An insight into history of loyalty

In the early eighties, loyalty programmes underwent a gradual metamorphosis to emerge in its more sophisticated form. Compared to its pre-historic coupon & cut-out avatars, the new models perhaps presented possibilities like never before. Adoption of these programmes by large airlines like American Airlines gave them legitimacy and made them practically fashionable. There is no denying that the ‘novelty’ of accumulating and redeeming points might have given a momentum to its journey.

Even during its teething period, loyalty programmes had to be a deliberate, objective-driven initiative that ensured adequate ROI to the company. The investments weren’t low and thus organisations that could afford and leverage the scope that a loyalty program presented were few. Perhaps it was this scarcity that made such programs novel and attractive. There seems to have been a paradigm shift in this very characteristic with the effects of globalisation slowly creeping-in with resultant hyper-competition shaking even established organisations by their roots.

Though the pickings were lucrative, there were too many pluckers for the swelling customer base. One of the easiest ways for aggressive new comers in the business world to advance their revenues was to poach customers from dominant, more established players. In their desperate efforts to retain their ‘valuable’ customers, organisations found refuge in loyalty programmes. Contemporary times are marked by ubiquity of loyalty programmes - they are almost everywhere. Most customers are members of many loyalty programmes thereby resulting in a paradox.

A shift in Loyalty

The worldwide glut of loyalty programmes has thrown a challenge to loyalty marketers. They have the tough task of reinvigorating the market with new strategies & tactics backed by imagination, innovation, data & of course advancing technology. Be it smart cards, RFID technology, real time point-of-sale (POS) terminals, wireless, the worldwide web or new generation of loyalty ‘rules engines’, technology has been in the forefront; producing new program designs that enable creative and imaginative ways of reaching out and engaging valuable customers.

Today the fundamental loyalty processes like enrolment, accrual, redemption, recognition, promotion can be executed with relative ease as well as larger reach. Contemporary smart technologies enable an organisation to capture member transactional data, filtering the data via a ‘rules engine’ which assigns both points and interventions, and the storage, reporting, retrieval of all member and program information from a centralised database. Ironically, sophisticated technologies have removed the cloak of anonymity from customers and brought them to the centre stage. Perhaps the bartering of privacy for rewards-tangible or intangibles like popularity and profligacy seems to be the emerging trend of the times.

Mid-Tier companies and Loyalty

In every business, a small number of customers contribute disproportionately to the bottom line. Identifying and focussing on them presents obvious economic advantages. The omnipresence and proven utility of powerful loyalty programs have tempted even mid-size companies to seek loyalty nirvana. It is again technology that is playing the role of a hero in this quest and in overcoming economic disadvantages of such companies via outsourcing that has repeatedly created business value. Outsourcing technology & program functions has proven to be convenient and cost-efficient strategy.

Loyalty programs today can bring around benefits such as a low capital expenditure, with no set up cost as well as being able to use a staggered payment for services used. Due to an initial cost fixture, there are likely to be no budget over runs. Companies can benefit from scalability on fluctuations, less lead time, tax savings, free updates and the opportunity to use tested and deployed technology. Many of these advantages are why loyalty programs are now so accessible for mid-tier companies and why these companies are able to look at the opportunities that loyalty programs bring aggressively.

Taking advantage of loyalty solutions in everyday business

The potential offered by new technology has to be exploited with practical imagination tied to diligent financial planning, sound program strategy and a return-on-investment analysis. Sophisticated, creative application of loyalty processes will result in successful program design; the technology platform will support it. Bottom line, technology enables, but loyalty hands-on knowledge wins.

The role of technology becomes critical with the good old coalition model proving to be a norm rather than an exception among loyalty programmes today. Multi-partner loyalty coalition offers strong economic reasons to program sponsors and higher accrual velocity for program members. The classic model characterises shared loyalty processes, branding, operational, marketing costs as also ownership of a common currency as well as a database. While the success of a coalition model is a given, its practical administration on a daily basis presents an operational nightmare. Even here, it is technology that enables the easing of such complexities. The success of technology in enabling large coalitions has resulted in the programs themselves turning into profit rather than cost centres. Organisations like Groupe Aeroplan (rebranded as AIMIA recently) that have been spun-off as separate loyalty companies stand testimony to the power of today’s technology.

Outsourcing is changing the loyalty program landscape due to its obvious cost advantages. The loyalty battlefield is expanding with more players in the fray-all fighting for the attention of valuable customers. I personally believe that technology will remain the game changer by unleashing more miracles especially in the loyalty program domain!