Customer loyalty programs have been a mainstay in the retail marketing world for some time now. They’ve helped retailers achieve multiple milestones, and they’re successful for a few reasons.
For one, loyalty and rewards programs are really good at inspiring customer loyalty, with some 84% of consumers saying a loyalty program makes them more likely to stick with a brand. At the same time, 66% of consumers say rewards programs actually change their spending behavior and loyalty members spend about 37% more than non-members. That means a good loyalty program can drive real, measurable sales results.
Despite wild successes past, loyalty marketing is at a crossroads. From personal data and privacy concerns to social responsibility, today’s consumer trends spell a need for change in the way retailers approach rewards programs.
Brand Loyalty and Gen Z: A Crisis of Customer Loyalty
We’ve heard a lot about Millennials and how they’ve shaken up the way retailers do business and interact with customers. Now, it’s the next generation’s (affectionately referred to as Gen Z) turn. Gen Z is set to make up 40% of consumers by 2020 — meaning it’s high time to start planning for the next shift in consumer trends.
According to Ernst & Young, only about 30% of Gen Z consumers consider loyalty programs beneficial. That’s a big problem for retailers, particularly those who’ve come to rely on successful rewards programs to drive sales and customer retention.
None of that is to say that you can’t win over Gen Z with an effective loyalty program. Consider brands like:
- Starbucks
- Sephora
- TOMS
By taking an innovative and customer-centric approach to building loyalty, they’ve developed thriving rewards programs. By avoiding key pitfalls we’ll talk about later and rebuilding your rewards program based on the preferences and concerns of this growing consumer segment, your store can still drive real results with loyalty marketing.
Craft a Loyalty Program Customers Can’t Ignore
A lot goes into building a customer loyalty program from the ground up — but when it comes to Gen Z, the most important considerations are:
- The medium,
- Rewards, and
- Personalization.
To earn the loyalty of Gen Z consumers, retailers need to focus on the two shifting T’s: trust and technology. These are two of the most important factors that need to inform every aspect of your program. Let’s talk about how they fit into each consideration from above.
The Medium
While Millennials adapted to new technology, Gen Z was born into it. That makes technology a more integral and natural part of their lives — including their lives as consumers.
Yesterday’s consumers were adept at using various emerging tech and social media. Today and tomorrow’s consumers are platform-agnostic, meaning they expect brand experiences to transcend devices. They expect a seamless, cross-platform, and cross-device experience that moves with them.
The takeaway? Don’t make Gen Z consumers carry a paper punch card around. Take a note from Starbucks’ My Starbucks Reward program. Because it’s centralized in the mobile app, My Starbucks Reward makes it effortless for customers to go from app to coffee shop to online store.
Gen Z is also the generation of social media natives and community builders. They trust their community more than they trust brands, period. That’s why it’s important to build community and social proof into your rewards program.
What does that look like? It looks like incentivizing referrals to friends and family, awarding reward points for reviews and testimonials, and promoting your program through relatable influencers — not celebrities.
FURTHER READING: Learn more about building a referral marketing program for your retail business.
Personalization That Adds Value
For many of us, when we think about personalization in marketing, we imagine an email subject line that addresses customers by name — but personalization can (and should) be so much more than that. It can add real value to consumers’ lives. That’s why 50% of loyalty program members say personalization is important to them.
The same report found that only 22% of those consumers are satisfied with the personalization they see from brands, though. That means your store has an opportunity to differentiate your rewards program by getting personalization right. But how?
Use Personal Data Intelligently
A loyalty program offers you tons of valuable data about customer habits and preferences — data you can use to further personalize the program and tailor rewards to each customer. That data also carries the risk of making you come off as creepy (more on that later.)
Think about Netflix’s suggestions. They’re one of the features that really sets Netflix apart and are a perfect example of using personal data to really drive value for the customer.
Now consider when you talk with a friend about a business, and then an ad for that brand immediately shows up on your Instagram. The latter example doesn’t add enough value to justify the use of personal data, so it feels like a violation. That further erodes the already tenuous trust Gen Z consumers feel toward brands and it certainly won’t inspire their loyalty.
Personalize More Than Communication
In the email subject line example, retailers have jumped right on personalization in their communications. But, as we said above, personalization can be way more valuable than that.
Use the information you learn about customers through the loyalty program to actually improve the program itself. Add real value by tailoring rewards and points to each customer — making it easier and more lucrative for them to stay loyal.
If that sounds time-consuming, it doesn’t have to be. Loyalty program tools like SessionM and Clutch specialize in turning customer data into more personalized programs.
The Right Rewards and Timing
Speaking of rewards, Gen Z demands a different approach to rewards and their pacing. As Adweek puts it: “brand loyalty for Gen Z is less about a ‘program’ and more about how the brand experience aligns directly with their lives.”
