Rewards points and programs may spur customers to make purchases, but do they inspire loyalty that lives on after the transaction is made?
It was the main question put to a panel of payments and customer-facing professionals who told Karen Webster that the “old” ways of doling out rewards, on a merchant-by-merchant, point-by-point basis — even with thresholds in place before redemption — no longer applies.
Panelists included KeyBank Head of Payments Mitch Kime, novae Head of Payments Rodrigo McCarthy and Ulta Vice President of Customer Experience Kelly Mahoney.
The question has been an urgent one for years, and so far, there’s been no clear-cut answer. But the pandemic is changing the consumers’ expectation of their rewards programs and how they them — beyond air miles and beyond cash back. The questions looming over rewards programs have been around a long time. Consider the fact that as far back as the summer of 1995, the Harvard Business Review noted that companies spend millions of dollars to develop loyalty programs, without much insight returned.
All that money spent — and no real knowledge as to whether value created exceeded the cost of delivering the loyalty program. That was in the days before the internet became a staple of daily life, of course. And now, in the age of the mobile phone, where we use devices to get offers, manage spending and redeem points, the question still stands. Are firms getting the proverbial bang for the buck?
As Mahoney stated: “Rewards alone do not drive loyalty, nor do I think you can buy loyalty.”
Loyalty, she noted, is earned through a careful continuum of brand positioning and ultimately generating an emotional response among consumers whether they are shopping in store on online.
At a high level, said Kime, “loyalty programs are a component” of getting consumers to be, well loyal, “but they’re not everything. There are other pieces wrapped around [loyalty], but I think underlying is how competitive your loyalty platform or your rewards mechanism [is] just by the design of them.”
Program design matters, and there is no one-size-fits-all solution. Get it wrong, and consumers (no matter the business vertical) will vote with their feet. Kime noted that initial efforts at KeyBank were focused on points-based programs, which became less competitive over time.
“We started seeing attrition, and we decided to counter that with the design of what we believe to be an industry leading product focused on cash back,” Kime said.
And as measured by improved card activation and use rates, the approach has worked.
The rewards market is a competitive one, said novae’s McCarthy, not just on the “earn” side of the equation, but on the “redemption” side, too. It’s important to make sure that redemption is easy and flexible. Flexibility, he said, comes in the form of digital currency — easily transferable and usable across any number of spending categories, moving from travel, for example, to groceries. The move from traditional points-based systems into a currency-like offering is a shift that is going to evolve, maintained McCarthy, with tailwinds from the pandemic.
As Mahoney noted, the pandemic has transformed the way businesses operate and reach their consumer. Ulta Beauty, she said, had to close stores as the pandemic took root and created millions of online-only customers overnight. As customers pivoted toward addressing safety, wellness and security concerns amid a public health crisis, she said, the company was able to address those issues through curbside pickup and mobile ordering, creating an omnichannel experience.
“Everything about the Ulta Beauty experience had to be reconsidered in this omnichannel, highly digitized shopping experience,” she said.
Along the way, the loyalty component of the commerce experience also had to be reconsidered and re-tooled.
Going With The (Spending) Flow
In an effort to personalize and re-tool the experience (sometimes on the fly), data can be critical, providing the insight necessary to pivot and repurpose rewards programs — going where the consumers’ dollars go. Especially as those dollars, increasingly, are being spent through contactless means like digital wallets.
McCarthy stated that the pandemic has highlighted some of the limitations of current programs and even shone a light on how rewards programs should leverage the actual point of sale (POS) as a point of engagement. Case in point: The consumer who has banked 400,000 miles with their airline may not have much incentive to use those miles in a pandemic.
“It’s going to be more and more difficult moving forward to make use of those miles,” said McCarthy, noting that there are fewer flights available, which translates into fewer available seats.
The digital wallets, through Google and Apple, he said, offer a way for merchants to let consumers translate and convert whatever points they’re managing directly onto a POS and gain control over their rewards.
