Insights

The Rewards Program Landscape: Interview with Steve Deckert and Matt Collins (Part One)

Recently, we had the opportunity to sit down with Steve Deckert, a Co-Founder and Head of Business Development at Smile.io, a rewards and recognition program provider and implementer. He was joined by Gorilla’s Creative Director, Matt Collins, who has extensive experience advising clients about loyalty programs and implementation best practices. We discussed trends, key drivers and predictions about the future of the rewards program landscape.

The following is Part One of a two-part series and contains excerpts taken from our wide-ranging discussion, with a particular focus on the overall landscape and how Smile.io’s offerings differentiate from the broader ecosystem. For more, read Part Two here.

Many retailers have implemented some form of rewards or recognition program, but only a few are engaging and successful. What are the key differentiators that separate successful from unsuccessful rewards programs?

Matt Collins (MC): I think that it comes down to really understanding what your customers want. A lot of loyalty programs that I’ve had experience with offer a percentage off, or a discount, or the opportunity to accumulate points for more product. And that’s not always what the consumers want. Offering discounts and points can be valuable, but I predict we’ll see a growing trend of experience-driven marketing. I think that key differentiator is really understanding who the target demographic is, what motivates those customers, and then designing a program to reward them based on those motivators.

Steve Deckert (SD): I completely agree. A lot of retailers understand their customers transactionally and build rewards programs based on discounts and free products and gifts. They don’t really understand that for these loyal customers, although transactional factors like discounts are important at the start, those factors and that relationship changes over time. Those transactional relationships need to turn into more emotional relationships between a consumer and a brand. And those same transactional rewards that you might offer a customer to start are not sufficient to further develop that relationship from transactional to emotional. When you think about a loyalty program, it’s important to realize that loyalty is an emotion; it’s something that you experience. If I’m not able to create a strong enough emotional response in a customer, I can’t possibly create true loyalty. Without loyalty and the rewards that create an emotional response in the customer, a loyalty program is just a program.

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According to Collinson Group, there has been a 20% drop in loyalty program membership among the affluent middle class between 2014 and 2016. Nielsen published a report on customer loyalty in 2013 and found that just 13% of North American consumers were completely loyal to online retailers, and more than a third were not at all loyal. What does Smile suggest to retailers struggling to realize ROI on their rewards program?

SD: We’ve seen these numbers as well, and we noticed that before these studies were released, enrollment in rewards programs was actually trending upwards, but engagement was consistently going down. I think one of the reasons why enrollment has increased and engagement has decreased is because retailers can a lot more easily launch a rewards program with all the technology that is out there, but they’re not fully taking the time to understand what their goal is to create. They’re seeing competitors launch reward programs and they’re launching one to match, assuming that they’ll see the same success. That’s not always the case. Loyalty programs are a program. Reward programs are a program. It’s not just software. It’s a tool that you can use to create an emotional response in customers, if used correctly.

We’ve seen a lot of retailers launching programs, but not really putting in time to understand their customers, not putting in time to ensure that it’s a company-wide initiative with complete employee adoption, and not putting in time to make sure that, at every single touchpoint they have with their customers, they’re mentioning this rewards program. At the same time, they’re not really understanding their customers and what will drive their behavior. Like I mentioned before, there’s a difference between understanding customers transactionally, and understanding customers as emotional human beings.

With the ease of adoption, and tools like Smile.io that are available, it’s really easy to launch a program, but if you aren’t using the tool correctly, then you won’t be able to launch a successful program. And that’s why it’s really important for us to package software with services, because we understand that retailers aren’t experts in this. This isn’t their forte, and that’s where we come in. We not only have the tool, but we also have experts to teach you how to use that tool.

MC: I would absolutely agree with you, Steve. I think, in addition to that, it’s really a matter of understanding what’s happening holistically in a space for a brand. Look at the competition that brands are facing everywhere. Digital and social are giving huge rise to that. It’s really hard to get a consumer’s attention and brands are finding that, more and more, that it’s not just a channel strategy, but it really needs to be this holistic ecosystem. Thinking about commerce or thinking about loyalty as a specific channel won’t work. There’s so much grabbing for consumers’ attention that thinking about how to integrate a social presence, and what word of mouth and influencer marketing means for consumer perception of and loyalty towards your brand, is going to be critical.

SD: Yes, it’s really like any initiative – it needs to be everywhere in your company. I don’t know how many times I’ve walked into a store and I’ve been asked if I want to participate in some sort of rewards program. And every time this happens to me, I always ask, ‘Why should I join?’ And the person working at the register can almost never give me an amazing explanation as to why, or even a strong summary of the benefits. They usually say something like, “Well, I have to say this”. So having that company-wide adoption is crucial. It’s important to make sure that not only do the people rolling out the program understand it, but the people actually implementing it on the front lines, in front of consumers, really believe in it.

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What are the primary types of rewards programs, and how does Smile fit into the overall landscape?

SD: In terms of rewards programs, there’s an extremely broad ecosystem.

The most common type that you see around the world is the stamp card rewards program. Usually, it’s a paper business card that has 9 spaces to stamp, and the consumer gets the 10th free. You’ll see stamp cards in a lot of coffee shops – it’s very simple, very flexible, and very transactional in nature.