Consumers today aren’t interested in jumping through hoops or complying with strict requirements to earn points and, ultimately, rewards. That means it’s on retailers to shake up their approach to how you put loyalty programs into practice.
These are the must-haves for a successful, forward-looking customer loyalty program:
- Diversify how customers earn rewards. Offer points both when customers spend money and when they engage with your brand to drive interactions and loyalty that’s more meaningful than a simple transaction.
- Offer incremental rewards. Millennials and Gen Z are all about the instant gratification so incremental rewards concentrated toward the beginning of the loyalty timeline will help keep customers engaged with the program.
- Get rid of one-size-fits-all rewards. This goes back to our chat on personalization earlier — use it to tailor rewards that speak to each customer.
- Rethink your rewards. Younger consumers aren’t driven by discounts and free products alone. They value experiences and social responsibility, so take that into account when choosing the rewards you offer.
Key Mistakes to Avoid in Your Store’s Loyalty Program
When it comes to building a loyalty program that customers won’t ignore, it’s as much about what you don’t do as what you do. There are a few key mistakes to avoid at all costs. These mistakes are overwhelmingly prevalent in the retail industry because past generations of consumers haven’t been as turned off by them as Gen Z. So, even if you already have a loyalty program in place, it’s important to audit for these common pitfalls.
Mistake #1: Overcomplicating Enrollment or the Program Itself
Customers hesitate to sign up for loyalty programs for plenty of reasons. For Gen Z, one of the most commonly cited reasons is that the enrollment process takes too long — 28% of Gen Z consumers said as much.
We’re expanding that to say overcomplicating any part of the program is a big no-no. With any retail marketing tactic, you have to weigh the amount of effort and information you ask for from customers against the value they get in return. If the former drowns the latter, your loyalty program sign-ups will suffer regardless of how great the perks are for members.
Now, you may be thinking that loyalty program enrollment is your prime opportunity to get valuable information that can help you personalize and improve customer experiences. And you’re right — to an extent.
A rewards program does offer you tons of insights on customers, their habits, and their preferences. But the enrollment process isn’t the right time to gamble with asking for too much. Instead, keep the sign-up process as simple and quick as possible. Once you get customers in the door, you can ask for feedback and draw on their shopping behavior to personalize your marketing.
Mistake #2: Making It Too Hard to Earn Rewards
It may seem obvious, but too many retailers forget what drives rewards programs: the rewards. The rewards incentivize customers to spend more and stay loyal to your brand. So, why do so many loyalty programs require customers to make 50 purchases before seeing their first reward?
That mistake multiplies when you add in the instant gratification mentality of Millennials and Gen Z. In fact, RetailWire notes as much as 40% of Gen Z consumers feel like loyalty programs require too many purchases to earn rewards.
For retailers focused on the bottom line, it might seem to make sense to require a certain baseline spending threshold before you start doling out rewards. But forcing customers to jump through hoops or spend too much to earn their first reward often has the opposite effect — it causes them to give up on the program.
Here are a few tips to help ensure your customers stick with the program:
- Tailor reward thresholds to your products: It makes sense for a coffee shop to require 10 purchases to earn a reward, but what about a car dealership? Take your products, and how they fit into customers’ lives, into account when designing your reward structure.
- Accelerate rewards in the beginning: At the start, you’re working to earn customer loyalty. Down the line, you just have to avoid losing it. Amp up the pace of rewards when a customer first joins the program, and you’ll have them hooked.
- Create a tiered reward structure: Just because you’re offering rewards sooner doesn’t mean they have to break the bank. Consider designing a tiered system, where customers unlock more valuable rewards as they spend more.
Mistake #3: Being Creepy
The third big mistake happens when retailers lean too hard into the personalization tactic at the expense of customers’ comfort. In today’s world of personal data concerns and breaches of trust by high-profile companies, Gen Z consumers present an interesting contradiction.
They’re more reluctant than other generations, in general, to give up personal information in order to join loyalty programs — but they’re actually morewilling to share information with brands they trust and brands that use that information to add real value for customers.
The trick for retailers is to find a balance between the information you collect and the value you build with it.
Following consumers around the Internet with overly aggressive and irrelevant retargeting ads is creepy. Using information about past purchases to personalize rewards for each customer? That’s actually valuable.
Loyalty Programs Aren’t Going Away
Despite ever-changing consumer preferences, loyalty programs don’t live and die with each passing generation. They endure because they drive real, measurable benefits for both consumers and retailers alike.
While rewards and mediums may change, when done right, loyalty programs will always prove a surefire way to inspire customer retention and grow customer lifetime value. That’s why it’s more than worth the investment of re-examining your program.
