As loyalty programs continue to rise in popularity, do they really meet consumer expectations? Jean-Pierre Lacroix, president of SLD, and Matthew Wilson, a communications expert at SLD, take a deeper look into the current state of loyalty programs, challenges, premium programs, and potential trends.
Loyalty programs have become a necessary strategy for consumer engagement among retailers across Canada, evolving significantly from simple point collections to upgrade programs offering increased personalization and a seamless shopping experience. As the cost of living in Canada rises, consumers are constantly looking for ways to save money and are on the hunt for loyalty programs that not only offer great perks, but are meaningful. Although the percentage of subscribers to loyalty programs are increasing – consumers might leave some deserted.
Subscription at its highest, but only half are used.
Wilson says even if shoppers subscribe to a retailer’s loyalty program, it does not mean they will use it as they tend to fallback on core programs, making it challenging for retailers to be unforgettable.
“It seems that in Canada at least, there has been a record amount of people that are subscribed to loyalty programs. In fact, it is almost about 14 programs per Canadian on average; however, right now, it seems that only half of the loyalty programs are actually being used, which is a really big drop off from the percentage of them that are actually signed up. So right now, I would say the scene of loyalty is diminishing … they are not quite offering enough for consumers to really latch on and to really have them as one of the core that they use,” says Wilson.
This creates a real challenge for retailers. As consumers are eager to sign up for savings and rewards – their engagement decreases if the program fails to capture their attention, offer value, or convenience. Wilson says there is a pressing need for retailers to create programs that are different and are valuable at every step, driving brands to rethink how they shape loyalty programs so consumers are not only eager to subscribe, but eager to use it.
“Consumers are looking for value because of inflation and are also looking for a seamless loyalty program where they don’t have to do a lot of work – hence why credit card loyalty programs are doing well, such as Aeroplan. You don’t have to pay attention, just use your credit card. Loyalty programs that require a lot of investment and effort, are programs that provide limited benefits, such as Air Miles – it is suffering because its value proposition is limited,” says Lacroix.
These 14 loyalty subscriptions also might come with mobile apps. Lacroix says a consumer might have around 30 to 40 apps on their phone, and possibly 14 of those are loyalty apps. Depending on a consumer’s phone, they may not have enough storage space to download and use all of these loyalty apps.
“You are fighting with the infrastructure these things live in and you have to compete with the other apps – that is the challenge, there is already so much noise, clutter, and activities happening on mobile devices,” says Lacroix.
Raising the bar: Key players challenge rivals
Key players such as Shoppers Drug Mart with its PC Optimum program, Scene loyalty program, and Starbucks Rewards are setting high standards for value and consumer engagement. These brands are recognizing the importance of personalizing and providing a seamless experience for consumers:
Optimum Points Card: This loyalty program has established a great concept where consumers have the opportunity to collect a significant amount of savings, setting the standards high for other retailers and is difficult to match.
Scene Loyalty Program: Offers flexibility on how points can be redeemed, is linked with Scotiabank, and is valuable. You can redeem points by collecting the direct cash, when you go to the movies, or restaurants. This model has adapted with what consumers want as it began as a points system and has evolved to meet what consumers are looking for today.
Starbucks Rewards: Offers consumer loyalty through personalization and is easy to rack up points and collect a reward as for some, Starbucks is a weekly or daily stop. Recently, the brand has also partnered with TD, making it easier and faster to gain rewards.
These are just three among other top loyalty programs in Canada.
“These programs have established a really high value equation and you can collect significant amounts of savings through their programs and by having that level of value – makes other loyalty programs less appealing,” says Lacroix.
Premium programs on the rise
Premium loyalty programs focus more on engagement and personalization among consumers. These paid memberships offer enhanced benefits, such as exclusive discounts, early access to sales, and special events – going beyond what is available in free loyalty programs. Programs such as Amazon Prime and Plum Plus with Indigo are leading examples as both of these cater to consumers who are willing to pay for better services and to those who are more likely to stay loyal to the brand.
The trend of premium programs is growing and an example of that would be Amazon Prime as Wilson says its subscription has doubled in the last four years.
