Loyalty In the Age of Disruption


Loyalty In the Age of Disruption

10 Minute Read
Things are moving fast and people don't know what to do. In this rapid moving world it is hard to determine who is loyal or not. What could this mean for your business?

The retail industry is facing unprecedented disruption as new technologies and competitors upend established ways of doing business.  Paradoxically, these trends make it critically important to retain and grow loyal shoppers, but at the same time they make it harder than ever to build strong and lasting customer relationships.

I recently moderated a panel on loyalty at Shoptalk where we discussed the trends shaping loyalty in this age of disruption, as well as the strategies and tactics leading retailers and e-commerce providers are using to build loyalty for the long-term.

Shoptalk is a nextgen retail and ecommerce event.  Now in its second year, the event brings together senior leaders from both brick and mortar retailers and e-commerce and retail tech startups to discuss the trends shaping the consumer and retail landscape and to share ideas.  Shoptalk is a must-attend event for anyone in the retail space.

For my panel, I was joined on stage by Karen Chiarucci, VP of Marketing & Customer Engagement for Payments, Gap, Inc.; Whit Goodrich, CMO, Retail Cards, Synchrony Financial; Jabob King, CMO, Plenti, American Express; and Aarthi Ramamurthy, Founder & CEO of Lumoid, an innovative e-commerce startup focusing on consumer electronics.

We had a wide-ranging conversation on how to build successful loyalty programs followed by Q&A from the audience.  Below are some of the key takeaways from the panel:

Get In Touch

Let us know what you’re interested in and we’ll be in touch.

