Retail Membership Programs
Three key trends in retail memberships and/or retailers' loyalty programs include an increase in premium loyalty, revamp of loyalty programs by major retailers, and an increase in loyalty program fraud and cyber-breaches. Further details on each trend have been provided below.
Increase in Premium Loyalty
- There has been an increase in the number of companies offering premium loyalty and continue to raise their price tag.
- For example, Amazon Prime is now $119 from $99; Wayfair and Lululemon have both launched a loyalty program with $29.99 and $128 price tags, respectively.
- According to Retail TouchPoints, three sub-trends are responsible for the new buzz surrounding premium loyalty and these include unlimited choice, instant gratification, and the rise of subscriptions.
- Unlimited choices dictate that competition is rife and consumers are spoilt for choice, which makes differentiation important, yet very difficult. Without differentiation, customer loyalty, therefore, becomes harder; "70% of consumers agree that their loyalty is more difficult for a retailer to maintain than ever before."
- Hence, the reason why some retailers are rethinking their customer loyalty programs by "identifying customer pain points, and creating offers that address them through a series of loyalty moments."
- In terms of instant gratification, 67% of consumers enrolled in premium loyalty programs note that the ability to access and use instant discounts motivates their investment in such programs. This means that waiting to gain loyalty points that can later be applied as discounts after meeting a particular threshold is not ideal for this group.
Major Retailers are Tweaking their Loyalty Programs
- Over the last two years, a vast number of United States retailers have either dropped their loyalty programs, revamped them or created new ones.
- Kohl's has combined the three loyalty programs it was running into one, which is now hinged on Kohl's cash; other retailers like J.Crew, Macy's, and Nordstrom have all created new loyalty programs that do not require store cards.
- It is expected that spending on customer loyalty programs by retailers is expected to grow by 2-4% between 2018 and 2020.
- Retailers currently spend "at least 2 percent of their total revenue on loyalty programs and double that or more on related customer targeting and analytics, with department stores and apparel retailers typically investing more than others."
- The need to gain customer loyalty as well as offer perks and personalized experiences that are not available at their competitions are the factors driving this trend.
- Tom Gehani, Gartner's director, puts it this way, "The standards of what it takes to win and keep customers are just going to keep getting higher."
Customer Loyalty Program Fraud and Cyber-Breaches on the Increase
- Underneath the premise of increased customer engagements and loyalty is the need for retailers to scoop customer data for more personalized customer targeting.
- As retailers collect more data and information on their customers, the more loyalty programs have been on the radar of nefarious acts that access this data for their selfish purposes. This is because loyalty programs typically have points that can be "used to make purchases or converted to cash and data that can be sold and exploited for account takeover attacks."
- It is estimated that loyalty-related frauds and cyber-breaches cost the economy $1 billion. Its contribution to non-physical payment card fraud has grown by more than 100 percent between 2017 and 2018, per reports from Javelin Strategy & Research firm.
- A case in point is the Starwood Preferred Guest members breach in which the personal information of more than 350 million customers was stolen, "including five million unencrypted passport numbers."
- Kevin Lee, a cybersecurity expert with Sift describes loyalty programs as "almost a honey pot for hackers," noting how people sign up for them easily, use simple passwords, and later neglect them. He further notes that the pace at which retailers are seeking data far outweighs the pace at which security is growing.
- Consequently, many rewards memberships in the US are inactive with over $100 billion in loyalty points left unredeemed.