“One of the most interesting things we found in our research was that the paid programs are what delivered the biggest growth for loyalty programs. One of the reasons why these paid programs are successful is because in an era where Canadians are trying to find savings, even though these options are paid, they deem them not only worth it, but generous in what they are giving,” says Wilson. “Oftentimes, these premium programs give you exclusive access to events or sometimes discounts such as ten per cent or maybe 20 per cent off in-store. So that customer is really frequent, well worth it, and has generous offerings.”
Lacroix and Wilson say premium loyalty programs are effective and implies the trend of exclusive, personalized, and more valued loyalty experiences will be on the rise. Wilson says there will always be a free option for consumers, but thinks there will be more tier options such as around 20 dollars a month giving “an option for people who really love the brand and want to shop more often – I think they will definitely be enticing,” says Wilson.
Relevant and Personalized Offers
Loyalty programs are not all about savings as Wilson says it is also about “customizing those savings and personalizing those savings to ensure Canadians really get offers and deals that are relevant to them. Not just the run of the mill type of personalized offer, but something that really speaks to consumers and makes them want to come into the store and spend more,” says Wilson.”
With the new data regulations, Wilson says collecting data will be harder and retailers need to adjust and find new ways to collect consumer information.
Data that was previously available is getting scaled back and retailers need to anticipate they will receive less and less data, and know how to make the data work for them. One example is the Starbucks birthday rewards.
“Everyone knows that on your birthday, you can go to Starbucks and get a free drink. That is one of the easiest forms of personalization, but it has worked so well across so many different demographics that something as simple as a free drink on their birthday can make them feel special enough to go to Starbucks, get that drink, and return in the future. So I think it is about doing more with less,” says Wilson.
Wilson says Starbucks offers additional personalization through order history and is another easy way retailers can personalize its loyalty program. In Wilson’s article “The Future of Loyalty Programs,” he mentions several ways a brand can provide personalization including gamification for CPG which “has a positive effect on brand impression, repeat purchases, and referrals to family and friends. One example would be Roll Up The Rim at Tim Hortons as it encourages consumers to engage, play, and possibly win a reward.
Current concerns of Loyalty Programs
The main challenges retailers have with loyalty programs are ensuring data privacy and marketing. Lacroix says as there have been several breaches in the past in loyalty programs, consumers are wary of what information they provide.
“There are going to be some challenges for reward programs. But the reality is, if you walk into our program, you need to be willing to accept the amount of information that you are sharing. As there have been reward programs and credit card companies being hacked in the past, consumers are going to be challenged to share information because of the level of security they are concerned about – it is the number one issue in using mobile apps,” says Lacroix.
To manage these concerns, Lacroix says retailers should have a third party validation and show its platforms are being monitored and are secure: “no one is going to take a word of a retailer on their level of security.”
Another main issue is regarding marketing and its running expenses of promoting it. For brands who are not well known or who don’t have a high consumer rate, it might be difficult to promote and compete against others.
“There are certain brands like Starbucks that have a high customer frequency and the program is built into the app they have created – it becomes seamless, you don’t have to market it because it just shows up and you use it. But for other brands where the frequency is not as high, it is about advertising, spending money to communicate that you have a loyalty program,” says Lacroix.
Along with the running expenses, as retailers are now trying to go out on their own, it creates a challenge of standing out.
“Everyone knows about PC Optimum. How can retailers get in front of that to get their audience? A lot of that comes down to marketing and there is just not enough investment in marketing and not enough investment in marketing smartly to their consumers and getting the message across,” says Wilson.
As AI continues to evolve, so will loyalty programs as they can leverage AI to help them hurdle these challenges, provide a better personalized consumer experience, and an easy program for consumers to follow. Retailers who successfully do this will be able to attract consumers, keep consumers interested, and will be able to take its loyalty program to the next level.
The PC Optimum point program USED to be a great program simple to manage and good value, but somehow the folks at Loblaws have made it much more difficult to manage, comprehend and determine exactly what the point offers are, and at the same time you have to spend MUCH more money to earn fewer points.
Agree with Ken , consumerism is intelligent and expect finger fast benefits. Offer no hassle andreal discounts and they will follow.
Great article with lots of good info. Thanks