Why Modernizing Offers is Critical to Retaining Customer Loyalty

Why Modernizing Offers is Critical to Retaining Customer Loyalty

Loyalty programs cannot rely on earn-and-burn tactics, like mass offers, if they want to become revenue powerhouses. Customers today expect engaging, relevant, and personalized interactions. And with plenty of options at their fingertips, if a loyalty program is static, they’ll leave for a more rewarding relationship with another brand. To provide the kinds of relationships consumers are craving, brands need to modernize their offers.

Retailers have traditionally relied on mass offers or discounts to incentivize customers to complete a purchase. Unfortunately, mass offers give all offers a bad name, because they build purely transactional relationships with customers, who learn they never really need to pay full price.

Unlike mass offers, personalized offers show customers that the brand truly “gets” them as a consumer. These offers are relevant to each consumers’ behavior, and build a relationship that ultimately creates a loyal customer.

Consumers now have endless options; they can easily shop across multiple channels and connect with brands like never before. According to McKinsey & Company, 75% of US consumers changed their shopping behavior and shifted to new brands during the COVID-19 pandemic. Clearly, your share of your customer’s wallet isn’t as guaranteed as it once was. This means brands who want to succeed in today’s world of commerce need to move consumers from being loyal to their wallets to being loyal to your brand. And modernizing your loyalty offers is a first step in driving that loyalty.

What is a Loyal Customer?

If customers are purchasing, what's the big deal if they have a transactional relationship or a loyal relationship with a brand?

Because customers have endless options. Finding an item at a better price elsewhere is simply a click away. And new brands can connect with customers like never before thanks to the digital era we live in. This means consumers can choose which brands are really worth their time and money.

Transactional Customers: A transactional relationship is short-term, which means there is no emotional connection between the company and the customer. Transactional customers only care about what they are buying right now.

Loyal Customers: A loyal relationship is long-term. The primary aim is to retain and satisfy customers, by providing value that is not only in the form of a discount. The company interacts with the customer on an ongoing emotional level, ultimately getting the customer to engage and repeatedly purchase from them, independent of the product cost.

With this new dynamic in commerce, buyers hold the power and constantly acquiring new customers will lead to a failed revenue model. Brands need to retain and grow their customers’ lifetime value (CLV) in order to compete and grow long term revenue.

What is Customer Lifetime Value?

Quick refresher - Customer Lifetime Value (CLV) is an estimate of the net profit attributed to the overall future interactions with a customer. Increasing CLV has become critical as brands shift from a more near-time focus on quarterly profits to one that puts greater emphasis on the long-term relationships they build with their customers.

Since it costs less to keep existing customers than it does to acquire new ones, savvy brands are focusing their efforts on retaining and growing their customer base. CLV also gives brands how much the average customer will spend with your company throughout their relationship, which helps create predictability in revenue modeling.

So, we know loyalty programs can become revenue powerhouses when brands have loyal customers - but what are the right levers to pull? It involves changing up how brands have traditionally thought about, and used, offers and making them the strategic center of your loyalty program.

How Offers Increase Revenue

Today’s consumer is a different type of customer than they were even three years ago. With social media, branded apps, digital ads, websites, and traditional brick-and-mortar, brands now have various touch points with consumers. But that also means brands are fighting for attention because consumers are being bombarded by brands everyday. How can a brand stand out, and engage loyal customers?

Forrester’s Customer Experience Index shows three emotions bind customers to brands:

1. Appreciation;

2. Happiness; and

3. Feeling valued.

Since emotions drive behavior, brands that create an emotional connection with customers, through their loyalty programs, will be better positioned to encourage customers to complete an action that is valuable to a brand.

Some of these types of actions might be spending more, coming to a store more often, downloading the mobile app, or referring a friend. Brands can get customers to take these actions by presenting them with offers within a loyalty program, and create an emotional connection by ensuring the offers are personalized based on each customer’s previous engagements with the brand.

For example, a convenience store chain might want a customer to come in more frequently. They normally spend around $20 per visit, so it’s unrealistic to expect them to spend $100 every time they enter the store. However, if the brand can get them to visit one extra time per month, that’s an increase in the lifetime value for the convenience store.


