Designing for loyalty in a digital world
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The document discusses the decline of traditional points-based loyalty programs which are failing to create lasting brand connections in the digital age. It highlights the need for brands to focus on convenience, personalized experiences, and emotional engagement to drive consumer loyalty effectively. The research categorizes successful loyalty programs into distinct types, emphasizing that holistic programs that integrate user-centric technology and remove friction provide the greatest consumer value.
Designing for loyalty in a digital world
- 1. Designing for loyalty in a digital world
- 2. EXECUTIVE SUMMARY Loyalty is not for sale Conventional points-based loyalty programs are failing to build lasting brand love in the digital age. Rapidly changing consumer expectations are pushing brands to re-think how they engage and impress their audiences to keep them coming back. Traditional loyalty programs have offered consumers rewards in exchange for their personal shopping data since the mid-1990s. Although this model has been widely adopted, with the average American household enrolled in 29 programs, over time a lack of differentiation between points-based schemes has resulted in fading consumer engagement1. In fact, research shows that traditional loyalty scheme members are actually less loyal than non-members!2. With the proliferation of user experience centered businesses like Uber, Netflix and Amazon, consumers have come to rate convenience and ease of use as highly, if not higher, than cost- saving. Our research explores how brands are driving consumers’ loyalty by saving them time, predicting their needs and tailoring incentives to their preferences. We outline how the intelligent use of technology and user-centric design can offer greater value to consumers in-store and out compared to the traditional transactional rewards model. 1 Colloquy Census, 2015 2 TABS Group Consumer Value Study, 2015
- 3. RESEARCH RESULTS There’s more to loyalty than points Through our research, we found that loyalty programs fall into four distinct categories, assessed across functional features and emotional elements. We analyzed the 40 leading loyalty programs from some of the most admired brands in the US and the UK. We found that best-in-class programs were designed to make the purchase experience easier, quicker, more personalized, and more enjoyable. Schemes focused solely on points and discounts failed to add the same amount of value to consumers and therefore are less affective at driving loyalty. NO FRILLS REWARDS Just the points Offers rewards and discounts only, with no focus on the consumer experience. UTILITARIAN Saving time and effort Designed to make the consumer’s purchasing journey easier but fails to create a personal connection. CONNECTOR Meaningful engagement Appeals to the emotional side of consumers, personalizing the experience and delighting them, but doesn’t make the journey any quicker or easier. HOLISTIC Thinking about the whole experience Uses innovative digital functionality to remove friction and build personal connections with consumers throughout the journey. FUNCTIONAL EMOTIONAL LOWHIGH LOW HIGH
- 4. REPORT: Designing for loyalty in a digital world
- 5. DEFINITION Brand loyalty Consistently choosing to purchase from the same brand rather than competing brands.
- 6. Traditional loyalty programs don’t cut it In a world of instant gratification, traditional programs don’t deliver. Since the mid 1990’s, traditional points-based loyalty programs have rewarded consumers with points and discounts in exchange for their purchase data and loyalty. Consumers are failing to see value in this exchange anymore. Research shows that there are an estimated £5.7bn worth of unclaimed points across the top 10 loyalty programs in the UK. Points take a long time to earn, are difficult to redeem and rarely provide a sufficient return on the effort made to collect them, so consumers aren’t bothering anymore. Traditional loyalty program The Telegraph, 2015 Estimated worth of unclaimed points from the top 10 loyalty programs in the UK: £5.7bn AWARENESS Consumer receives points or rewards post-purchase PLANNING PURCHASE USE
- 7. We have seen three major shifts in consumer behavior that are impacting brand loyalty.
