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IADS Press Release: Loyalty Programmes

press April 2024 Press release

The importance of being earnest: customers expect more than points for their loyalty. This is why Department Stores are revamping their loyalty programmes to bring clients the ultra-personalized connection they crave, by evolving their corporate culture and organisation to become even more customer-centric.

Technology evolution and recent changes in customer behaviour have encouraged the growth of large-scale loyalty programmes, allowing department stores to foster increasingly large communities of customers accustomed to point-based and tier-based systems. Going beyond this approach, many retailers now consider persona-based programmes as they recognise the diversity in needs and behaviours across customer segments. More than points, non-tangible perks, such as exclusive access and personalised experiences, create emotional bonds that drive deeper customer engagement. This evolution comes with a significant challenge: the needed changes in internal stakeholders’ mindset to infuse customer-centricity and develop customer data usage across the entire company.

Many retailers, including IADS members, have point-based programmes that often include loyalty-based discount systems: the more loyal customers are, the better deals they will have in the future. Striking the right balance between customer expectations and brand integrity is crucial. It is key to make these “earn points and burn them” programmes as appealing and engaging as possible while also considering customers' natural expectations to enjoy discounts when becoming members without compromising the retailer’s brand name.

This type of point programme can frustrate clients as it can sometimes be difficult to understand, leading customers to feel they are not making the most of it. This issue is particularly pronounced in non-food retail, which, by definition, takes place less often than grocery shopping. The value of points can be hard to see when there is a significant delay between collecting points and using them. Also, there is no real consensus on the best way to grant points: encourage customers to buy more, or to come more often?

A solution to overcome this issue could be to offer straightforward discounts. Department stores are understandably reluctant to take this extremely costly course. It could initiate a very painful race to the bottom: finding the right and appealing enough discount level is difficult. Consequently, while generalised and widely adopted by customers, point-based programmes create friction, as retailers are justifiably wary about their margin level and brand image.

Loyalty with a vengeance: from points and tiers to AI-powered personas  

Drawing the conclusions of such a situation, and to be in tune with their customers’ expectations, the Manor loyalty programme, myManor, is based on personas, with customer communications which are tailor-made thanks to advanced data analysis tools (specific demographics, affinities, algorithms, regional clustering…). While El Corte Inglés does not have a branded loyalty programme for now, the retailer can refine its relationship with its customers thanks to a detailed understanding of their affinities, allowing it to define analytical drivers powering a value-based strategic segmentation. 

However, with such an approach, complexity can be around the corner. As pointed out by Boyner with their Hopi payment app (acting as a loyalty programme), which is particularly advanced in that field, data is critical to identify customers, learn about their preferences, achieve customer engagement, and personalise the relationship to create greater value. Since they have access to more data, retailers must make choices and decide which one they really need to engage and retain customers efficiently. The available data gives access to an ocean of possible customer segmentations, all made according to an infinity of seemingly relevant criteria, and clear choices need to be made to make sure this does not increase organisational complexity at the expense of efficiency and, most importantly, profits. 

This is why IADS members expect Artificial Intelligence (AI) to offer soon new and simple solutions to send hyper-personalised messages to each customer entering their store or accessing their website, once there is an alignment on available technology, regulation clarity, and the ability to establish safeguarding procedures: Air Canada’s recent misfortune with a chatbot giving bad advice to travellers has been seen as a warning by all retailers in the world. 

The rise of non-tangible benefits: a must-have to create an emotional bond with customers. 

Department stores agree that customers highly appreciate non-tangible benefits and that they should develop further in the future. This does not systematically include out-of-this-world perks, as clients value anything that eases their lives. For instance, all benefits related to status (lounge access, pre-sales, special seats) are increasingly important for The Mall Group’s M Card holders. Also, in Mexico, free parking and the distance to the store depend on the customer’s tier at El Palacio de Hierro.  

At the same time, department stores are exploring more personalised benefits. For instance, El Palacio de Hierro “Palacio” payment cardholders are treated to a bottle of wine, a meal at one of the retailer’s restaurants, or a birthday gift, all of which create an emotional bond. The most difficult is to find the right way to communicate such perks, as it takes effort and resources to convey them: most customers remain paradoxically unaware of these benefits.  

Others go beyond practices often found in retail by seeking inspiration from other industries, such as banking or air travel. While it is now common practice to have priority checkout according to the status, some IADS members are now considering offering top-tier customers airport fast-track access. Others are considering free digital subscriptions to third-party services, such as Spotify, as an interesting perk: marginal cost is low, and customer appreciation is high. 

Finally, gamification is also a way to create a connection: the Mall Group offers Augmented Reality (AR) in-door navigation features in its customer app. Customers can play games or click on objects to access special deals or product offers and win discount coupons.

From product-centricity to customer-centricity: the necessary company culture shift  

Department stores have always been product-centric businesses. Now that they must become customer-centric, they are going through a complete and complicated change of mindset and culture, which must come from the top of the organisation (CEOs are often involved in these moves). To encourage the change, some IADS members now generalise the Net Promoter Score (NPS) into everyone’s bonus scheme: the KPI becomes a topic of discussion as it directly impacts compensation. Some go even further and consider linking compensation to indicators such as the Customer Lifetime Value (CLV) or retention rate, on top of the usual revenue and profitability KPIs.  

To gain internal traction and support, all stakeholders (managers, teams…) must clearly see the benefits of the loyalty programmes. The Mall Group communicates on the incremental revenue generated through the M Card. Also, since their compensation depends on it, accessing the loyalty data easily and simply is crucial: El Palacio de Hierro’s HR team is involved in sharing data and helping staff interact more efficiently with customers. Manor has regular in-store trainings on the programme benefits, as involving the staff and making sure they understand how the programme works is a game-changer.  

Department store loyalty programmes are bound to evolve as a differentiator from competition and a magnet for loyalty. If rewards are not attractive enough, customers may lose interest, especially if the relationship with the retailer is only transaction-based. This is why customer-centricity is key, which involves deep changes in company cultures. This also implies focusing on leveraging customer data more effectively, ensuring that insights inform decisions across the entire organization. It comes at a cost in terms of investments for market research, customer data analysis, and adaptation to customer needs and feedback.

Read the full press release below:

Read the full press release, in French, below:

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