If you’re only using your loyalty program to reward purchase, you’re underutilizing it

Loyalty programs are typically used as a carrot to drive incremental spending. However, if you are only using your loyalty program to reward purchases, you’re underutilizing it. A broader loyalty strategy and a well-designed program can, among other things, reduce operational costs, built on new, more operationally-profitable customer habits. This ideal intersection of customer value and company return creates a loyalty equation that is ultimately sustainable. 

Last year I stayed at Aloft, a Starwood property, in Birmingham, Alabama. As I rode the elevator, I noticed a sign promoting their “Make A Green Choice” program that offers Starwood Preferred Guest members the option to earn Starpoints or a food/beverage voucher in return for declining housekeeping on a non-checkout day. 

Hotel loyalty programs like SPG have highly loyal customers who are selective about where they stay in order to accumulate program points.  Additional incentives like the “Make A Green Choice” program give those loyal members non-transactional ways to earn toward higher status. Beyond the program, it positions the Aloft brand as caring about the community and potentially shifts housekeeping habits in the long term. Considering that SPG members purchased over 50% of room nights across Starwood properties (2014 Annual Report), the impact of one less cleaning among even a small percentage of member stays is likely meaningful.

The airlines were early leaders in using loyalty to drive efficiency. When Delta launched their online reservation portal, they offered 1,000 SkyMiles per reservation to drive customers online instead of into their more costly phone reservation system. What appeared to be an effort to drive cost savings ultimately shifted habits, too (so much that Delta now charges a fee to book by phone.)

Amazon has taken a page from the cost-savings playbook. The Amazon Prime program that charges $99 per year in return for two-day shipping had become wildly popular – so popular that Prime members spent an average of $1500 in 2014 vs. just $625 for non-members. In what appears to be an effort to wean customers from costly expedited shipping that still outpaces revenues, Amazon now offers a $2 credit for digital books, music, TV shows and movies if you choose free no-rush shipping. By making this offer, they are incenting members to evaluate the trade-off of expediency vs. free content, and ultimately aim to build a habit with less of an impact on their bottom line.

In December 2014, Starbucks piloted Mobile Order & Pay, allowing customers to place orders in advance of their visit and pick them up at their chosen store. The functionality has now rolled out to more than 4,000 stores in 17 states. Customers place an order on their app, select their store, and pay using the reloadable Starbucks gift card saved in the app. This new functionality brings even more efficiency to the ordering and checkout process by removing the need for customer-employee interaction for the order on the front-end and payments on the back end, likely reducing transaction time and increasing staff efficiency - in an industry where speed of service is a priority. With this new functionality, Starbucks is using the technology inherent in its loyalty program in order to increase operational efficiencies and therefore profits – while also providing a benefit that customers want.

Loyalty programs will always be leveraged to drive incremental revenue; identifying aspects of your program that can be used to drive operational efficiencies – and ultimately habit - should be part of your overall strategy too. 

So, take a look at your loyalty program – whether it’s in market or just a vision – and consider how you can push it to provide more value to your customers and to your company, expanding the promise of loyalty beyond a typical spend-and-get proposition. Questions to ask include: 

  1. How can you push your loyalty currency to impact more than spend? Is your currency valuable enough to drive a change in habit or preference?
  2. What processes or variable costs have a high degree of customer impact? What new process could you implement to reduce those costs?  What customer behaviors do you need to change to impact those costs? 
  3. What increments of your loyalty currency will likely drive customers toward those more efficient habits?  What are the operational savings if you make the change?  

These are not typical questions that marketers ask of their loyalty programs, but they are worth asking. The results can be dramatic in terms of costs and loyalty program profitability. Just as important, it creates a loyalty program that sits uniquely in the customer’s mind and heart, going beyond the spend-and-get approach far too prevalent in the market today.