Several years ago we were working with a restaurant, encouraging them to think holistically in developing their loyalty program the client wanted loyalty to be a strategy, not a program. The mandate was that loyalty was to be more than just a promotional tool and about more than just points and rewards. They wanted the program to connect with all the other facets of the customer experience.
During work sessions, we used pictures created with clip art and PowerPoint to articulate this more holistic approach. The goal was to help the organization visualize how loyalty fits into the bigger whole. We described this as a “platform.” Our client said it looked more like a molecule.
This shift from program thinking to platform (or molecule) thinking is happening across numerous loyalty programs today. Loyalty is no longer a program intended to drive incremental behavior. It is also an enabler of a larger customer experience.
Thinking in terms of a loyalty platform (or a molecule) rather than in terms of a loyalty program, changes the tenets of loyalty strategy in several key ways:
Getting beyond “quid pro quo.”
Loyalty programs historically have a fundamental premise of “do x get y.” For example, earn 25,000 miles get a free ticket. Collecting points towards a reward creates an opportunity cost of shopping at a competitor. When I decide to fly Delta instead of Sun Country because I don’t want to miss out on the miles, I’m showing loyalty to the Skymiles program and not Delta Airlines.
Points work really well to shift behavior at the margins, and are often highly effective for undifferentiated brands. Should I turn left into Starbucks where I collect their points their points or right into Caribou where I don’t? I’ll turn left, it’s Just coffee.
But Starbucks moves beyond quid-pro-quo transactional loyalty. With the Starbucks Rewards app I can order ahead, pay ahead and skip the line. By connecting through rewards with the app and enabling mobile ordering, Starbucks Rewards has created a connection point for a holistic customer experience, and enables a better experience than I can get across the street.
Points towards rewards alone, is a pretty shallow value proposition – take away the reward and I’m indifferent. When loyalty enables a better customer experience, that’s goes way beyond quid pro quo transactional loyalty and is far ‘stickier. ’
From Best customers to All customers.
For two decades, leading loyalty marketers have been evangelizing customer experience thinking. Historically, customer experience thinking in loyalty has been limited to creating a better customer experience for only the firms’ most valuable customers. Loyalty programs created tiers with “soft benefits” e.g. Silver, Gold, Platinum to stratify customers allocate perks and better treatment based on a customers value.
It makes sense to allocate more resources toward higher value customers. A hotel with 1 empty suite should upgrade the guest who spends $10,000 a year, rather than the guest who spends $1,000. Allocating scarce resources to based on value to created added benefits for best customers makes good sense.
With platform thinking, Loyalty marketers are also creating vehicles to deliver a better customer experience to everyone. Starbucks Rewards enables mobile ordering and faster payments, making the experience easier and more enjoyable for every member, not just best members. The same is true for programs in other categories. In grocery programs, electronic coupons (rather than paper) deliver a better experience to every member, not just best members. At a hotel, all program members can use keyless entry and skip the line at the front deck, not just best members.
Using incentives and game mechanics to drive more than transactions.
Loyalty program designers are practitioners of behavioral economics. Loyalty marketers have long used program currency to drive incremental transactions. “Fly three round trips before September 1st and earn 10,000 bonus miles” is a classic example. Loyalty programs have also been leaders in the use of game-mechanics drive transactional behaviors. Think badges, leader boards, and clever bonus point promotions.
As loyalty moves from being a program to being a platform, the application of behavioral economics and game mechanics moves beyond just driving transactions. With platform thinking Loyalty marketers can apply these principles more broadly. For example – Imagine a hotel that offers members the option of “Going Green” and opting out of housekeeping; creating a scoreboard showing how many times I’ve gone green in the last 2 years. Or imagine a fashion retailer who runs a contest complete with a leader board for members to show off their style on Instagram. Or perhaps a drug store that notifies members when its time to take their pills and gamifies the prescriptions regimen.
Loyalty Marketers have long used game mechanics and incentives to drive driving transactional behaviors. When Loyalty programs become loyalty platforms, these tools can be applied to driving deeper brand differentiating behaviors as well.
Efficiency is part of the business case
Historically, we have built the business case for loyalty programs based on incremental revenues. For example, “The loyalty program will drive $xxx,xxx,xxx incremental revenues by increasing members frequency of purchase from x to y….” That’s an over-simplification, but the point is that the business case for loyalty has always been exclusively about increasing revenue.
Platform thinking not only creates additional non-transactional ways to drive incremental revenues, it also introduces efficiency and cost savings into the business case for loyalty.
For example, keyless entry at a hotel is not just a better experience for the customer (which drives satisfaction and loyalty), once it reaches a tipping point, keyless entry reduces traffic at the front desk and therefore reduces staffing. The same logic applies to the automatically loading of paper coupons in a grocers loyalty program; it is a better experience for the member and eliminates the cost of processing coupons for the grocer. Mobile ordering at Starbucks, enables not only an easier and better experience for the customer (which increases revenue) it also changes the labor model.
What we are discovering is that an easier and better experience for the customer is also more efficient and less costly for the enterprise. Hence, the benefits side of the business case for loyalty is no longer just about growing customer value by increasing revenue. With platform thinking, the business case for loyalty is now also about taking cost out by creating a more efficient experience.
Moving form program thinking to platform thinking changes the way loyalty plays out within the enterprise. The economics are different, loyalty is less transactional, and the focus shifts to all customers versus just the best customers. Most importantly, a platform approach changes loyalty’s reason for being. With our restaurant client the mandate for loyalty was stated as: The loyalty program will integrate with, enable, and be a common thread connecting numerous customer experience strategies and initiatives.
Platform thinking casts the loyalty program as part of something larger. It’s the nucleus of, dare I say, the loyalty molecule.