Loyalty's 'high end' focus is hurting retailers' brands

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Gaining trust is one of the most daunting tasks a human being can embark on, let alone a retail brand, where one-on-one relationship building is extremely hard.

While it's a challenge, retailers have a significant opportunity when it comes to developing a relationship through the lens of a loyalty program, which provides a useful bridge between relationship-building and reward.

Loyalty programs have long been a tool for engagement and brand-building, yet the ultimate success of creating a lasting impression has alluded many in the retail sector. With U.S. households holding memberships in 29 loyalty programs, yet only remaining active in 12 of those, consumers are clearly sending a signal. They want more for their continued loyalty, not just more rewards for the highest-paying customers, but rewards for all customers, including average and speculative consumers of your brand. Unfortunately, brands are missing that crucial link, which is leading some to focus on only top-tier customers.

For example, in early 2016, Starbucks made a major change to its popular rewards program, in which they started rewarding customers for their purchasing power, rather than purchasing frequency, which alienated a large portion of its loyal members.

Sear’s Shop Your Way also has made a major commitment towards its VIP members, who spend a certain amount, in a set number of visits.

But, while increasing cart size is the ultimate goal of retailers, focusing loyalty programs on only top-performers shouldn’t be the ultimate goal of a brand. In an ideal world, a loyalty program should be beneficial and build brand loyalty from anyone that enrolls in a program. How is that done? By creating a premium loyalty program experience from the very start, with benefits that range from streaming video, to cash back, to no-threshold free shipping.

Yet, premium loyalty programs are few and far between, and companies are hesitant to embrace the notion that consumers will pay to receive premium benefits.

But, that perceived consumer preference is no longer valid, and it has actually been proven that premium loyalty program members show more brand devotion and spend at a much higher rate. Looking at some of the recent studies, you can see a clear shift in attitudes, highlighted by the fact that: 85% of millennials, who are expected to contribute $200 billion to the economy in 2017, have a negative sentiment towards loyalty programs; 62% of respondents in a recent survey stated that they’d consider joining a fee-based rewards program if their favorite retailer offered one; and nearly half of all respondents to a recent survey said that premium programs are better than their free counterparts, with nearly 60% of millennials concurring.

With this massive shift in tastes, especially from the millennial generation, it will become more important for retailers to shift from what’s worked before, to testing a new, yet proven mindset. Just like the transition from video rental stores to streaming video, and from CD’s and records to MP3’s, innovation comes in waves, and the innovators eventually become the ones that survive the competitive landscape.

So, to set your brand apart, the true test comes with the ultimate commitment to differentiation and innovation. That starts with a premium experience for all customers, not just some.