- 8. TREND 1 Consumers are spoiled for choice Consumers have more choice across online and offline channels as new brands proliferate and consumers have access to every store in the world through their smartphones. Digital marketplaces and platforms like Amazon, Etsy, Pinterest, and Uber Eats provide more exposure to choice, resulting in decreasing consumer loyalty to any one brand3. Two thirds of consumers say that the number of companies or brands they consider when making purchase decisions has increased significantly compared with 10 years ago4. As a result, research shows that 90% of the largest brands are declining in market share5. 3 AdAge, Top 100 CPG Brands Mostly Lost Sales and Share in Past Year, 2015 4 Accenture, Customer 2020 5 Catalina Marketing Report / IRI Worldwide, 2015
- 9. TREND 2 Expectations are higher Brands need to focus on convenience as much as price. In fact 86% of consumers are willing to pay more for a better consumer experience6. Younger demographics especially are used to getting things on-demand, with 56% of consumers aged 18-34 expecting a same-day delivery option from retailers7. If companies don’t move faster, consumers will move on. Nearly two-thirds say they use online channels across sales, marketing, and service because of their speed and convenience, while just over half say they have become more impatient and want their buying decision process to be fast with minimal effort8. 6 Oracle CEI Survey, 2011 7 Trustev, 2015 8 Accenture, Customer 2020
- 10. TREND 3 Memorable experiences matter most 77% of Millennials prefer a cool experience over a cool product9. As consumers become more digitally savvy and increasingly barraged with choices, standing out with a captivating and memorable consumer experience can be a compelling advantage. Competitive prices alone are not enough to entice consumers to keep coming back. It’s about the whole consumer journey and making each interaction a moment of delight and authentic engagement. 9 Deep Focus, 2015
- 11. So which programs have adapted effectively to the new era?
- 12. RESEARCH Our methodology In our research, we assessed 40 brands who have loyalty programs active in the UK or US, and who are ranked on any of the Superbrands, Fortune, Forbes or Interbrand lists of most valuable or admired brands. We evaluated these loyalty programs across two dimensions of consumer value: functional and emotional. The functional factors focused on how the loyalty programs were designed to take friction out of the consumer purchase experience. The emotional factors focused on how the loyalty programs were designed to bring the consumer closer to the brand with features that delight or surprise them. We scored brand programs on the degree to which they addressed each factor through a heuristic scoring system.
- 13. FUNCTIONAL FACTORS EMOTIONAL FACTORS Faster: e.g. shorter waiting time, no queues, faster delivery Special: Delighting the consumer with special moments or surprises We assessed the loyalty programs across six factors Purpose: The loyalty program closely ties to the brand purpose, extends it, or complements it in a meaningful way Personal: Based on data, give consumers personalised experiences and recommendations New functionality: Enabling you to do new things that add value to the consumer experience Simpler: e.g. use digital to enable easier steps in the journey, i.e. use smartphone functionality to complete actions
- 14. RESULTS Loyalty programs are offering more than discount points NO FRILLS REWARDS Just the points Offers rewards and discounts only, with no focus on the consumer experience. Through our research, we found that loyalty programs fall into four distinct categories. UTILITARIAN Saving time and effort Designed to make the consumer’s purchasing journey easier but fails to create a personal connection. CONNECTOR Meaningful engagement Appeals to the emotional side of consumers, personalizing the experience and delighting them but falls short on making the journey any quicker or easier. HOLISTIC Thinking about the whole experience Uses innovative ideas to remove friction and build personal connections with consumers throughout the journey. FUNCTIONAL EMOTIONAL LOWHIGH LOW HIGH
- 15. No Frills Rewards Like the traditional coffee-shop stamp cards, these programs allow returning consumers to accrue points and discounts through repeat purchases. These programs are easy to sign up to and always free, but provide limited differentiation and don’t do much to improve the overall consumer experience. O2 Whole Foods Nordstrom M&S Coca-Cola Wyndham Nando’s Avios MorrisonsMcDonald’s Tesco TRANSACTIONAL TRADITIONAL ONE STEP OF THE JOURNEY Sainsbury’s KFC Southwest Airlines CostaBoots Subway
- 16. Utilitarians Utilitarians are the programs that focus on improving the experience from the functional side. While many activities are made easier or faster, the loyalty programs tend to miss the personal touch of the brand that could differentiate them from competitors. These programs focus on features that are easy to copy. They could improve by doing more to delight consumers or focus on building long-term relationships. CVSAccorHotels FASTER EASIER GENERIC Delta Airlines
- 17. Connectors Connectors focus on putting their brand’s imprint on their loyalty program and on making the consumer feel special. They provide additional value to the consumer through personalized offers and exclusive rewards (e.g. early access to sales) that can forge stronger emotional bonds by delighting the consumer. These programs could do more to embrace digital channels and focus on making the purchase experience quicker and easier. IKEA Mothercare Lego PERSONAL PURPOSE SPECIAL Waitrose Pampers Lancome Virgin RED Asos
- 18. MEANINGFUL REWARDS Holistic Holistic programs score highly both on functional and emotional factors. These programs give the consumer something that makes the overall experience unique compared to competitors and aligns closely to what the brand stands for. They are innovative and foster loyalty with consumers. Amazon Starbucks Walgreens Pepsi Hilton Marriott Sephora Target American Express John Lewis Nike CONNECTED TO BRAND PURPOSE PART OF PEOPLE’S HABITS
- 19. Most loyalty programs are moving beyond monetary rewards AmazonStarbucks Walgreens CVS Pepsi Hilton Marriott British Airways Sephora Nike AccorHotels Target American Express Southwest Airlines Lancome O2 Whole Foods Sainsbury’s KFC IKEA MothercareLego Nordstrom M&S Coca-Cola Costa Waitrose Virgin RED Wyndham Boots Subway Nando’s Avios FUNCTIONAL EMOTIONAL John Lewis Morrisons Delta Airlines Pampers Asos McDonald’s Tesco UTILITARIANS HOLISTIC NO FRILLS REWARDS CONNECTORS
- 20. We believe Holistic Programs are the most effective at driving loyalty. We have outlined three best-in-class case studies.
