Could Revamped Loyalty Programs Save the Retail Industry?

Predictions of dire times ahead for the brick-and-mortar retail industry are well known, but the solution to fending off e-commerce heavyweights isn’t as simple as slashing prices in a race to the bottom. As retailers grapple with finding ways to reinvent the real world shopping experience, some are revisiting their loyalty programs, which have gotten stale over the years.

Neiman Marcus, Macy’s, and Sephora are just a few of the well-known brands trying to create added value by offering complementary services, like consultations and tailoring, through their loyalty programs. Hollister, the teen-focused retail chain owned by Abercrombie & Fitch Co., credits its 8% growth in same-store sales last quarter in part to its rejiggered Club Cali program.

Sears has introduced a points system, dubbed Shop Your Way, that runs across the retailer’s brick-and-mortar and e-commerce operations, while Children’s Place has dumped its coupons for a points-based program, and Macy’s has announced a revamped version of its existing rewards program. Taking a cue from Amazon, Macy’s’ new program doles out free shipping to its most frequent customers.

According to Harsh Jawharkar, vice president of marketing and partnerships at Narvar, a firm that builds software to improve the post-purchase experience, other successful brands will have to start following the lead of these retail giants and looking at loyalty a more holistic way to keep customers engaged outside of the purchase funnel.

“Today, every retailer has some kind of points or dollars-based loyalty program, so these programs are no longer a competitive differentiator,” he says.

Jawharkar sees Sephora and Patagonia as two retailers with standout programs. He says Sephora, in particular, has gone a great job at creating a loyal fan base using a points-based system that includes a members-only social platform where shoppers can build profiles that show their favorite products, looks, and interests.

“Patagonia approaches loyalty differently, but also does it extremely well,” Jawharkar says. “The company has gained lifelong customers not through points or discounts, but through building trust by guaranteeing their product even through standard wear and tear.”

It’s been nearly 30 years since card-based loyalty programs first started gaining in popularity, with consumers proudly linking plastic tags to their key rings. But the novelty that came with earning points for purchases at grocery stores and gas stations slowly wore off as the programs became more ubiquitous, and the utility of loyalty programs—from the retailer’s perspective—diminished over time.

The introduction of mobile wallets and app-based loyalty programs reenergized the market for a while, but many of those programs have grown stagnate and most retailers aren’t offering customer the types of rewards that actually energize shoppers to get off the couch and come in-store.

A new study by Helloworld, a digital marketing solutions provider, found that consumers want credit for doing things other than just making purchases. For example, 75% of consumers in Helloworld’s survey said they want to be rewarded for watching brand videos or taking surveys. Seventy-seven percent also believe retailers should offer more personalized rewards.

It’s become nearly impossible for brick-and-mortar retailers to compete with Amazon’s convenience or Walmart’s low prices. Four out of every $10 spent online in the U.S. is with Amazon, and Prime memberships are now in 64% of U.S. households. But Jawharkar notes that loyalty programs could help bring those customers back to traditional brick-and-mortar stores, assuming brands are willing to reinvent their programs in a way that actively improves the lives of their customers.

One of the keys for brands looking forward will be to communicate more proactively and amplify the brand throughout the customer’s journey, rather than outsourcing the customer experience or making it generic, Jawharkar says.

“Loyalty stems from open dialogue about what’s going well—and what’s not,” he says. “Find opportunities to ask for feedback in multiple ways and act on it.”

Stephanie Miles is a senior editor at Street Fight.