Loyalty programs are a common (and undeniably effective) tool for retailers to gather data and build customer lifetime value, but perhaps they’ve become a little too common. Companies often have a hard time differentiating their programs and communicating their unique benefits to members, particularly with primarily transactional, points-based programs. To guard against member indifference, retailers may want to consider adopting subscription program elements that can both boost “stickiness” and reveal more about customers’ wants and needs.
As a whole, loyalty programs are quite popular. A recent Coresight Research consumer survey revealed that nearly three in five (56.9%) of surveyed consumers are members of at least one loyalty program, and more than half spend more with retailers once they join their loyalty program — a net 39.5% higher spend overall. Perhaps understandably, consumers highly value the discounts such programs offer (it’s their favorite benefit, chosen by 75.4% of respondents), as well as free or discounted shipping (the next-highest response at 63.2%).
The danger for retailers is that if their program doesn’t provide these rewards quickly enough, members are likely to become inactive or leave altogether. Consumers’ biggest gripe about loyalty programs is that it takes a significant amount of time to earn rewards, selected by 41.2%, with 25.4% complaining that it’s too difficult to earn a reward.
Retail TouchPoints discussed some of the ways retailers can enhance their loyalty programs for both themselves and their customers with Chad Lusk, Managing Director in Alvarez & Marsal’s Consumer and Retail Group.
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Retail TouchPoints (RTP): What are some of the basics to creating an effective loyalty program, particularly one that has a paid or subscription component?
Chad Lusk: The first thing to think about is the customer value proposition, which isn’t only about pricing — there are a lot of different sources of value. [With a subscription program] there’s the convenience of automatic replenishment; there could be curated offerings and the opportunity for a customer to essentially design [what’s in] their own subscription boxes, or exclusive access to trial something desirable.
If customers don’t see the value [of a program] or think it’s too expensive, they won’t join, so that can be both an entry point and an exit point for consumers. Retailers may want to offer a free trial [for a paid program], since about 75% of folks are inclined to subscribe with a free trial, and the retailer can then prove the program’s value once the consumer is in it.
The second major thing is to have a solid KPI basis for the program, particularly if you want it to be a profit center. Take for example incrementality; you want to be sure that you’re not just providing discounts to customers that would have ordinarily bought the products [without any discount]. You need to drive your program like a holistic marketing campaign. Additionally, you need not just the mechanisms and data tracking to show a clear monetization benefit to the business, but also [the means to gather] the data that allows you to track customer behavior and their stickiness with the loyalty program.
The third element is the capabilities beneath the program itself. Retailers need to invest in a seamless customer experience, which is becoming table stakes for a good subscription program. That means easy billing processes, excellent customer service, giving members the ability to adjust their orders and an overall good user experience — plus an appropriate CRM system to capture and leverage the data to, ultimately, create personalized offers.
RTP: Do subscription programs offer more personalization and data-gathering opportunities than other types of loyalty programs?
Lusk: There’s a vast difference between something like a Peloton fitness membership, where I buy in and get the same access to instructors and workouts [as all other members]. Yes, there are certain things you can learn about me [based on my choices], but you’re not really curating the offering based on that data.
That’s as opposed to a Stitch Fix, which curates its apparel boxes to my design choices, my style, my size and fit. Using all of those elements and based on that individual’s data, the subscription will get better and better; by using data to match the member’s needs and preferences, they’re strengthening the interaction. Say you receive five items and typically return four — as the algorithm improves, you’ll find yourself keeping two, three, four or all five items.
RTP: What are some of the most effective membership retention strategies you’ve seen?
Lusk: The one that’s used most often is incentive-based discounts and promotions, but that can feel like you’re renting these customers for a period of time. Ultimately, if it does take a deeper discount for effective retention, as those promotions go away it could disrupt the value equation.
It’s more effective to find true differentiators. With a subscription program, that can be the flexibility to pause a plan or change the service levels. Sometimes there’s no flexibility in a core loyalty program, so adding flexibility can be enough to retain a member over time if people can use the subscription on their terms.
Retailers also can reach out digitally to members who are “wobbly,” via email or SMS but in a personalized way. I’ve seen dozens of personalized promotions from brands, and the messages can be system-generated elements based on specific KPIs.
RTP: What are some common signs that a member is becoming “wobbly”?
Lusk: The most obvious one is repetitive order cancellations, as well as repeated billing issues, failed payments or declined transactions. Many programs allow you to pause memberships for a month to skip deliveries, and that can be a sign that consumer is not seeing value from their membership. For programs that allow members to curate their own offering, basket size reductions are another signal.
You can put prompts in your own system, for example around renewal date proximity, and also use AI to look at trends [to see which members are most likely to churn].
RTP: Are you seeing signs of subscription fatigue, particularly with the recent proliferation of streaming services?
Lusk: It’s not fatigue at this point, but consumers are constantly reassessing their subscription mix to see which they’re going to keep. Capterra did a subscription survey and found that while 99% of people see value in subscription services, 44% are reassessing their subscriptions and have cancelled one in the last 90 days. It might be a case of cancel one, turn another one on, especially with the streaming services.
However, the subscription economy as a whole is still on a massive growth curve; it’s projected to grow by an 18% CAGR (compound annual growth rate) over the next couple of years. Both brands and consumers are finding the value and utility in these programs, so while there are shifts in the sizes of the various “wedges” in the pie, the pie as a whole continues to grow.