On the other hand, a luxury retailer might want a customer to increase the amount they spent during each shopping experience, because trying to get them to come into the store even four times a year is difficult.

When presented with an offer, a consumer can be triggered by a spark that motivates them, a facilitator that gives them the ability to do something they might not have been able to do before or reduces the time it takes to accomplish something.

Brands that find the overlap between what business objectives will drive growth and what is relevant to their customers can be more successful in increasing revenue and keeping customers loyal over their lifetime.

I know, I know. What are the types of offers that can accomplish this? We’ll learn about that next.

Types of Loyalty Offers for Customer Loyalty Programs

Not all offers are created equal.

Let’s define different offer types, using an example of a home goods retailer with 10 million loyalty program members. They can send those members one of these types of offers to either increase revenue or drive deeper engagement:

Mass Offer - This offer is available to everyone in a given program, regardless of other demographic data. If our home goods store offered a 10% discount off the next purchase to all members, that would be a mass offer.

Segmented or Targeted Offer - With a segmented or targeted offer, the customer base is segmented into groups based on a particular data point. Each person in that group is eligible for the same offer and may have group-specific messaging. This gives a small level of personalization but does not not truly take individual preferences into account when building the offer. For example, they could offer a 10% discount to everyone who lives within 20 miles of their stores in California.

Personalized Offer - This offer is individualized for the consumer with unique actions and rewards based on the consumer’s preferences and purchase history. For example, a home goods store could offer 15% off an interior design consultation with anyone who has spent more than $1,000 in the past six months and personalize the designer based on the type of decor the consumer purchases.

However, launching a succession of personalized campaigns that continue to be individualized based on the most up-to-date data science models has been historically challenging due to technology integration and scale limitations around the number of hours the team has to create variations and their technology’s ability to support more variation.

Dynamic Offer - This is a highly flexible and powerful offer, typically built using machine learning and automation. It is constructed using a dynamic offer template and machine-learning-calculated actions and rewards for each individual.

Types of dynamic offers range from a simple, single-step spend X and get Y construct to more robust constructs that ask consumers to complete multiple steps to reap a large reward. Dynamic offer platforms automate the generation of these offers and manage the fulfillment, measurement and optimization of these offers. Because of this, they solve for the scale and continuous optimization challenges we’ve historically seen with personalized-offer approaches.

For example, a dynamic offer platform generates an offer for a customer that asks them to complete multiple purchases across different decor categories or brands and in return reap a larger 25%- off discount than the original 15%. This allows marketers to drive incrementality in a new and dynamic way.

The Right Mix of Offers

Accenture reports 57% of consumers spend more with brands to which they’re loyal. That means, there’s a strong, tangible benefit to building a loyalty strategy that has the right mix of offers.

That “right mix” will look different across brands and business types, but dynamic offers are an increasingly important element to that mix because they automatically tune for an individual customer’s behaviors and patterns.

Digital consumers in our current market expect the brands with which they interact to know and understand what they need and want. Couple that with the growing cost to acquire new customers, and it's clear dynamic offers are a secret weapon for marketing teams expected to do more with the same resources.

Offers vs Rewards

But loyalty programs aren’t just about the offers, they’re also about the rewards.

An offer is given before any action has taken place on the customer’s end. It’s aimed at improving performance or reaching goals. A reward is given after the customer completes an action and as one would think, it’s a way to encourage the customer to shop with the brand again.



Types of Loyalty Rewards in Loyalty Programs

Offer rewards can be provided instantly or in the future, like a coupon that can be used during a limited time later in the season. While both types of rewards have their place, behavioral scientists know consumers get a little boost of excitement when they are instantly rewarded, and brands can leverage that to increase engagement.

One type of instant reward would be point-of-service (POS) rewards, which are based on a particular transaction in a given moment in time. While those rewards might be tied to past purchases – for example, a customer has accumulated reward points as they purchase items in a store – those rewards can only be used at the time of purchase, providing instant gratification.

