The Logic of Loyalty

When businesses use reward programs to improve customer experience and value instead of mindlessly mining for data, customers respond in kind

The essentials

Loyalty programs collect and analyze customer data in order to provide what Bryan Pearson of LoyaltyOne calls “the three Rs.” They provide value to repeat customers with rewards, they recognize their best customers, and they increase the relevance of their offerings. At their best, loyalty programs create better customer experiences.

Chances are, you, like nearly all your fellow countrymen, have several loyalty cards stuffed in your wallet. If you live in the average household, you’re enrolled in eight loyalty programs, part of 120 million Canadian loyalty memberships. Reward programs are at the top of the funnel in the Big Data pipeline delivering information of growing importance to a range of businesses. 

“You want to create a relationship with your customer that extends beyond a simple economic relationship,” says loyalty guru Bryan Pearson. “You want to create an experience and an emotionally engaged customer that leads to loyalty in the face of competition." 

Pearson is President and CEO of LoyaltyOne, whose popular AIR MILES reward program is used by 68 percent of Canadians. At a webinar hosted by QSB Insight, Pearson discussed the logic behind loyalty programs and how they’re used.

As far as Pearson is concerned, customer data should be used to inform decisions in every part of a company: pricing, promotions, which products are listed, where stores are located, and how the stores are laid out. Businesses should respond to new data as fast as possible to offer customers a real-time experience, where they get value at the same time as they provide information. 

Aiming for the "Curated Experience"

The goal, he says, is to be relevant by creating a “curated experience for your customers.” As an example, the grocer Sobeys has a direct marketing program that sends personalized flyers to millions of customers from the store manager for the location the customer most often visits. The mailing contains coupons and other deals based on customers’ recent purchases. 

Disney takes a different approach with its Magic Bands. The wrist bands are worn by visitors as they move around the park and are used to purchase food, access rides, and trigger interactions with robotic characters. The Magic Bands offer visitors convenience and entertainment while allowing Disney to track where customers go, how long they wait in line, which rides they go on, and how long they stay in the park. Disney officials use Magic Bands to assess what is working well and how they can improve visitor experience.

Don’t consumers resent having their buying habits and movements tracked and analyzed? LoyaltyOne is in the third year of an ongoing study on the issue. To date, Pearson says, the survey has shown that a surprising 64 to 66 percent of consumers are willing to share more information if companies used the data to create more value for them. 

"You need to collect only the data that you really need, and if you collect that data, you should use it to create value back for customers,” he says. “If you aren't living to these two very basic principles, then you're probably doing something that's offside in your relationship with the customer. It's quickly become less about privacy and more about how you use the information to create value for the customer."

Pearson suggests moving away from a “conquest mentality” of continually bringing in new customers. "There's a lot of value in serving your existing customers in a better way by recognizing them, rewarding them for their loyalty, and finding a way to build a mutually beneficial, long-term relationship with those customers."

Feeding the Data Monster

It’s not just rewards programs that are generating marketable information for companies. We consumers fill the data pipeline in many unintentional ways. Our smartphone use and online browsing habits are served up to providers. Some automobiles record geographic and performance information, similar to what is collected by an aircraft's black box. And one in four Internet users track their weight, diet, fitness, or health with online apps. Says Pearson, "You can imagine what kind of repository is being created there."

Ben Williamson

Smith School of Business
Goodes Hall, Queen's University
Kingston, Ontario
Canada K7L 3N6

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