written by: Chan Tsz Yan, Charlotte
All brands want their customers to be loyal. For this purpose, brands develop loyalty programs. Under traditional loyalty programs formula, program members earn points by spending at designated merchant outlets/services, and redeem rewards with the points accumulated. Although the loyalty effect is never conclusive, many brands persist in this kind of monetary-benefits-based programs. Nevertheless, they may have overlooked the fact that benefits do not generate long-term loyalty, favorable customer experience and interdependent relationship do.
Dominant trends in loyalty programs
There are three dominant trends in loyalty programs. First, monetary benefits are still attractive. Forrester’s report shows that instant discounts and reward certificates are the two most important elements for deciding whether to join a loyalty program . Second, more personalized rewards. Research found that millennials opted to abandon loyalty programs primarily due to irrelevance of rewards . Brands responded by collecting data about customers’ preferences to predict their needs and wants. Third, loyalty programs are moving to digital platforms. The millennials are more receptive to no-frills integrated O2O experience through their mobile/digital devices, without carrying the physical identification cards . Brands are developing and launching their own applications and digitize their loyalty programs to cater for this trend.
“Good experiences” over “rewards”
Playing the catching-up game in the midst of technology trends in designing loyalty programs is not a warrant of competitive advantage. According to a research conducted by Rare in 2016, most customers continue to choose a brand just because they like it . The implication is a consideration of loyalty programs in a broader sense: make the brand more likeable by creating superb customer experiences rather than just preaching the rational calculation of points and rewards. True differentiation lies in brand strengths, supplemented by rewards and benefits.
How is likeable experiences created? Starbucks provide a good example by integrating their loyalty program into customers’ lifestyles. In 2009, Starbucks launched its loyalty program “My Starbucks Rewards”, which provides privileged access to different services. For instance, members of My Starbucks Rewards gain access to selected playlists provided by Spotify and to subscriber-only articles offered by The New York Times via one Starbucks app whenever they want  . Positive customer experience is extended to other lifestyle aspects of Starbucks customers. Relevance sets in when customers are constantly delighted by Starbucks. A sustainable, interdependent relationship with the brand is cultivated. Favorable experience and interdependent relationship makes customers attached to a brand, hence generating loyalty.
In conclusion, brands should acknowledge the attractiveness of monetary rewards and the trends of personalization and digitization. However, if they want their customers to be loyal, they should integrate monetary rewards with customer experiences in all aspects of life to be likeable.