- 21. CASE STUDY Starbucks Starbucks differentiates from other coffee houses because it considers the context of buying their product: being on the go. Its loyalty program is designed for the urban tech-savvy consumer who likes the ease of paying through the app and skipping the queue. 16 million active users and 20% of revenue exchanged through the app. Receive points “The Star Rewards are almost as addictive as the coffee itself!” - Robert H. app review Automated journey steps / easier interactions Check your balance and add funds to your Starbucks Card (with debit/credit card or Apple Pay). Save waiting time in the queue Starbucks identified a key pain point in the experience of getting coffee on the go: rush hour queues. With the Starbucks app, you can order and pay before you step into the shop saving time on queuing. AWARENESS PLANNING PURCHASE USE LOYALTY
- 22. 80m out of 104m members are active. CASE STUDY Walgreens Pharmacist Walgreens uses its loyalty program to keep their brand promise front of mind even after consumers have left their stores. The loyalty app integrates with users’ Fitbits and rewards them based on how much exercise they do. The app also has a ‘pill reminder’ tool that helps consumers keep on top of their medications and prescriptions. Simplified journey Through pill reminders, Walgreens makes it easier for their consumers to stay on top of their medication. Connection to brand purpose The purpose of Walgreens is to enhance health. With their loyalty program, consumers collect points with healthy behavior, tracked by their Fitbit. This connects them to Walgreens in an emotional sense because they share a purpose - improving their health. Save time Get reminders and refill prescriptions through the in-app label scanner, saving time in-store. AWARENESS PLANNING PURCHASE USE LOYALTY
- 23. 63m Amazon Prime members. CASE STUDY Amazon Prime Online retailer Amazon Prime flips the loyalty program premise on its head by asking its consumers to pay for it. In return they provide a bundle of valuable services from convenient next day delivery to instant access to amazing film and original TV series content. Image sources http://www.broadbandtvnews.com/2016/11/08/amazon-increases-amazon-prime-price-germany/ Faster Free two-day shipping on millions of products with no minimum purchase. Rewards Free access to Amazon Prime video on demand, borrowing books from the Kindle Owners’ Lending Library, unlimited photo storage. Connection to brand purpose The purpose of Amazon is to build a place where people find and discover anything they might want to buy online. All these Amazon Prime perks enable this to happen. Special Members get 30 minutes early access to Lightning Deals. AWARENESS PLANNING PURCHASE USE LOYALTY
- 24. Eight things to remember when designing your loyalty program
- 25. Eight lessons for growing loyalty Last year, 89% of companies claimed that consumer experience will be their primary basis for competitive advantage (Gartner, 2016). By focusing on understanding the consumer and designing a loyalty program that provides an enhanced experience, brands can build more long-term relationships. When building a loyalty program, it’s not only about making sure that interactions work smoothly and consistently from start to finish - it’s about making the whole experience that much better than the competition, so the consumer no longer needs to consider where to make their next purchase. Starbucks’ loyalty program keeps their consumers coming back by making the whole experience better from ordering your coffee in advance and skipping the queue, to trying a Butterscotch Brûlée Latte before anyone else. 1 Focus on the experience At the heart of each loyalty program is the collection of consumer data for the benefit of the brand. But many brands fail to design their programs in a way that maximizes the benefits for the consumer as well. If a service gets to know a consumer better after each use, and adapts the products to their needs in the process, it becomes less attractive for the consumer to switch to another brand. Ultimately, data should be used to make the consumer feel special - Asos A-List surprises you with 10% off on your birthday - and even more if you are a higher-tier consumer. Remembering a user’s preferences and past behavior can help not only to design a great experience, but to anticipate their needs and respond in the best way possible. 2 Use data to personalize