A step up from that is a membership program, where joining allows a consumer to receive discounts on specific, or sometimes all, purchases. Again, it’s very transactional in nature, and you might even have to pay to join, so it’s really an exchange of financial value.

Now a step up from that is a loyalty program. There are many types of loyalty programs, but the most common is the loyalty point program, where retailers give customers points for whatever actions deemed valuable. Usually, those actions are things like placing an order or making an account. Online, it could be writing a product review, or sharing favorite products with friends on Facebook, or answering a survey. Any action that is valuable to that retailer can be rewarded with points. The points are an intermediary currency because they can be exchanged for some type of reward, like a discount. This is where we at Smile really challenge retailers to understand that customers are motivated by more than just transactions and to offer more than just discounts. Retailers should be offering things that only loyalty members can get, like really exclusive free products, or experiential rewards like tickets to an event.

Retailers should also be looking at things like status within the program, which ties into the next type of program – a VIP program, where program members can be at different levels or tiers. As customers perform more long-term behaviors, they are leveled up into different groups. The most common long-term behavior used is how much the customer spent in a calendar year. Behaviors could also be how many points you’ve earned, or how many friends you’ve referred. Whatever those long-term milestones are, retailers can use those to level members up into different groups. Probably the most well-known VIP program is Starbucks’, with gold and green stars. Everyone is really fighting to keep that Gold member status. Airlines have these VIP programs as well. Sephora has a phenomenal VIP program. I’ve heard tales of people who are about to lose their VIB Rouge status at Sephora go out and spend as much money as they need to remain at that status, so that they can continue to be invited to closed door events and get special exclusive rewards.

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sephora rewards 2

At Smile, we offer those last two types of rewards programs: loyalty programs and VIP programs. We also offer referral programs. Referrals may not fit under the conventional umbrella of rewards programs, but I think they’re an important component of a rewards program because they fit into the general customer lifecycle that we see, which is visitor > purchaser > repeat purchaser > brand advocate. That brand advocate is referring friends, shouting from the rooftops about the brand, and really just aligning their personal identity with the brand.

Our offerings might change over time. We like to see ourselves as a rewards platform, and as other types of reward programs become successful, or as we invent new types of rewards programs that are successful, we want to be able to offer any way for you as a retailer to make your customer smile.

How should retailers incorporate a rewards program into their ecommerce strategy?

SD: Many retailers are already doing a lot with their ecommerce channels. You probably have a pretty robust lifecycle email program and you’re probably doing user-generated content with reviews and images. You probably have some sort of a social strategy as well. For starters, you need to make sure that all of those elements are tied into your rewards program as well.

If you’re rolling a new loyalty program out, it’s really important to make sure that first, you’re meeting all of the “hygiene factors” of your business. Those factors are the things your customers expect you to do – that’s why they’re called hygiene factors – they’re expected the same way you would expect me to take a shower. And if I take a shower, you’re not giving me high fives – it’s expected. A good way to make sure you’re meeting those hygiene factors is to do a net promoter survey, which is a simple email survey that you can send out a few weeks after purchase to really identify gaps in your customer experience. If you do determine that there are gaps, then there are ways to use the survey to identify what those are.

Once you’ve determined that you’re meeting all of your hygiene factors, then it’s a good time to start incorporating a rewards program into your online or omnichannel strategy. I would start by talking to your customers and understanding why they love your brand. What is it that aligns with them as people, and how we can incorporate and leverage that into the rewards program?

The best rewards programs allow customers to identify with your brand and as a member of the program. So finding out why people love your brand, why they love your products, and what do they do when they’re not shopping with you is extremely useful and will help you determine what type of program we should be running and what rewards align.

You might find that when your customers are not shopping with you, they enjoy a certain type of experience. There’s no reason that you can’t offer that type of experience as a part of your rewards program. You don’t need to keep things transactional.

So, understanding your customers holistically and knowing what they do as people, beyond when they’re buying from you, is a great place to start, and will help determine what type of rewards program you offer. Once you know what type of program you want to offer, what types of rewards and segments you want to establish, then you can start deciding on the actions you’d like customers to take, like making a purchase, submitting a review, etc.

Starting by understanding your customers, and then aligning the program and rewards with that information is a great way to make sure we have the right pieces in place to encourage customers to take the actions we’re asking them to take.

At Smile, we like to use the spot check, ‘Does this make my customers smile? Will they have an emotional response when they’re engaging in this?’ If the answer is ‘yes,’ that’s a good place to start. After you’ve implemented the program, one thing that is critical and isn’t done often enough is constant improvement and optimization. I see so many retailers just set it and forget it, and then sometimes blame the tool. Really, a stagnant program is a stagnant experience, so you really need to make sure you’re always updating that program so as customers evolve, the program evolves alongside.

MC: I would completely agree that talking to customers and understanding not just what makes them engage with the brand, but what their life looks like, is critical. We call that journey mapping, and it involves understanding what customers are doing when they’re not interacting with the brand, and what their pain points are. What you’ll often find is that even though not all of those moments in the customer journey will be transactional, they’ll all be opportunities for engagement. It’s important to allow your customers to engage with your brand outside of the shopping transaction and on other channels because often, your brand perception is shaped by touch points outside of that purchase funnel. Engaging with, and surprising and delighting them during those different moments will shape how they view and perceive the brand, and thus dictate how loyal they are to the brand.