Aside from culling inventories and inflated pricing, one of the biggest post-pandemic trends in retailing is pumping up loyalty programs.
On Wednesday, JCPenney launched a new rewards and credit program, becoming the latest in a long list of companies redesigning loyalty schemes over the past couple of years, including Athleta, Kohl’s, Saks Fifth Avenue, Saks Off 5th, Subway, Walmart, True Religion, Tanger Outlets, CVS and Lowe’s.
Last week, Target reintroduced its loyalty program, Target Circle. “The new Target Circle experience was designed to flex and grow with our guests to deliver more value and ease — no matter how they choose to shop with us — so every visit feels personal, rewarding and made just for you,” said Cara Sylvester, Target’s executive vice president and chief guest experience officer, in a statement.
Nordstrom’s Nordy Club will be introducing more points, events, experiences and access for its beauty customers this year. “We leaned into beauty with a strong gift selection for holiday as well as a 5x points promotion for our Nordy Club members. This offer drove incremental trips and conversion while creating a halo effect in other categories,” Erik Nordstrom, the retailer’s chief executive officer, said on the company’s fourth-quarter conference call.
The profusion of loyalty overhauls has been spurred by several factors.
But simply put, consumers have become increasingly disloyal to brands and retailers. They’re trading down, demanding greater value, and as choosy as ever about where and what they buy. Retailers need sales gains and feel their best bets for better revenues are from existing customers or winning back old customers, rather than mining for new customers, which is more expensive.
According to experts, loyalty programs at their most engaging are simple, easy to understand, personalized, work with all payment options (tender neutral) and differentiated with access to experiences and events. They also provide strong value. But retail programs are notoriously overcomplicated with tiers, points, rising membership fees, and benefits linked to in-house credit cards, confounding consumers as to what their savings actually are.
“There are many layers to it. It’s not just about offering points,” said Rod Kosann, co-owner of the Monica Rich Kosann jewelry brand. “It’s the idea of a loyalty program being a way to show appreciation to customers, such as by providing early access to product launches, offering special pieces, putting new products in front of customers. We continue to look for ways to provide new experiences. From our point of view, we’ve always had a strong repeat customer business because there are a lot of reasons customers choose to come back to us.”
“COVID[-19] and the post-COVID recovery period marked a sea change in consumer behavior,” said Craig Johnson, president of Customer Growth Partners, the consulting and research firm. “The extra spending from the trillions of dollars the government injected into the economy has come to an end, so retailers, including those finding themselves with new customers in many cases, have realized they’ve got to leverage customer relationships since everybody is being more cautious with their spending. They’re saying, ‘We have these new customers. We need to get to know them better and we’ve got to provide more thoughtful value-add.’”
Non-Tangible Perks
The International Association of Department Stores (IADS) suggests retailers should develop non-tangible benefits to drive business. In a report issued Monday, the organization cited such perks as lounge access and pre-sales provided by The Mall Group, a mall and department store conglomerate in Thailand, for its M Card holders. The group also pointed to the parking privileges, free meals, free bottles of wine and birthday gifts provided by El Palacio de Hierro, an upscale department store in Mexico.
“It’s most difficult finding the right way to communicate such perks, as it takes effort and resources to convey them. Most customers remain paradoxically unaware of these benefits,” IADS reported. “Others go beyond practices often found in retail by seeking inspiration from other industries, such as banking or air travel. 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. The marginal cost is low, and customer appreciation is high.”
Penney’s Loyalty Push
On Wednesday, JCPenney announced the launch of its new JCPenney Rewards and Credit Program. “Our goal was to make it as easy, simple and flexible as possible,” said Katie Mullen, Penney’s chief customer officer, during a prior press briefing. “We are continuing to deliver our program free and starting to increase the value that every customer can get out of our program by up to doubling the rate that they can get points. We want every trip to JCPenney to be worth it. We want it to be easier to take advantage of our rewards, easier to reach rewards milestones, and we want to (ensure) that every member sees rewards each year…For those who don’t want to be a member of our program, we want to make sure they still get great value from Penney’s goods and services, but the program is free.”
Customers who join the Penney’s program can earn at least one “CashPass” point per $1 spent and receive a $10 CashPass reward when they hit $200. The program offers members incentives including a $10 CashPass for joining and another $10 CashPass on their birthday. Customers who are JCPenney credit card holders can save even more, getting better prices and faster CashPass rewards. When using a Penney’s credit card, shoppers earn 1.5 CashPass points per $1 spent, receive a $10 CashPass when they spend $133, and get an extra 35 percent off their first purchase. Customers earn a CashPass when they shop at Penney’s as a Rewards member that can be used on anything in the store, just like cash.
Mullen said Penney’s goal with its new program is to return $500 million to customers in 2024 by making its rewards more accessible.
Penney’s is also staging a May 4 contest in stores challenging customers to score a three-pointer by shooting a soft home item into a shopping cart. Winners receive a mystery coupon worth at least $10 and up to $100 off. Participants get a chance to meet basketball legend Shaquille O’Neal, who has his big and tall men’s line selling exclusively at the store.
“Although the external environment poses challenges outside a company’s control, strong loyalty programs allow value creation from the inside,” said Simeon Siegel, managing director and senior analyst at BMO Capital Markets. “Perhaps as companies have moved beyond the DTC-or-die mentality, and are re-embracing the value of wholesale, they see loyalty programs as a way to continue and strengthen their relationship with their customers. Loyalty programs are hardly new but it seems fair to assume they will be continually evolved with management teams committed to perpetually doubling down on their growth.”