In other words, they can decide on whether to bank those points for a trip sometime in the future, or monetize them right away, getting cash back or applying them against an everyday purchase to create a refund, of sorts.
KeyBank’s Kime noted that the pandemic has created significant shifts in spending patterns among consumers. Most obviously, travel spending decreased, and warehouse and grocery spending trended sharply higher. Travel-based rewards programs became less desirable. And some of those organizations had to pivot and start offering rewards for other things during this interim period. In response, KeyBank created a product that offered 2 percent cash back on all purchases with no caps or thresholds.
“Rather than offer 4 percent on groceries, 3 percent on gas, 2 percent here, and 1 percent on everything else, we said, ‘Here’s an opportunity for all of those things today, you can get up to 2 percent cash back if you do your banking and saving with Key and leverage that through our branch network,” Kime said.
Upon reopening, he said, with the aid of digital marketing efforts, rewards have proven to be a source of new account growth. (The desirability of cash back dovetails with recent PYMNTS research that showed roughly half of consumers want cash back offerings that funnel directly back into their checking accounts, and 46 percent want rewards applied directly to purchases).
Beyond cash (which may be the ultimate form of flexible spend) true ubiquity and flexibility, said McCarthy tells the consumer: It doesn’t matter how many points you’ve accrued.
If the tally is enough to buy a coffee at a Starbucks — and you want to spend it — you’ve earned it, so go right ahead. That fluidity eliminates some of the confusion amid traditional rewards programs which set thresholds for rewards, and where, as panelists said, sometimes consumers do not know for certain what a point is “worth.” In the end, rewards become a matter of personalization as consumers fold those offerings inside everyday spend.
Along with program design, data matters too in the bid to personalize rewards and cement loyalty, panelists said. That means investing in data management platforms, and the scalable architecture that allows merchants to, in Mahoney’s words, “dip into and grab” the information that lets retailers contextualize their offers in real time.
“In the moment you see that they’re browsing and they’re not pulling the trigger, what is it going to take in the moment to reach that customer with the right offer to tee up that purchase?,” she asked. “That is really the emotional layer … it resonates as a replenishment reminder. ‘Hey, we noticed you’re running low, or we think it’s time for you to replenish the mascara that you purchased. We know you like this one, have you tried these four others?’”
We’ve come a long way from the guesswork that marked that Harvard Business Review article, where no one was really certain about how effective loyalty programs might be. As McCarthy stated, in making sure what’s working, analytics and machine learning — even augmented reality — are all useful tools. The technology is there; firms just have to make use of it. Social media represents another way to leverage and reward loyalty, noted panelists.
Technology can help merchants monitor and react to what consumers want, putting what Mahoney termed a “human face” on a brand that used to be delivered over the brick-and-mortar location. After all, as she told Webster, “we can’t rely completely on that experience to be delivered in the physical location. The question is, how do we bring that human face, that human element — which is personalization — to a highly digitized shopping experiences?”
Amid the competitive environment, said Kime, companies will offer more rewards even as they’ll demand “more” share from consumers via mindshare and share of wallet.
Call it a form of quid pro quo. As he theorized: Do consumers get more rewards based on the breadth of the relationship that they might have with that organization?
“Do you go to the front of the line if you call us because of your status with us, or have a grace period on a past due payment?” he said. “I think these are the trends that are going to continue to emerge in 2021, and that’s just the cherry on top.”
NEW PYMNTS STUDY: HOW LOCATION DATA CAN HELP BANKS PREVENT ONLINE FRAUD
The November 2020 study How Location Data Can Help Banks Prevent Online Fraud, PYMNTS surveyed a balanced panel of 2,141 U.S. consumers who own mobile devices and use credit or debit cards at least monthly. The study examined their willingness to share mobile location data with FIs to keep their accounts safe as well as their interest in switching to banks that leverage geolocation tools to prevent fraud.