This Forbes article, courtesy of Aneace, outlines some sobering facts regarding loyalty plans.

Loyalty Programs Lose Points With Shoppers – Forbes.com

The study also predicts that two-thirds of all retailers with an online presence will have a formal rewards program in place within a year, although there was no discernible difference in investment returns between companies that put resources into a formal rewards program and those that don’t.

The key point is that there is no discernible difference to those having plans against those who do not. (emphasis mine)

Segmenting return on investment for various retail companies as high (11% and up), medium (between 4% and 10%) and low (less than 4%), there was little to no difference in the number of loyalty programs across each segment, the study found. In other words, a company with a high ROI was no more or less likely to have a customer rewards program than one with a low ROI.

However there is some light at the end of the tunnel.  By creating an integrated and unique offering, tied to customer value there is an oppotunity, according to Gartner.

Building unique rewards programs that differentiate the brand–along with integrating in-store loyalty programs with Web shopping–is what figures to pay off in the future, Freeman Evans and other experts say. Retailers that get the most payback from loyalty programs are careful to measure vital metrics, like gross margin per customer and the lifetime value of a customer, which is tracked by using surveys and following forwarded emails to see who’s recommending your store.

And more importantly, the loyalty program does not have to be points.  It should be tied to customer value.

“Points for the sake of points is just buying off the customer, it doesn’t drive loyalty,” says Gartner Research analyst Adam Sarner, who tracks customer loyalty programs. True loyalty, Sarner says, means getting increasing amounts of information from a customer who’s happy to give it in return for a benefit. Surprising good customers with a sudden, unexpected discount or upgrade would go miles toward making them swear by a brand for life, he believes.

“That would be a religious experience for most people, compared with having to calculate, ‘Let’s see, I have 5,995 points, when do I get something?'” Sarner says.

In general, I have more questions than answers after reading this piece, as they confuse web and offline, loyalty points, and loyalty plans, however the underlying themes still make sense. 

• Loyalty plans are commoditised.
• Customer loyalty is (should be) tied customer value, and to the differentiating the buying experience

Regarding the last point, Bank of America’s Keep the Change™ plan is one example of that, although it is open to all, and doesn’t necessarily take customer value into account.  I do know that they picked up several  million new customers as a result of that programme though.

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