By Rick Ferguson
[Editor’s note: This article is Part III of a multi-part series. Read Part I here and Part II here.]
In our last installment, we reviewed the forces threatening to disrupt the global loyalty industry and potentially render obsolete traditional loyalty program models. We focused on disruptive technologies as exemplified by behavioral targeting and blockchain technology. We asked: Is the loyalty industry about to go gently into that good night?
Rather than sound the death knell for the loyalty industry, I’m here to deliver good news: In the battle against disruption, the loyalty industry remains poised not only to stave off the forces of creative destruction, but also to thrive in the frictionless future.
Consider blockchain-based loyalty platforms, for example. One of the more salient arguments made by blockchain skeptics is that blockchain advocates often underestimate the necessity of human intervention in marketing operations. Advocates assume that blockchain will result in lower costs for businesses, whether that cost is associated with identifying customer transactions, providing secure mobile payments, or enabling loyalty programs. History does not, however, provide much comfort that these lower costs will prove out.
Take, for example, the rise of "Over the Top" (OTT) television in the US, exemplified by streaming services such as Amazon, Netflix, Hulu, et.al. Evangelists predicted that the rise of these services would end the era of Big Cable and send an entire generation of Millennials cutting the cord to enjoy their favorite programs a la carte' and at lower costs than traditional cable. Comcast, Time Warner and their ilk would soon go the way of the dinosaurs, undone by their own cumbersome, expensive business model.
Only that isn't what happened. OTT providers charge what the market will bear - and what the market will bear is what most consumers are already willing to pay for traditional cable TV. Cutting the cord and receiving anywhere near the quality and variety of legacy cable programming requires you to sign up for multiple streaming services that collectively cost just as much a Comcast package. The result: massively increased friction, fewer viewing options, and no real cost savings. OTT technology has thus far failed to realize the low-cost viewing utopia its advocates envisioned.
That's not to say blockchain won't prove to provide everything its advocates say it will. It's merely to say that promises of technological utopia often fail to materialize. Blockchain will certainly play a role in consumer interactions - but it may very well result in systems that work less well, and cost more, than its proponents envision.
Digital targeting is only the beginning of a relationship
Here’s more good news: As a discipline, loyalty marketing enjoys significant and disruption-proof advantages over online behavioral targeting, which allows brands to target micro-segments of consumers based on their online behavior. Here are three primary advantages of loyalty marketing over digital targeting:
Permission and privacy: Behavioral targeting represents marketers doing things TO customers, rather than FOR them. This targeting happens without your knowledge, endorsement, or the expectation that it will deliver any value to you other than more intrusive advertising.
Loyalty programs, by contrast, are constructed around an environment of permission and trust. We invite members to participate, and they do so willingly with the expectation of mutual value. In many cases, members even pay a fee to join these programs, giving them some skin in the relationship. The permission and trust inherent in the loyalty program model is a sustainable competitive advantage for those brands that operate them.
Customer value: For all the promised sophistication and ROI of digital targeting, the truth is that it’s just another form of broadcast advertising. Marketers merely blast messages and offers to customers with no opportunity for dialog, value exchange, or increased relationship equity. Agencies still measure the effectiveness of ad buys in click-throughs and impressions. When a customer does click through the ad and make a purchase, the marketer still has no idea of that customer’s overall value or potential value to the brand, and there’s no opportunity to build a deeper relationship.
With their focus on transactional data, loyalty programs still deliver the edge in measuring and predicting lifetime customer value. Those practitioners who can successfully connect loyalty program data to other forms of data– CRM, social, engagement, etc.– to develop a true 360-degree customer view will enjoy a significant and sustainable competitive advantage over those who don’t.
Relationship levers: Here‘s another dirty secret of the digital targeting industry: most of those marketers who are successfully leveraging behavioral data are using it to deliver the lowest-common denominator of marketing offers: the discount.
Discounts are the predominant mode of marketing offer; according to research compiled by Statista, CPG marketers distributed 310 billion coupons in 2014, while NCH Marketing research revealed that non-food coupons now represent two-thirds of total distribution volume. According to Coupon Facts, the number of CPG coupons issued increased by 3.3 percent last year, while the total volume redeemed actually decreased by 3.4 percent. Consumers are receiving more discount offers than ever, but offer response is stagnate. Behavioral targeting has transformed marketing efficiency, but it has yet to transform marketing effectiveness.
Loyalty marketers, in contrast, have a variety of behavioral levers at their control to motivate behavior change and increase relationship value. Promotional currency is still the most fungible tool we have to change customer behavior through targeted bonusing. Soft benefits provide access and privilege to high-value customers. Rewards redemption provides a regular, tangible expression of relationship value to members. Marketers who deploy these tools will continue to hold sustainable, competitive advantage over those who don’t.
These advantages are why loyalty marketing will remain one of the most powerful weapons in the CMO arsenal. That said, loyalty marketers still have much work to do to remain effective in the frictionless future – and in our next installment, we’ll explore in detail the key imperatives for the next few years.
Rick Ferguson is CEO and Editor in Chief of the Wise Marketer Group.