Loyalty Programs Grow, But Participation Sinks

Loyalty programs grew by more than 25% in the past two years–but member activity levels have dropped, says Colloquy’s newly released 2013 Loyalty Census. Some, 2.65 billion people were enlisted in loyalty programs in the United States in 2012, a rise of  26.7% from 2010, but active participation—defined as one engagement within a 12-month period, fell by 4.3%.

“Companies need to give [customers] more options to the rewards they get beyond strictly utility,” says Jeff Berry, senior research director at Colloquy. “Utilitarian rewards are important, but [marketers] need to think about what else they’re bringing to the table. Treating loyalty programs as an asset, not a stand-alone product, helps improve the entire customer experience.”

According to the study, the level of activity has been stymied by the expansion of loyalty programs, the increase in competition, the increase in the number of confusing and competitive programs, and the poor relationship-building skills of the companies offering the programs.

“The problem stems from not leveraging the data to understand what the customers are looking for,” Berry says. “Loyalty programs enable a dialog with customers. Are they on social media? Do they actually want to engage with your program on social media? How are you leveraging those loyalty programs? These programs give a real opportunity to talk to customers.”

The Loyalty Census reported increases in the number of drug store, department store, and specialty retail store loyalty programs. But it was the industry that was already the largest provider of loyalty programs—financial service—-that fueled the recent boom. Since 2010, this vertical alone added 100 million members for a total of 550 million. Department stores upped loyalty membership by 70%, drug stores by 46%, and specialty stores by 26%. Restaurants, car rental companies, and cruise lines all expanded their footprints significantly in the loyalty game.

Berry says that two crucial industries to keep an eye on are retail and financial services, and in particular, credit card companies. “Credit cards have a unique opportunity since they’re payment types across any retailer,” Berry says. “They’re in a position to bring multiplatform coalition and offer constant change in regulation. Retailers constantly evolve. We’re seeing more advanced retailers really thinking about personalization and offering mutual benefit.”

According to Berry, it’s crucial for companies to strengthen loyalty programs through innovation and relevancy. As competition increases, innovation through stronger reward initiatives, use of soft benefits, and use of mobile technologies will benefit the brands that offer loyalty programs. “Mobile apps are allowing for customized experiences with the customer, wherever the customer happens to be,” Berry says. “[New technology] creates that customized experience and gives retailers insight about customers. It creates behavior changes to both sides: business and retailer.”

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