Macy’s recently announced an end to its participation in the Plenti loyalty coalition program, and the move comes on the heels of several major brands doing the same.
FierceRetail spoke with loyalty marketing expert Dave Andreadakis, chief strategy officer at Kobie Marketing, to discuss the merits and pitfalls of coalition programs like Plenti—and why some retailers are opting out.
FierceRetail (FR): Why do you think Macy's ultimately dropped Plenti?
Dave Andreadakis (DA): Macy’s has rightfully aligned its goals for customer value with service and its own brand, and that was hard to do with limited offerings of Plenti. Macy’s goal in launching its own program was to increase brand loyalty among its top customers, and coalition programs themselves do not promote true brand loyalty.
Coalition programs drive members to become repeat customers of participating brands in order to earn and redeem points, but the customer’s loyalty is more to the program than to the brand. Branded programs, on the other hand, can offer exclusive privileges and personalized perks that create a deeper connection between the consumer and the individual brand. And that’s exactly what Macy’s new program does. It’s tailored to Macy’s shoppers and creates more opportunities for engagement—enhancing the overall customer experience and keeping them coming back for more.
Loyalty programs can’t be all things to all people. Programs like Plenti drive value and are likely not the right option for brands looking beyond purchase frequency and volume to nurture true brand loyalty and customer affinity.
FR: Why are so many retailers going a different way for loyalty programs?
DA: There has been a marked shift in consumer expectations in recent years due largely to the rise of convenient e-commerce. As a default, consumers are driven by convenience and price, and if they can find a better deal online with free shipping, they are likely to stray. Brands are updating their loyalty programs to accommodate this shift in the retail landscape and to provide incentives for their most loyal customers to continue shopping with them.
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In short, consumers want to know that they are valued and that brands care about them. Research shows that 88% of consumers want to engage with brands that hold high standards for meeting their expectations, and 89% are more loyal to those who share their values. Since older models built on prestige and dollars-off rewards aren’t working as well as they once did, brands are beginning to opt for the more experiential programs we’re seeing that focus on consumers’ overall experience with the brand over individual transactions.
Retailers now need programs that could help them compete in a hyper-competitive retail landscape where once-loyal shoppers are jumping ship for perks like free two-day shipping from Amazon. They can no longer keep up with the demands of the modern consumer unless they are willing to adapt and consider how the overall customer experience plays into brand loyalty.
FR: What are some of the benefits of coalition loyalty programs?
DA: There are instances in which coalition programs can work well. One benefit of coalition loyalty programs is that customers can collect and redeem points at a number of different locations. This variety can appeal to customers who frequently shop at different stores across different verticals like grocery, quick-service restaurants and service stations.
Smaller and lesser-known brands especially can benefit since they’re able to achieve stronger market penetration and brand awareness, especially if the program they enter is partnered with well-established brands. Another benefit lies in the access these programs can provide to a larger pool of consumer data. Participating brands gain insights into different trends and customer habits that they otherwise would not be able to track.
While coalition programs do have certain strengths, it really depends on the market, the industry and the brand, and companies should look to experts in program design and implementation to help them make the right choice.
FR: What are some of the pitfalls?
DA: Coalition loyalty programs do not always enhance a brand’s value proposition or create true brand loyalty in the way that they are intended to. For a large swath of consumers, coalition programs lack substantial value—the rewards they receive aren’t proportional to the purchases required to earn them.
The two major challenges with coalition programs are getting buy-in from brand partners large enough to sustain them and the obstacles of the so-called ‘exchange rate’ for converting points and rewards from one industry to the next, e.g. converting points earned from high-value shopping at Macy’s to rewards for everyday shopping at Rite Aid or ExxonMobil.
What is more, these programs lack the ability to customize. The key to implementing a successful program is to reflect the needs of your customer.
Marketers must be attentive to the preferences of their customer base and make sure they're tailoring their strategies by segments, personas and generations.
Given the broad nature of coalition programs, it is difficult, if not impossible, to tailor their features to specific demographics.
FR: How would a coalition program best fit into today's retail environment?
DA: Coalition programs can fit well into certain retail environments given the right market conditions. Typically, coalition programs are not as strong in the U.S. due to the lack of one major brand player in each market as is often the case in other countries.
Grocers often act as anchor partners for coalition programs in Canada, the U.K., the EU, Scandinavia and Australia—bolstering these programs with a strong membership base. However, in the U.S., there is such a wide variety of grocers consumers can choose from that it creates a more fragmented customer base.
Without a strong membership base, it is very difficult to establish a coalition program. And this is what has prevented these programs from taking off in the United States.
One possible solution is the emergence of a national player with a solid program like Amazon Prime. With this approach, coalition programs could have an opportunity to fit into today’s market on a larger scale.
FR: Are there loyalty programs that you think work better in 2018 that you'd recommend?
DA: Price and convenience are the two elements that can really sway customer decision-making, so retailers should really think about how to incorporate those elements into their loyalty program. Retailers must consider how the program makes the shopping experience easier for the customer and how it provides them real value. But keep in mind that customers are swayed by other elements like status and overall experience. A successful program will go beyond the transactional and differentiate the experience in some way to create an emotional connection with the customer.
The best loyalty programs identify and reward the most valuable customers and create emotional relationships between the brand and customer.
With the new digital era, consumers are redefining what makes a positive retail experience, which ultimately determines what makes them loyal to the brand.
Given that shoppers increasingly crave personalized experiences, loyalty programs that focus on convenience and the overall customer experience will work better in 2018.
Aside from your product or service, it’s the experience you deliver and how you make the consumer feel that matters most for creating true customer loyalty.
FR: Is there a chance coalition programs could make a comeback and if so, what would they have to do?
DA: It’s not so much about coalition programs making a comeback and more about program designers doing their homework and making sure they’re implementing them correctly and in the right markets.
Coalition programs are often at a disadvantage because they involve too wide a variety of brands and market segments rather than focusing on a single one. Assessing the needs of their core customers prior to launching is key when determining the features, rewards and partners for these programs.
With the amount of data they’re able to collect, coalition programs should invest in more personalized rewards and experiences for their members. With consumer needs constantly changing, one thing remains constant—the need for instant gratification. Programs that can offer immediacy, personalization, authenticity and accessibility will ultimately prevail—this is rarely done well in coalitions.
FR: What else can you tell us about the future of loyalty?
DA: The future of loyalty will see marketers focusing even more on the customer journey work and finding new opportunities for engagement. Customers are making purchases with more than just the product in mind; they want memorable experiences from the brands they are buying from, and brands must deliver those experiences if they want to survive.
Technology is becoming more sophisticated and allowing companies to deliver more relevant, contextual and meaningful experiences to consumers. These technologies will pave the way for a future in which loyalty programs transcend channels and rewards to cultivate highly interactive and convenient experiences for customers. We’re already seeing this with retail innovations like click-and-collect, mobile ordering and ‘smart’ in-store technologies like Kroger Edge that streamline the shopper journey.
This shift toward experiential elements and away from simple rewards will likely continue as marketers focus on forging emotional connections with their customer base.