Reach Out
  • Customer first. Regardless of program type, loyalty programs must begin and end with the customer.  While almost every company says they put the customer first, few actually make the investments in people, technology, data analytics, personalized marketing programs, etc. required to truly run the business from the customer out.
  • Creating differentiation. With so many loyalty programs out there, it can be hard to differentiate your program.  One key is to make sure any loyalty program is consistent with, and builds on, a company’s brand.  By tailoring the program to the most important needs of your shoppers, whether it be lower prices, or exclusive experiences, or faster services, retailers can ensure their programs provide the right incentives and rewards for loyal behavior.  While loyalty programs can be differentiated, loyalty schemes – gimmicky and over-complicated programs focused on driving short-term sales – cannot.
  • Hone in on key customer pain points. For both online and offline retailers, successful loyalty programs solve customer pain points.  One reason that Amazon Prime has been so successful, for example, is that it removes its customers’ biggest pain point, shipping costs, from the purchase decision.
  • Rewards and incentives need to be easy, relevant, and attainable. To influence customer behavior, retailers need to create programs that are easy to understand and easy to use.  If you can’t explain your program with a simple graphic or few paragraphs of text, it’s probably too complicated.  Rewards and incentives also need to be relevant, understanding that what matters to one shopper (say updates on the latest in fashion) can be vastly different from another shopper (who just cares about deals).  Finally, benefits need to be attainable.  Customers will lose interest in a program quickly if they have to spend too much or it takes too long to earn a reward.
  • Don’t forget to surprise and delight. Great loyalty programs find occasions to surprise and delight customers outside of formal program mechanics.  We sometimes forget the power of a small gift that simply says “thanks for being a loyal shopper.” At Kroger, for example, we used to include a coupon for a free item in our quarterly loyalty mailers for something the customer bought regularly, say a free pint of ice cream or frozen food entrée.
  • Avoid unnecessary roadblocks. Signing up for a loyalty program needs to be as easy as using Amazon or PayPal.  People don’t come to a store or site to sign up for a loyalty program – they are there to buy your products – so the process needs to be a natural extension of the shopping process.  In addition, it’s important to train associates on the program and how to sign up and use it so that they can become advocates (and to keep training – with turnover and other pressures, I’ve seen cases where within a few months, almost no store employee can answer even basic programs about how a loyalty program works or how to sign up).
  • Digital is not a nice to have. Retailers should leverage digital and mobile technology to provide an enhanced experience to customers.  For brick and mortar retailers, the key is providing an integrated experience that brings the digital and physical together.  One big advantage of mobile is that it is much easier and cheaper to deliver personalized offers and content digitally than in store.  Mobile apps in particular can offer significant value to customers by making it easy to find coupons they’ve downloaded, build shopping lists, check point balances, and even pay.  Retailers can also leverage digital to provide store employees with updates on in-store promotions or provide direct access to CRM systems to deliver better service to customers.
  • My app or yours? To borrow a tech term, most retailers’ apps are closed platforms – they only let consumers use their apps and their technology when they are in the store.  While some retailers are large enough to make this strategy work, most retailers struggle to get sufficient mobile downloads and engagement.  One option is to partner with one or more of the top consumer mobile apps.  The Gap, for example, is starting to accept Apple Pay and is exploring ways to getting their rewards into Apple’s Wallet app.  The goal is to create a seamless experience for the customer regardless of whose app the customer wants to use.  As one panel member said, “It’s hard to fight your customers if they want to use popular apps.”
  • Data drives everything. Data is the lifeblood of a successful loyalty program.  For most companies, the challenge is not capturing the data, it’s figuring out how to use it effectively.  By integrating transaction, channel, interaction and other data, retailers can understand the customer and what her day looks like at increasingly granular levels.  Moreover, digitally-enabled data collection can provide a fuller picture of customer interests and preferences that are nearly impossible to discern in a brick and mortar setting – for example, what do customers look at but not buy, what do they add to their wish list, and what do they share on Facebook or Pinterest?   These insights can be used to deliver relevant offers and content when and how the customer wants.  Perhaps more importantly, they can be used to make better business decisions; for example, what items to carry and what pricing and promotions will optimize sales and profits.
  • Focus on the right metrics. Customer engagement is the best measure of loyalty program success because it drives everything else.  Retailers thinking about adding loyalty programs should test a variety of program elements to evaluate what resonates with customers and what doesn’t.  Panel members cautioned against being overly focused on transaction counts or making money from the program in the early days.  It can take time to build momentum.  While economics are important, it has to come in the context of customer lifetime value.  In too many cases, retailers count on breakage (the amount of reward checks that don’t get redeemed) to make their numbers.  If customers aren’t redeeming their rewards, however, it means the retailer isn’t engaging them and is missing the upside opportunity to enhance those relationships.
  • Is a coalition program right for you? Many retailers with low shopping frequency can struggle to make a loyalty program pay off.  If your customers shop only a few times a year, a coalition program could be worth exploring.  In a coalition such a Plenti, customers can earn in one place and burn in another (Plenti’s partners include Macy’s, Rite Aid, Southeastern Grocers, Hulu, and Expedia).  As a result, customers have more opportunities to earn rewards which leads to more usage which leads to more value for all the coalition partners.  The risk with a coalition program is that the retailer’s brand can get lost in the noise so retailers need to carefully weigh the pros and cons before proceeding.
  • Actively explore partnerships. Retailers can leverage other partners without necessarily joining a coalition program.  For example, Safeway has long partnered with Chevron as part of its fuel rewards program.  Digital technologies make it much easier to integrate with partners.  For example, at Shoptalk, Visa highlighted wallet technology that lets a retailer or restaurant provide rides on Uber in return for in-store purchases.  Previously a program like that would have required the retailer to print and mail a paper certificate which the customer would then have to remember to redeem.

I’d like to thank Shoptalk for inviting me to moderate the panel.  We had a great time discussing what’s new in loyalty and what it takes to create a successful program.  I’m already looking forward to next year’s show!

About the Authors

Ken Fenyo Headshot
Ken Fenyo
West Coast Markets Lead

Ken leads our Consumer Markets team developing client relationships and benchmarking tools.

Read full profile

McKinsey uses cookies to improve site functionality, provide you with a better browsing experience, and to enable our partners to advertise to you. Detailed information on the use of cookies on this Site, and how you can decline them, is provided in our cookie policy. By using this Site or clicking on “OK”, you consent to the use of cookies.