The late 20^th century was groundbreaking in the history of loyalty programs. On May 1, 1981 American Airlines launched the first full-scale loyalty program of the modern era, which revolutionized customer loyalty. In the next decade, big chain retailers played catch-up with the AA’s innovative program. They introduced loyalty aggregators programs, such as Air Miles and Aeroplan, and then implemented their own internal loyalty programs to maintain and increase number of transactions with the customers. Unfortunately, the majority of these programs focus heavily on transactional benefits, offering discounts and rewards, rather than building the important emotional attachment with the customer.

North Americans quickly became accustomed to benefits and rewards offered by loyalty programs. By 2013, Canadian households participated in 8.2 loyalty programs, on average, according to the study from industry group Colloquy. The southern neighbors are even more active. On average, Americans have signed up for 18 loyalty memberships in many retail categories, ranging from gas, grocery, home improvement, pharmacies to casual dining and services.

With the rise of e-commerce and technology advancements, loyalty programs are no longer possible only for big retail chains. They have evolved into a purely functional, “must-have” feature that brands of any size can’t compete without, rather than be a competitive advantage.

Despite the benefits that each of these programs offer, customers often refuse to sign up for new offerings or use it. One key reason is the “space” barrier. Purses and wallets are already stuffed with cards and there is limited room left for new cards. Even when brands are able to initially convince consumers to sign-up with a use of immediate incentive, it doesn’t mean that this reward will lead to long-term customer retention or future transactions. Less than 50% of the loyalty cards, customers have are actively used. Customers often choose which loyalty cards they would like to take with them on the daily basis. The rest pile up in the drawer and what started as a mechanism to boost customer loyalty becomes an expense, rather than profit to the company.

A new evolution in a loyalty card arena is created by the spread of smartphones. Digital wallet apps, such as Stocard or Google Wallet, eliminate the need for physical cards. These smartphone apps store all loyalty card information in one place, so customers no longer need to choose which main cards to take out of home. They remove the “space” barrier from the decision to sign up for the loyalty card and make any new program adoption much simpler and faster.

The trade-off however, is that customers now have the ability to switch between brands in an instant. This forces to think beyond rewards and discounts. Now brands need to perform extra steps to build strong emotional attachment to the customer. No longer, their favourite shopping trip, the purchase of the their favourite brand cannot be just purely functional. It needs to be a positive, emotional and “beyond expectation” experience for customers to decide to come back to the brand in the future.

Companies, such as Walgreens and Starbucks are among the few that leveraged emerging technologies to build that emotional attachment to the brand. Walgreens holistic loyalty program supports healthy living and compensates customers’ active lifestyles with their Steps With Balance Rewards program. As part of the program each member is able use their online or mobile app account to log their fitness and weight management activities in the activity journal to earn extra reward points for each record. Using analysis of transactional data, Walgreens communicated personalized promotional offers to the loyalty program members based on their transactional history, which made them feel that the company is interested in their well-being and really values their ongoing business. Adding these two elements to the programs boosted its success in terms of delivering exceptional and engaging experience to the customers.

Starbucks also adapted to the changing environment. Its fun and generous program engages consumers by combining elements of gamification with technology to keep track of the loyalty program status. First of all, customers do not get points; they get Stars for each purchase. Depending on the number of Stars, a customers status increases from the Welcome level to the Green and Gold levels. Customers feel happy and excited moving up to the next level, especially when they reach to the Gold level and receive a personalized gold card. They feel immense pride and sense of being part of an elite club, and many are likely to talk about their achievement with their peers. The mobile app is an important integral element of the loyalty program. At a glance, customers know their status and how many more stars they have to earn before reaching the next reward level. Customers enjoy the personalized promotions and early access to new products. . The fact that they can also pay for their purchases using the app is an added bonus. As a result, Starbucks has experienced an 11% increase in revenues and perhaps more importantly, an even stronger emotional bond with its customers.

As Walgreens and Starbucks demonstrate, a key element to the success of a loyalty program is to embrace new technology changes and incorporate it to the current program offering. Leverage it to the advantage by continuously monitoring for opportunities to increase emotional connection to the customer across all media channels and by implementing technology as part of the product/service offering: be it analyzing purchase trends, creating personalized offers or improving customer service experience online or in the store. Remember, your customer deserves a “beyond expectations” experience.

Sources: http://mckinseyonmarketingandsales.com/sites/default/files/pdf/Loyalty_market_power_of_points.pdf

http://www.theglobeandmail.com/report-on-business/canadian-companies-aim-for-balance-as-customers-expect-more-for-loyalty/article13332480/

http://www.mycustomer.com/feature/experience/emotional-vs-transactional-loyalty-it-more-important-win-hearts-or-minds/166993

http://loyalty360.org/resources/article/walgreens-flying-high-with-balance-rewards-loyalty-program

http://www.consumerstrategist.com/top-customer-loyalty-programs/