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What are Your Customers Loyal To?

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By: Wise Marketer Staff |

Posted on June 21, 2019

If you put a group of loyalty experts in a discussion together you are going to get a lot of opinions about what “loyalty” means. There are lots of new ideas stating that Loyalty 3.0 is more than points and brands, it is about analytics and customer centricity. And now, in bricks and mortar businesses, we have digital disruption complicating things more than ever for loyalty operators. As this digitization continues, an important strategic question for loyalty operators is, what are their customers loyal to.

I think one thing we would all agree on is that loyalty to brands or products exists regardless of whether there is a loyalty program in place or not. Consumers are loyal to a brand for quality, location, customer service, value and many other factors. A loyalty program, at its core, is simply meant to manage that existing loyalty. This existing loyalty is typically to airlines, credit cards, hotels, groceries and retail where the loyalty is to the brand or product or service. Over the past 30 years, loyalty programs in these industries have become a well known, well used, and even a highly profitable part of business. I realize this is a simplified definition of a loyalty program, however, looking at it this way allows us to see the disruption taking place.

Like all industries, the digitization of touch points with customers drives effectiveness and efficiency, but it can also change the core tenants of the business model thereby creating disruption. For loyalty programs in bricks and mortar, the changes in mobile and cloud technologies, and the new consumer expectations from these technologies, are making it harder to understand what consumers are loyal to. The line between how consumers buy a product or service (convenience) and what they buy (brand) is becoming blurry. This, in turn, makes defining what a customer is loyal to blurry as well. As digitization continues in brick and mortar, one of the most important strategic questions for loyalty operators to ask about their customers is “what are they loyal to?”

One of the obvious reasons Amazon has disrupted retail so much is due to their embrace of digital commerce and the cost benefits of operating digitally. A not so obvious reason, but their stated purpose, was that they focused on being “the most customer centric” company. Does Amazon have a loyalty program and, if so, what are those customers loyal to? As a brand, Amazon does not have a formal loyalty program, but it does have a paid membership with benefits, Amazon Prime (Amazon's Moments is a marketing tool or loyalty platform for partners). I would argue that Prime is a loyalty program, at least to some extent, where the customer is loyal to Amazons customer centricity. This is where it gets blurry. The customer can buy a Nike or Eddie Bauer product on Amazon Prime and receive an effective benefit from Amazon Prime in convenience, pricing or delivery. However, the product brands also have their own loyalty programs, NikePlus and Eddie Bauer Adventure Rewards offered directly by them. The consumer cannot “double dip” on the benefit or rewards and must choose which channel to buy the product through. This “double dip” issue is not new to the loyalty operators in credit cards and coalitions.

Another example can be seen in the hotel industry where one consumer may buy hotel rooms from Marriott and receive Marriott Bonvoy rewards while another can buy the same hotel room through an online channel and get Hotels.com rewards. In this example there would be “no double dipping” on rewards. However, this gets blurry if we ask the “Loyal to What” question. In both cases there is loyalty to a brand (Marriott and/or Hotels.com) but the distinction is what they buy vs how they buy it. To make the point clearer, a customer on Hotels.com may like the convenience of using Hotels.com and is therefore, loyal to that, while also preferring, when ever possible, to stay at a Marriott.

Once again, we know loyalty already exists and the goal of a loyalty program is to manage that loyalty. In this example, the digitization of hotel bookings created a product or service based on convenience that forces us to ask “what is the customer loyalty to?”; the convenient booking channel (Hotels.com) or the product/service (a room and services at Marriott). And, of course, there will be no double dipping of the rewards - or should there be? If all this transacting is done digitally then we should not worry about double dipping and instead be focused on what existing loyalty we are trying to recognize. In this case, there is loyalty to a booking channel and there is loyalty to a product.  

The examples used above regarding online hotels and retail have been around for a few years and they are fully digital transactions. Bricks and mortar stores are now facing significant disruption as mobile and cloud are enabling digital commerce at the POS. The likes of Uber, Airbnb, and Grubhub are allowing consumers to research, order, and pay online for physically located business. The consumer effectively has the POS in their mobile phone and the transaction becomes like an eCommerce transaction except the consumer “physically” picks up or uses the product. This may seem obvious, but it is a profound change in how bricks and mortar does business and, in turn, should change how retailers operate loyalty programs.

One of the leaders in offering digital commerce at the POS, including a loyalty program, is Starbucks. In just a couple of years since launching, the mobile order-ahead feature on the Starbucks app has reached 20%+ of sales in many of their stores. Some experts believe that could rise above 50%+. This means a large portion of Starbucks sales will be fully digital commerce, in the cloud with no POS involvement at the store. They are even testing stores with no POS. However, if you breakdown what is happening in the transaction and ask why is the mobile ordering so successful, it is due to the convenience of ordering ahead. The company is also a major brand with a product that is often bought daily so what will happen with lesser known brands and SMB independents?

As consumers get more familiar with the convenience of ordering and paying ahead, they will demand it more. Consumers who prefer independent coffee shops might use a 3rd party order-ahead app for the convenience of order-ahead. In fact, this is already happening in food and beverage as delivery companies like Grubhub and Doordash, and non-delivery order-ahead companies like Ritual offer the convenience of order-ahead and pay. There are other examples such as order-ahead convenience being offered to Wechat and ChasePay users. These programs are still in their early stages, but we can see that consumers may be loyal to a digital convenience tool (the ordering app) as well as to a bricks and mortar brand.

A restaurant operator today might refer to an order coming from an aggregator, like Grubhub or Ritual, as a channel. This is true, however, it is more than a channel as the aggregator owns the customer or at least owns the commerce part of the transaction. The secret is to think of these bricks and mortar transactions as digital cloud commerce transactions and, even take it further, to think of the actual location as the warehouse or production facility, not the point of sale. In other words, the customer, the product, and the payment information are all in the cloud. This is similar to ecommerce except no delivery and the physical (bricks and mortar) location is where the product is picked up.

This digital renaissance is still in its early stages, however, it will continue to advance. Convenience is king with consumers and with new technology driven channels developing like voice ordering, ordering from cars, mobile checkout, and even AI ordering - it will get more complicated. Brands in bricks and mortar need to de-couple the commerce parts of what they offer from the physical products and services they offer. They need to embrace these new digital channels and allow their customers to chose the most convenient way to access their product or service. At the same time, the loyalty operators need to examine each customer and understand what they are loyal to. They need to be open to rewarding loyalty to partner channels as long as the customer is loyal to their product. Technologies exist to make this possible for loyalty operators such as advanced API’s and blockchain smart contracts. The operators simply need to keep asking “loyalty to what?”

James Christensen is a Certified Loyalty Marketing Professional™ (CLMP) and often writes for The Wise Marketer on the intersection of payments and loyalty.