The Big Fat Retail Rethink on Loyalty!

on May 20, 2024

For most people, “Loyalty programs” are synonymous with Frequent Flyer Miles. Air travel is, by all accounts, a highly commoditized space. The service levels and features provided across brands to get from Point A to Point B have little differentiation.

Despite this, the consumers who make for the best “frequent fliers” have made an explicit choice of primary airlines. Loyalty programs and their inherent structure drive the customer’s purchasing decision more than the underlying core service of transportation. 

In a way, this is the ultimate marketing coup, where customers work towards being repeat buyers to earn self-fulfilling elite statuses and the perks that come with it—all with a sense of pride. 

No other retail loyalty program comes close to what Airlines have achieved. It’s an unfortunate reality that most retailers essentially give up a large percentage of a customer's lifetime value. Consequently, we see eroding ROI on customer acquisition costs by simply not doubling down on the repeat customer draw of loyalty programs.

Loyalty programs elevate the customer experience

Airline loyalty programs have been around for nearly 50 years. Texas International Airlines launched the first frequent flier program in 1979, and American Airlines joined the party shortly after, quickly outpacing the small airline. 
These programs have changed significantly in the interceding years toward a more diverse offering. Most airlines have since adopted a sort of gamification into the experience, which has been shown to encourage customers to aspire to higher levels of status and benefits. This only works because the benefits are material and meaningful to the customer and directly impact and elevate their experience with the brand.

Delta SkyMiles and American Airlines AAdvantage are prime examples of well-structured airline loyalty programs. They offer multiple membership tiers with corresponding benefits such as unlimited complimentary upgrades, priority check-in, and bonus earnings on miles.

For any loyalty program to be successful, membership status, badges, or tiers must include meaningful benefits that significantly enhance a customer’s experience—in other words, unlocking the perks a customer desires but does not expect at the paid price point of their transaction. 

Effective loyalty programs use tiers and elite benefits

Airline loyalty programs have continually found innovative ways to keep customers coming back. By organizing loyalty programs in a tiered system, frequent flyers get increasing benefits as they move up in status, incentivizing passengers to stay loyal and aspire to higher tiers.

Special benefits available beyond just taking a flight, like lounge access or priority check-in, are additional ways airline loyalty programs alter the experience and interaction with their brand. Airline programs also leverage partnerships with other airlines, hotels, and car rental services. These partnerships are the cornerstone of being able to introduce and control elevated customer travel experiences beyond the core flight service from origin to destination. 

Elevating retail with loyalty strategies inspired by airlines

Airlines have one thing in their favor over retailers: there’s always an opportunity for a person-to-person interaction when a customer chooses to fly. Over the last few years, retailers have seen more of their customer footprint begin to adopt digital shopping. 

This move to digital buying is due to changes in technology, Amazon, the COVID-19 pandemic, and the resulting paradigm shift in customer expectations. Online shopping can create less loyalty to retailers because of a more impersonal relationship or less emotional connection to your brand. Because of this, customers often decide where to buy based on price or speed of shipping alone. 

The impact is more severe when products are generic. For example, grocery store inventory remains largely consistent across brands. There might be some private brands one prefers, but overall, most customers aren’t too concerned as long as the purchase is convenient, and the price and quality are in the ballpark. However, we learn from the airlines that this doesn’t have to be the case if there is a material incentive for a customer to seek out and align loyalty to a brand.

Successful loyalty programs in grocery or retail, like their airline counterparts, should go beyond transactional interactions and focus on fostering genuine customer loyalty. A shining example of this is Amazon Prime. You might not even think of it as a loyalty program, but look at the perks. 

The true value of Amazon Prime is more than two-day shipping. It’s a paid program that fundamentally changes the customer experience and interaction with the brand. It gives the members access to videos, music, photos—a host of perks, benefits, and services they want. The program maintains a digital customer connection with their brand beyond the cart with tremendous opportunity for product and purchase placement by meeting customers where they choose to spend their time. Members will continue to look to Amazon for future purchases, transactions, and services. 

On the other end of the spectrum, one of the primary reasons customers keep, enroll with, and use profile accounts on other eCommerce brand websites is primarily to keep payment details on file. The only value there is saving time on data entry and receiving generic discounts—which isn’t enough to foster loyalty.

Exclusive perks: More than just points and generic discounts

Rewards are a crucial part of any loyalty program. However, successful loyalty programs offer more than just points; they include unique interactions and rewards that create a memorable customer experience. Customers want to feel special and appreciated—to be identified as part of an elite and exclusive group by the brand.

Same-Day Delivery is considered a luxury by most customers with retailers passing the cost to the customer. The majority of customers interviewed say the concept of free same-day delivery can be a tremendous influence within any tiered loyalty program. The successful adoption of free curbside pick-up is a testament to customers making the convenient choice. 

Likewise, returns can open up a similar opportunity. To go back to the airline example, airfare loyalty programs often include perks that allow elite members to cancel, transfer, or move flights with little or no additional fees that a non-loyalty member would have to pay for. This perk is a clear and tangible differentiation to how they view and communicate their appreciation towards customer loyalty. 

For top-level customers, you’ll want to make returns and exchanges feel frictionless. Technology already available today is helping reduce inherent costs with consolidated returns, optimized drop-off points, and putting inventory back on the shelves faster than ever before.

Get your wings and give loyalty a try

Transitioning these ideas from the runway to the checkout lane has a ton of value for retailers. Loyalty programs are a powerful tool for businesses to foster customer loyalty and enhance lifetime value. Drawing inspiration from successful airline loyalty programs, retailers can create a rewards system that keeps customers coming back for more. 

Customers need to feel special and part of an exclusive club. Loyalty programs should create evangelism with exclusives that people want, encouraging members to aspire to earn their way to being highly valued. 

That’s what drives brand loyalty—delightful customer experiences.

About the author

Arshaad Mirza

Arshaad is the Co-Founder of Delivery Solutions (acquired by UPS). He reimagined the eCommerce space by disrupting shipping with the experience-driven same-day, curbside, buy online pickup anywhere (BOPA) third-party orchestration to serve retailers and consumers best. As an End-to-End service, Delivery Solutions' Omnichannel Experience Management (OXM) Platform streamlines the fulfillment process, all while providing the invaluable opportunity for retailers to extend their brand to deliver delightful experiences to their consumers. He believes every consumer interaction with a retailer should be sacred, wrapped within its brand and everything it stands for. So he spends his time making that a possibility for incredible retailers who hope to enhance their customers' online shopping and shipping experience. Before his current role, Arshaad was the Co-Founder at LASH delivery (acquired by HEB) and Bright Corner (acquired by Geniant and Dell EMC). He also ran the global Service Management program for Dell EMC, focusing on customer experiences and transformational execution strategy to meet the $1B projected business revenue in 2015. Masters in Science in Information Networking and Business Administration from Carnegie Mellon University. He lives in Plano, TX, with his wife Shazia, daughter Sophia and son Aarish.

Topics from this blog: Curbside Delivery Ecommerce Logistics Bopa Post Purchase

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