Big Loyalty"

A 2014 BIA/Kelsey and Manta study of 1,000 small businesses in the U.S. revealed that while more than 60 percent of small to mid-sized business (SMB) owners generate a majority of their annual revenue from repeat customers, more than two-thirds do not have a loyalty program in place. "Until recently, effective loyalty programs have been largely out of reach for small merchants," explains Rick Ducey, managing director, BIA/Kelsey. "The programs have been too cumbersome for SMBs to manage, and SMBs often lacked the technology to implement them."

As a result, an increasing number of loyalty solutions are emerging that bring the type of loyalty capabilities to this underserved SMB marketplace that were previously only available to national chains. Solutions are typically cloud-based and leverage smartphones and tablets to engage mobile-first consumers as well as to be more cost-effective.

#2. "Getting to Know You"

Emotion is an important component in creating authentic customer engagement – and personalized service helps drive this emotional connection. Imagine the experience of walking into an old-fashioned general store. Given his relatively small group of regular customers, the general store proprietor could keep all of his customer data in his head, but to implement this same experience at scale requires automation.

The most valuable type of data is purchase data. Card-linked marketing uses purchase data to deliver relevant ads through mobile and online banking applications. A leader and pioneer of card-linking is Cardlytics, with nearly 400 banking relationships in the U.S. and U.K.

Card-linking is simple for the consumer – no extra steps, coupons or paperwork. The consumer captures the reward by paying with a card, and it is deposited into their bank account. Card-linking is also simple for the retailers who advertise on the platform.

Whether it is card linking or another data-driven approach to marketing, the ability to gather and analyze customer data in real time to deliver personalized customer experiences is an important trend driving the future of loyalty.

#3. "Location, Location, Location"

One of the most important factors in delivering personalized and relevant experiences for consumers is the context in which they are receiving communications. The location technologies found in every smartphone today are precise enough for marketers to understand when the customer is at or near the store and to use that contextual information to increase the relevance of marketing communications. A technology called "beacons" is the most common approach.

Adoption of beacons – Bluetooth-enabled sensors that connect with nearby mobile phones and tablets – is spreading. Nearly one-third of the top-100 retailers in the U.S. will have deployed beacons this year, according to Business Insider, and 85 percent will have beacons by the end of 2016.

ShopKick is one of the pioneers in using beacons. It uses points called "kicks," which are awarded when users walk into participating stores. Kicks are also awarded for scanning product barcodes or QR codes using a device's camera, and for making purchases. "Beacon technology has been met with huge enthusiasm among retailers," said ShopKick co-founder and CEO Cyriac Roeding in a release.

Business Insider says that beacons will influence more than $4 billion in U.S. retail sales this year – a scant 0.1 percent – but that this number will increase tenfold in 2016. Based on in-store campaign performance and shopper surveys conducted during the 2014 holiday season, 60 percent of shoppers engaged beacon-triggered content, the company says, and 30 percent took advantage of a beacon-triggered offer. The data also revealed that 73 percent of shoppers indicate that beacon-triggered content and offers increased the likelihood of purchase during a store visit, and 61 percent said they would visit stores with beacons more often.

#4. "So Happy Together"

Abeer Bhatia, CEO of U.S. Loyalty at American Express, knows his company is placing a big bet on Plenti, its new coalition loyalty program launched in March 2015. In a company press release, Mr. Bhatia explained that Plenti is "the first U.S.-based coalition loyalty program where consumers will have the flexibility and choice across seven well-known brands to earn and use points for purchasing a wide range of products."

Many have tried coalition loyalty but few have succeeded, with the two most successful programs in the U.K. (Nectar) and Canada (Air Miles). Many reasons have been cited for the lack of coalition loyalty success in the U.S. market, including daunting POS technology requirements, the lack of unified membership and card-tracking infrastructure, the competitive business environment and the lack of a national retail anchor for repeated consumer spending.

But there are significant advantages in coalition programs like Plenti. For program sponsors, the coalition provides wallet space and customer engagement, cost benefits, and a more complete and useful customer database – and there's more cumulative value for consumers.

An eye to the future

The good news is that many exciting solutions are coming into the marketplace. And innovation in loyalty marketing is happening across the entire retail and payments value chain. The call to action for brands and loyalty solution providers is to create programs that more efficiently bring value to both consumers and businesses.

The statements and opinions of the writer do not necessarily reflect those of TSYS.

Other Articles by Andrew

Andrew B. Morris

Andrew is Chief Content Officer at Money20/20 and leads content development, including speaker selection/recruitment and all agenda planning, for Money20/20's flagship event in the U.S., which is scheduled this year for October 23-26, 2016 at The Venetian in Las Vegas.

Although not currently practicing, Andrew is also CEO & Founder of Morris Advisors Inc., an independent consultancy that advises retailers and other industry stakeholders on payments and commerce strategy. In addition, Andrew is a member of the FinTech Steering Committee for the Technology Association of Georgia and is Co-Chair for TAG's annual FinTech Symposium to be held in Atlanta in February 2017. He was formerly head of the mobile commerce consulting practice at inCode, a division of Ericsson Inc.

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