Mobile is changing loyalty, and retailers need to get on board

Loyalty programs have always been a tricky thing for retailers, who of course want to give shoppers an incentive to come to their stores and keep coming back. But loyalty programs can be difficult to set up, the rewards can be hard to determine, and after all the trouble they still might not really stand apart from other programs.

Mobile offers new opportunities for retailers to address all of those difficulties. While loyalty programs have always been about learning more about shoppers, mobile provides far better data on individual behavior than anything before, and it's using that information to intelligently target personalized deals that can elevate retailers' programs above the competition.

Consumers are hungry for a mobile loyalty experience. According to data from 451 Research, 48 percent of consumers wish more stores offered mobile apps that would enable them to collect and redeem loyalty points with ease. And the stores that do will have a leg up, because 44 percent of consumers would strongly recommend a store with mobile loyalty and personalized rewards to friends and family, while 45 percent would choose to shop at stores with mobile loyalty programs over stores that don't have them.

Nikki Baird

"Mobile is one of the biggest keys for personalized communication with shoppers," said Nikki Baird, managing partner at RSR Research. "I think part of the reason that apps as the basis for loyalty programs are going to be so important is because it really, truly enables one-to-one communication. Shoppers get real-time updates on their loyalty status as well as a way to save coupons and offers. Retailers have a direct way of delivering those offers and tracking their redemption."

But many retailers aren't tapping into mobile loyalty as effectively as they need to to stand out from the crowd. According to a recent Capgemini report, "Fixing the Cracks: Reinventing Loyalty Programs for the Digital Age," 79 percent of loyalty programs make use of mobile, but only 24 percent let customers use mobile to redeem points, and only 9 percent offer point redemption across all channels.

Mobile's integrative potential is a key point of focus for Sheryl Kingstone, research director of 451 Research's mobility team. For her, retailers need to stop viewing mobile loyalty as something that stands on its own and start looking at it as part of the larger shopping experience.

Not enough retailers are leveraging mobile for their loyalty programs, but even fewer are making it work across channels.

"You have [loyalty programs] that track usage for points, you've got ones that tie into payments and offers, you've got ones that can have a complete digital wallet and hold all those coupons," she explained. "But overall, it's just a loyalty program. The way I see it working is it expands beyond just a loyalty program into a completely engaging experience."

It only takes looking at the more successful loyalty programs in retail to see her point borne out. Take the "My Starbucks Rewards" program, for example. Starbucks (NASDAQ:SBUX) CEO Howard Schultz has lauded the initiative for combining mobile loyalty, payment and in-store digital experiences in one place, thus streamlining the entire experience (lack of a seamless multichannel experience accounted for 33 percent of negative social media sentiment toward loyalty programs, according to Capgemini). App adoption has accelerated with 12 million active users making 7 million transactions each week, while engagement with the rewards program has also improved with 8 million active members.

"My Starbucks Rewards" is one of the best exmaples of combining mobile ordering, payment and loyalty, and consumers responded/

Walgreens' (NYSE:WBA) Balance Rewards and Walmart's (NYSE:WMT) Savings Catcher also demonstrate how retailers can move beyond traditional loyalty models by implementing mobile. The Walgreens program, in keeping with the company's new healthy living focus, integrates with digital health trackers to award points when members engage in healthy activities. Likewise, rather than simply churning out rewards points, Walmart's Savings Catcher feature encourages shoppers to keep coming back by checking for lower prices on purchases and paying back the difference.

But while large retailers have been the innovators when it comes to mobile loyalty so far, Kingstone sees it playing a much more crucial role for small businesses in the years to come.

Sheryl Kingstone

"What really needs to happen is that some of these programs need to be created for the smaller mom-and-pop shops. That will raise more awareness, because a lot of these quick-serve restaurants and a lot of these small, frequently-visited shops are some of the ones that need these programs and it hasn't been cost-effective," she said.

While fully-featured apps are great for companies that can afford them, Kingstone sees many retailers going a different direction for mobile loyalty. Just last month, Forrester and the National Retail Federation released new data showing that the high price of not only developing an app, but maintaining it, is forcing many retailers to forgo that route. Kingstone added that the process of updating apps and making sure they're available on numerous different platforms can quickly become too complex to be worth the investment for small businesses.

For that reason, she expects many retailers to turn to the mobile Web, instead. Whereas the native environment comes with lots of extra overhead, retailers can essentially build a "fake native app" that could include many features the real thing might boast.

"It basically just acts like a mobile app but it isn't as rich," she said. "You can do a lot on the mobile Web that we couldn't do a couple of years ago, and it can be on the device and act like an app, and it still gives the features and functions that retailers need for consumers to engage."

Such solutions could be the gateway for smaller retailers to break into mobile loyalty and begin innovating. And Baird foresees more changes to come as mobile payments become more popular and mobile wallets begin making their way into loyalty apps. Wallets would allow shoppers to save store promotions in one place and enable retailers to make other offers based on what shoppers may intend to buy, in addition to uitlizing barcodes and NFC scanning.

There's no longer any excuse for retailers of any size or scope not to incorporate mobile into their loyalty programs. Customers want it, stores can benefit from it, and developers are finding new ways to make it cheaper and easier to implement. Retailers that don't adapt soon could find their loyalty offerings virtually cut off from customer headspace altogether. Capgemini reported that a senior manager for loyalty programs at a top global retailer drew a line under the importance of mobile: "As smartphones increasingly become more widespread, we would reasonably expect to see everybody accessing their loyalty programs almost exclusively on a mobile basis."