On the Future of Customer Loyalty Programs

"American Airlines Gives Away a Million Miles."

"Starwood Hotels Gives Insider Access to Exclusive Events with New Auction Website."

"Citizens Financial Group Enhances Customer Rewards Program with the Launch of Merchant Network."

These are just some of the headlines culled from the latest press releases of major marketers trumpeting the latest improvements to their customer loyalty programs. Meanwhile, their respective ad campaigns cajole consumers to "Sign up today!".

No doubt, this same old invade-and-persuade strategy will always to be used by zealous marketers in search of new customers.

But what about existing customers who may not be interested in a chance to win extra airline miles or a backstage pass to a Justin Timberlake concert? How can they gain refuge from the constant barrage of enticements?

As marketers learn more about consumers’ preferences, there’s less need to undertake dire, spastic schemes to hijack their attention. And as customers divulge more personal data and engage in more two-way communication with their preferred brands, they’re much less likely to expect, let alone tolerate these practices.

For years, marketers conceiving customer loyalty programs have focused on more, more, more. Marketers seem to be thinking, We’ll get more information from our customers and then we’ll give them more service, make more offers, create more personalized communications, and reach out to them through more touchpoints. If this is what you get for being loyal and sharing information, many customers may actually choose to opt out of loyalty.

A better scenario is that loyal customers will come to expect fewer and better interactions. Marketers should resist the urge to build a large loyalty franchise that exceeds the bounds of their normal customer interactions.

Where old-line loyalty programs often become empires in and of themselves, with elaborate marketing campaigns engineered around them, newer programs will be invisibly etched into the face of the business itself. They will be the product of continuous data acquisition, ongoing customer analysis and segmentation, and best-next-action offers and benefits delivered within the context of a normal customer interaction.

Companies will continue to acquire more valuable and accurate data about their best customers. Particularly within the confines of loyalty programs—most of which exist to reward and entice customers who, in return, continue to exchange data with the corporate mothership—marketers will gain increasing opportunities to utilize personal data.

Since these valuable customers are likely to be the treasured assets of more than one commercial enterprise, they will become quasi-celebrities of commerce. We see it already. The same consumers are bombarded with the bulk of direct mail solicitations, catalogs, and other enticements. Assume a mortgage, buy a luxury car, apply for a credit card, and you’ve made the target prospect list for hundreds of businesses.

But when it comes to celebrities, there’s a fine line between awkward familiarity and harassment. To a celebrity customer, old school direct marketers will be perceived as stalkers; smart marketers, on the other hand, will be perceived as the subtle, helpful concierge at their favorite hotel.

Like celebrities, consumers are often leery of strangers calling them by name. What they really want is to be afforded a measure of anonymity, a pretense of formality, even. Perhaps your best customer would like nothing more than to be treated with quiet regard, to be granted special shopping privileges or exclusive payment terms, and to be given an easy channel by which to ask questions or deal with other exceptional requests.

The best future loyalty programs will be those that treat their customers like celebrities in all the best senses of the word. Rather than fawning service and exaggerated familiarity, savvy marketers will create unique, leisurely commercial spaces for their best customers, the equivalent of those “after hours” shopping privileges afforded to movie stars.

Many loyalty programs are investing far too much budget on imprinted tchotchkes and other disposable premiums and far too little budget on achieving cross-channel integration. Those that are addressing integration often seem more concerned with how to initiate cross-channel campaigns and other outbound marketing tactics rather than how to optimize the handling of inbound service calls. Marketers should open up and integrate as many channels as their best customers require, but they should initiate contact only through those channels the customer deems appropriate.

Many marketers are devising strategies for leveraging SMS messaging even as their back-office and front-office systems operate in a state of disconnected stupor. Companies should undertake the challenging task of integrating their existing channels before devising strategies to exploit emerging channels.

Customer loyalty programs of the future won’t require special cards, keychain attachments, or premium-priced memberships. Instead, these programs and privileges will be automatically extended to a company’s best customers within the context of an existing transaction.

In much the same way frequent fliers need do little more to achieve premier status than to fly, program members will need to do little more than continue to patronize their favorite businesses. Loyalty rewards, in one form or another, will simply become an expected feature of every shopping experience.

Not to worry, though. The actual footprint of most loyalty programs will shrink, not expand. With each transaction, the customer will receive an informative, detailed receipt that fulfills the role those bulky airline program mailers are intended to fill. They’ll answer the following questions in succinct fashion:

• How much have I bought and/or participated?
• How much more do I need to buy or participate to receive a reward of some kind?
• What "value-add" am I entitled to right now?

Most retailers will ditch the vast pouches and magazines and offer customers a more simple interface on immediate value. Grocery stores and other retailers are already offering contextual couponing and personalized receipts.

They’re also experimenting with radio-frequency technologies that enable customers and service staff alike to gain live access to more detailed information about the items they’re interested in. No sooner do you drop something in your cart or hang it up in the dressing room than the smart reader recognizes and records your action, alerts relevant floor sales personnel, and even brings up additional color choices, sizes, or discount opportunities.

Loyalty programs will no longer be bound – in value or functionality – to a colorful laminated card or a fancy stuffed mailer. Instead, they’ll exist as an invisible, consistent, and integrated part of every shopping experience.

As companies achieve integration and learn to apply a softer hand to their loyalty programs, customer distrust will decrease and participation will increase. In fact, one of the most compelling trends for future loyalty programs is simply this: Everybody will play ball.

When loyalty programs become part of the everyday transaction fabric, and when value is consistently created, awarded and communicated, nobody will want to be left out in the cold.

Jeff Zabin is a director at Fair Isaac Corp., a leading provider of decision management solutions, and coauthor of two successful books—The Seven Steps to Nirvana (McGraw-Hill, 2001) and Precision Marketing (Wiley, 2004). He writes for several trade magazines and blogs at www.ParetoRules.com. He can be reached at jeffzabin@fairisaac.com.