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Loyalty programs put punch cards on steroids


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The good old punch card has grown up to become a complicated, expensive digital hodgepodge of apps, APIs, cloud-computing and social media. It’s a grab bag of buzzwords that get marketers excited and developers seeing dollar signs.

Historically, loyalty programs served one purpose: get customers to come back. The punch card fit the bill wonderfully, whether it was a simple wallet card, an app, email or phone-based program. It rewarded the loyal customer for coming back again and again for that freebie or discount.

In today’s retail environment, the 3.3 billion loyalty members that market researcher Colloquy tallies have become another critical piece of a marketing program by giving up consumer data. The ability to put a name to the transaction delivers a wealth of insight that a simple transaction or unconnected loyalty program just can’t match.

“Data is fuel for a retail operation,” said Don Zimmerman, chief technology officer at point-of-sale provider NCR Hospitality.

Transactional data on customer frequency and what they buy opens the door to retention and a marketing feedback loop for owners and operators looking to engage with a hypothetical customer.

“We can target-market to him more often and maybe get him to come in one more time than his typical pattern, or upsell him if he likes a certain kind of product attribute,” said Zimmerman.

To get that data, of course, there needs to be a network in place. The loyalty program needs to be connected to transaction data in the POS system, and tie into a customer relationship management system of some sort to maintain all the data and spit out usable data or it’s just a lot of noise.

“Are you talking to your customers in the right way? Are you engaging with them offers that they want? Are you engaging too often? Are there opportunities to engage with them that aren’t discount-based?” asked Laura Rea Dickey, chief information officer at Dickey’s Barbecue Pit. “If you don’t have all that data about what they tell you but also what their behavior shows, you don’t really have usable data.”

Dickey’s Barbecue Pit invested $1 million to connect all the various data silos from loyalty to transactions and even public data under a program dubbed Smoke Stack. The in-house project gives operators real-time business metrics and the loyalty program rewards customers as well as brings consumer data back into the system. “In particular, we solicit their feedback on any product that we’re testing, especially if it’s being tested in their market,” Dickey said.

But the trickiest part is getting users to participate. Dickey’s has an app, but most users choose to engage with the program via email and text messages.

To keep users coming back to a loyalty program, there are two main routes: ease-of-use or gamification.

Gamification comes up in most loyalty programs—the term that exploded in the lexicon in 2010 encompasses various techniques that according to Wikipedia “leverage people’s natural desires for socializing, learning, mastery, competition, achievement, status, self-expression, altruism or closure.”

Thus, any point-based loyalty program inherently falls under the gamification umbrella, but leaders in loyalty are using traits often seen in games for a leg up in the brutal battle for smartphone memory share.

According to Localytics, a market research firm that advises on apps and digital analytics, just 25 percent of people who download an app are still using it after three months. In retail and ecommerce, that number sinks to just 18 percent. Users jump on for that freebie or discount, but actually going back to the app is a major commitment. Who wants to be married to an app that isn’t engaging?

Certainly, concepts with a lot of regular traffic have an easier time. Dunkin’ Donuts launched a loyalty app in January of 2014 and boasted more than 10 million downloads in the same year. For those regular visitors, getting rewards and skipping the line while keeping the morning routine just makes sense.

For just about every other concept, regular daily traffic, even weekly traffic is pretty rare considering all the places to spend money and get points—even in-app payment isn’t enough to keep mobile customers engaged.

“Downloading individual restaurant apps is a material hurdle for concepts with lower frequency than coffee, and advance orders can be easily placed through a browser versus an app,” said Karen Holthouse, senior restaurant analyst at Goldman Sachs.

To keep users engaged, Moe’s Southwest Grill invested in a full-function app that allows customers to order online and skip the line or pay via the device at its more than 600 restaurants. It connects with the company loyalty program for points toward a discounted meal or perks like a free birthday burrito, and the data allows Moe’s to remarket to customers in a very personalized way.

It also brings a key gamification trait of randomness by “surprise and delight” rewards where users pass unknown thresholds (or company-triggered timings) for an extra reward. The app provides a lot of value, but VP of global marketing Dominic Losacco said an important reason users continue to use the app is the recognition and status. It’s much like achievements in a video game.

“We’ve learned that fans wear their lifetime visits like a badge of honor. There is a sense of status and accomplishment that they feel when they see they’ve reached 300+ visits. Why not recognize that and make it fun at the same time?” said Losacco. “Those who love to get to the next level will compete to get there­—just like a game.”

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