- 26. 3 4 Eight lessons for growing loyalty Traditional programs often expect consumers to fill in long forms to order a loyalty card, and understand complicated points systems to figure out how much money they are saving. The key is to make the whole experience smooth sailing for the consumer. Enrol them automatically with their first order. Avoid complicated points systems. Don’t make them work hard to prove they are a loyal consumer, so that they feel truly special when you notice their love for your brand and reward them. At booking.com, travellers who book through the site six times are automatically enrolled on their .genius program which not only gives a 10% discount to hotels that are part of the program, but also makes the consumer feel special by giving them perks like a free drink upon arrival and free airport shuttles. Make it easy Services that become more valuable the more you use them, such as storing extensive sets of preferences and data, can be effective at dissuading consumers from moving to a competitor. Similarly, by solving recurring pain points in their journey, brands give consumers a strong reason to stay loyal. Amazon often wins because consumers never have to re-enter data such as frequently ordered items, payment details or shipping preferences. But it can be taken further through anticipatory design - a combination of data analysis and user-centric design. Some of the most successful platforms do this really well, such as Spotify and Pinterest because they hold so much information on consumer preferences, they are making it extremely difficult for their loyal users to even consider going somewhere else, where they would have to build their music or pin libraries from scratch. Make it hard to walk away
- 27. Eight lessons for growing loyalty The strongest loyalty programs create network effects when consumers engage with your product, and enable the most loyal consumers to become brand ambassadors. This can be achieved by rewarding consumers for referral, social media promotion or other types of engagement. Consumers are increasingly used to being an active part of a product, rather than passive users, through their regular use of social media. Some brands have succeeded in emulating TripAdvisor’s community contributor model. TripAdvisor users are encouraged to review restaurants and hotels on the site to gain points, reach new levels and show off their expertise with unique and fun badges. UK telco TalkTalk incentivizes consumers to provide answers to other consumers’ questions through points and badges. 5Make consumers work for you Loyalty programs should be an extension of the brand promise, strengthening what the brand stands for. If it doesn’t feel like a natural fit, it won’t make sense to the consumer. Walgreens, for example, integrates its brand with people’s health behavior by rewarding them through their Fitbits, and relieving key frictions in the consumer journey through pill reminders and easier prescription refills. By rewarding them for their healthy choices, Walgreens reminds its consumers of its brand throughout the day, even when they’re not directly consuming. 6 Extend your brand proposition
- 28. Eight lessons for growing loyalty Consumers are becoming increasingly concerned about whom they share their data with. The value exchange needs to be transparent and communicated clearly to the user, so they are fully aware of what they’re entering into. In addition, data security should be a top priority for any brand launching a personalized loyalty program. Build functionality that allows consumers to pick and choose what data they share. During recent years Facebook has moved power to their users by allowing them to choose what information to share with third party apps. This type of functionality addresses privacy concerns, and should be considered in loyalty programs to clearly demonstrate to the consumer the value exchange between shared data and program benefits. 7 Show transparency to gain trust Technology continues to re-shape and provide more and more exciting options for brands and how they can interact, build experiences and sell to their consumers. However this ever- changing environment makes it increasingly difficult for brands to keep up with their rising expectations. Understanding the changing landscape of new technology and how they integrate into consumers’ every-day lives (such as voice-based services like Amazon Echo and Google Home) is essential for brands that want to provide a consistent experience, whatever the channel. Brands that recognize this and keep their finger on the pulse of leading tech trends will have the advantage of crafting future-proof experiences. 8 Let technology lead the way
- 29. INVISIBLE INTERFACES Voice driven interactions remove friction and make it easier for users to engage with products. ANTICIPATORY DESIGN Automating the whole task of buying (e.g. through subscriptions) or simplifying choice through personalized search results. PLATFORMS AS PRODUCTS The future of loyalty is making people part of your brand, allowing for network effects. NO-FUSS DELIVERY Driverless transport makes delivery a no brainer, making anything accessible to consumers instantly. CONNECTED SERVICES Through open APIs, services integrate with each other through a central AI (e.g. Google Home) and create one holistic, frictionless experience. Image sources: https://www.amazon.co.uk/echo https://nest.com http://venturebeat.com Stepping into the future To determine the future of loyalty, we need to understand the future of technology and design. To inspire you, we identified key trends for 2020 that can help design an engaging consumer experience that will deepen your brand’s relationship with your consumers.
- 30. Thank you