Robert Gorin, consumer practice leader at Getzler Henrich, said: “To navigate this uncertain landscape, businesses need to focus on understanding their target audience and what matters most to them. They need to be agile and adaptable, and they need to be willing to experiment with new strategies. Businesses that can do these things will be well-positioned to succeed in the years to come.”
Another trend is a reduction in brand loyalty, Gorin said, adding that consumers are increasingly willing to trade down to cheaper alternatives. “This is due in part to the rising cost of living but also to a shift in priorities. Consumers are now more value-conscious and are less willing to pay a premium for brands.”
The Best at Shopper Engagement
Levi Strauss, Nike, T.J. Maxx, Walmart, Dollar Tree, TikTok, Costco, Sephora, Zappos and Amazon engender strong customer loyalty, according to Brand Keys, the New York-based brand engagement and customer loyalty research consultancy which last year surveyed 95,607 consumers, ages 16 to 65, from nine U.S. Census regions, about 1,200 brands and 114 categories.
“Those are some of the brands that are ‘loyalty juggernauts,’ brands of such overwhelming economic force that their ability to meet expectations makes them far more powerful than universal awareness alone,” said Robert Passikoff, founder and president of Brand Keys, in a statement. “This loyalty paradigm has changed dramatically since the ‘Cola Wars’ of the ’70s. Today, loyalty and consumer choice don’t come down to a one-or-the-other option. Today’s loyalty bottom line comes down to consumers’ deepest expectations, and how they feel which brand measures up best. Customer behavior and brand loyalty are now almost entirely governed by emotional values related to expectations and expectations grow constantly.”
According to Passikoff, it costs 16 times more to recruit a new customer than keep an existing one. A 5 percent increase in loyalty lifts lifetime profits per customer by as much as 78 percent, and a 5 percent loyalty increase is equal to a 12 to 21 percent across-the-board cost-reduction program.
“There are a lot of loyalty programs and chances are they’re very similar. Brands are realizing they have to up their game,” said Carlos Dunlap-Beard, vice president of business development and loyalty strategy at the Rocky Hill, Conn.-based Ebbo, which creates loyalty solutions, and provides analytics and customer experiences for brands. “With consumer attitudes changing, they have to find more compelling reasons for them to come through the door. Customer acquisition is still a lot of what brands struggle with and focus on. It’s where they put 70 percent of their efforts and 30 percent on customer retention which is really why loyalty programs began in the first place. It’s 90 percent of what a loyalty program does.
“Many people dive headfirst into loyalty programs, thinking they’ll score big savings with zero strings attached. But in reality, the actual savings from loyalty programs most likely don’t live up to members’ expectations,” said Darius Belejevas, head of Incogni, a personal data security company. “We observed that some companies with loyalty programs may engage in the practice of sharing user data with third parties. Considering that loyalty programs usually require the disclosure of specific data points, such as name, phone number and email address, it may not be a fair trade considering the meager savings.”
Loyalty programs can be traced back to ancient Egypt, according to an article on the website of Loyalty & Reward Co. which helps brands with their loyalty programs. Centuries later, pioneers in the strategy were Betty Crocker and the former A&P supermarkets, and American Airlines with its AAdvantage frequent-flyer program launched in May 1981, though the former Texas International Airlines launched one two years before.
Neiman Marcus is also considered a pioneer in loyalty programming. In 1984, it became the first luxury department store to introduce a loyalty club with the launch of InCircle, initially a points-based program that evolved to offered different tiers based on how much a customer spent during the year, with lots of perks and benefits, like early access to just-received designer collections and store events. “Most retailers were relatively slow to get on the ball, other than Neiman’s. Saks Fifth Avenue developed a program shortly after InCircle launched,” said Johnson.
Kohl’s Cash, which launched in 2004, is considered one of the industry’s most innovative spending incentives. Kohl’s Cash is of course, not actual cash — they’re coupons used like cash at the retailer. Customers have 30 days to use the coupons. It’s readily understood by shoppers, has been copied by other retailers and provides strong savings.
“You spend $50, get $10 in Kohl’s cash, and they flex it at holiday times,” said Johnson. “It’s simple. It has an expiration date. There is something tangible about it. It sets Kohl’s apart from Nordstrom and Macy’s and reflects that Kohl’s is not simply a department store. It tends to be more value-oriented than Macy’s.”
A year ago, Kohl’s boosted its Kohl’s Rewards benefit by 50 percent in a move to lift sales and traffic where the business has been struggling. Members of Kohl’s Rewards using the Kohl’s store card on purchases can earn Kohl’s Rewards at a 7.5 percent rate. Previously, Kohl’s Rewards members would earn 5 percent, regardless of payment method. Kohl’s Rewards members also receive personalized deals, perks and a birthday gift.
“Costco does a great job in loyalty,” Johnson added. “The program is simple. Everybody likes simplicity. Everybody gets it,” meaning it’s readily understood. Costco also provides strong values for its buying in bulk format.
“CVS does a good job because there is a little surprise element,” Johnson said. “After you pay, a printed coupon comes out. People like getting that and you just have to show your card at the register. It’s also very easy to understand. You are getting something that is useful, and it’s based on past purchases. It’s really quite sophisticated.
“It’s a lot cheaper to retain a customer or win back than acquire a new one,” said Johnson. “It can be three to five times more expensive to acquire a new customer” (though Passikoff at Brand Keys estimated it costs 16 times more).
“There are advertising costs, marketing costs, data entry costs,” Johnson explained. “There’s more labor involved, but the biggest costs are in the marketing and advertising. Wayfair is notorious for spending lots of money to acquire customers and not so much on retaining them.”