POS rewards can help facilitate good will and might drive the next transaction, but they don’t build real loyalty. They are immediate but not as effective.

When delayed rewards are part of a loyalty offer strategy, they can incentivize a consumer to establish a pattern of interactions with the brand and build a habit around receiving offers and rewards. Consumers will then be more willing to store value with the brand – either by keeping money in an account available for use only at that brand’s store or by accumulating points or miles – because of that longer-term habit.

Remember, consumers are more likely to form purchase habits with a particular brand when the rewards they receive feel incredibly relevant.

How to Make Offers Work for Your Brand

Innovative brands have been increasing the number of personalized offers they send because they build an emotional connection with consumers, which we know translates into more purchases over time. However, this approach has proven problematic for companies working within their established processes and tech stacks. Without more infrastructure to automate campaigns, those companies struggle to scale personalization efforts and cannot maximize the potential benefit of such programs.

Struggles include that the typical operational, data science and reporting lift for a single personalized campaign is around 12 to 16 weeks. Still, brands that have already launched a personalized campaign face the same challenges and resource demands once they have answered “what happened” and want to launch the next campaign.

Personalized offers meet their customers where they are today but require a significant lift from product, digital, and data science teams to launch subsequent campaigns to adapt to the changing behaviors of their consumers over time. Maintaining that personalization at scale is impossible without optimization to incorporate new data and automation to achieve personalization at scale across millions of consumers. Brands have known for years that personalized offers can make an impact on revenue and customer lifetime value, but they’ve been hampered by the limitations around offer technology.

Current technologies like micro-segmentation or smart segmentation are still connecting consumers to a handful of mass offers, but this process isn’t creating personalized experiences. It is creating unnecessary complexities for loyalty marketers, as well as creating confusion for brands on the real impact of their programs. Additionally, brands now have the capability to regularly collect customer data from a multitude of channels and have to do so amidst constantly shifting market conditions.

The emergence of dynamic offer platforms solves for those scale, automation and optimization challenges we’ve seen in existing personalization technologies and approaches. This is what makes offers work for your brand.

The Value of Dynamic Offers in Loyalty Programs

Technology has advanced considerably, and now marketers have a new tool in their arsenal – dynamic offers. As consumers make purchases or provide other preference information, they are building a data profile with your brand.

Dynamic offers use machine learning to analyze that data and provide a balance of highly-personalized rewards and non-transactional actions the consumer can use or take, which then builds that data-driven relationship.

When customers do receive a reward, it’s commensurate with both the action they were asked to take, their previous purchase history, and the information they’ve provided the brand in the past.

When customers do receive a reward, it’s commensurate with both the action they were asked to take, their previous purchase history, and the information they’ve provided the brand in the past.

Credit: https://twitter.com/atdanwhite/status/1147174023668912128

These types of offers give customers the relevancy they’re craving from their favorite brands, and brands can stretch customers into new categories or more frequent purchases, preserving brand value and still giving marketers a tool to enable customers to discover new and valuable elements of the brand.

This means customers get more of what they want, while a brand increases their revenue. Everyone wins. And there are already noteworthy brands already utilizing dynamic offers including United Airlines, Smiles, and Starbucks.

If you’re wondering how they started modernizing offers with dynamic offers, it wasn’t alone.

Formation Transforms Your Loyalty Program

Remember, if your loyalty tech stack is not able to continuously ingest new data and optimize offers based on these new conditions, the personalization will depreciate over time, making your dynamic offers no better than any mass offer.

However, platforms like Formation allow you to implement dynamic offers into your loyalty program by connecting with all of your existing martech systems. Formation takes your customer data to create, automates, and optimizes offers for your brand.

Learn more about Formation and how it can transform your customer loyalty program here -> View Here.

Conclusion: Loyal Customers Need Modern Offers

Modernizing your offers is critical to your customer loyalty program as it allows you to bridge the gap between transactional and loyal customers. When done correctly, with personalized and dynamic offers, your customer loyalty programs can go from a nice-to-have to a strategic part of your customer experience and revenue models.