Retailers Are Updating Their Loyalty Programs — but Will They Keep You Coming Back?

Big brands are looking to deepen consumer relationships through exclusive programs for those who commit to shopping with them regularly.
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A Lululemon in-store event. Photo: Ernesto Distefano/Getty Images

A Lululemon in-store event. Photo: Ernesto Distefano/Getty Images

Lululemon's cult-like following is the stuff of retail legend: Its legions of yoga-pant devotees have driven billions of dollars in sales and turned the brand into one of the industry's biggest success stories of the past decade.

This year, the company wants to take its relationship with customers to the next level by rolling out an Amazon Prime-style loyalty program that will offer access to special classes and events, expedited shipping, personal development programs and a member-exclusive pair of pants or shorts for an annual fee of at least $128.

The program has been in beta testing in Edmonton, Alberta, and on a call with investors and analysts in December, CEO Calvin McDonald touted its success and said the company plans to launch it in additional markets in 2019.

"I'm excited to be working with the teams to create an offering that is unique, disruptive and perfect for Lululemon," said McDonald, who joined the company in August after former CEO Laurent Potdevin abruptly resigned, citing misconduct. In the pilot program, McDonald said, "guests are seeing value in this curation of services and content beyond just our product."

In his previous role as CEO of Sephora Americas, the chief executive helped launch the beauty giant's first subscription program and evolve its 25-million-member-strong Beauty Insider program into a richer, more community-driven experience with extra rewards options and a dedicated social platform. So, it makes sense that he would want to bring some kind of loyalty scheme to Lululemon, too.

He's hardly the only executive looking to foster deeper consumer relationships through the rewards channel, either. Loyalty programs are nothing new, but they haven't always been successful; in 2018 alone, Nordstrom, Macy's, J.Crew, DSW, Kohl's, Target and Victoria's Secret Pink have all either retooled or relaunched theirs, in some cases adding experiential elements like in-store events, dedicated apps or more personalized customer service, and in others changing membership terms so all customers can join, regardless of whether they sign up for a store credit card (a strategy referred to in the industry as going "tender neutral" or "payment agnostic").

"I would categorize 2018 as the year of retail loyalty program renovation," says Emily Collins, a principal analyst at Forrester. "All of these different retailers are exploring different models within their programs, whether it's creating paid tiers or moving to that tender-neutral program, but also thinking about what's inside that container and what are they offering to customers."

Loyalty programs are not only becoming increasingly popular, they're also generating revenue: According to a recent report by Allied Market Research, the global loyalty management market is expected to grow to $6.95 billion by 2023, up from $1.93 billion in 2016. Last year, Forrester found that U.S. adults who shop online belong to an average of 3.7 loyalty programs.

Still, Collins says retailers are right to reconsider some of the old approaches: Focusing too heavily on discounts can eat away at margins while discouraging already loyal shoppers from buying at full price, and investing in the wrong kind of experiential elements can be a drain on resources. A 2017 benchmark survey conducted by the market research firm found that half of U.S. online adults are already loyal to a brand when they sign up for its loyalty program, so brands might be leaving money on the table by offering bargains to shoppers who would have made the purchase at full price.

J.Crew, which has been trying to climb out of the hole it dug itself into due to years of rampant discounting, is betting on a new loyalty program that's open to all — no store-branded credit card required. The program launched in August, and uses a point system to offer rewards ($5 for every $200 spent), plus free standard shipping and access to exclusive sales; the J.Crew credit card, meanwhile, offers double points and additional perks.

While the latter provides the company with an additional income stream, a more widespread program offers something potentially just as valuable: customer data. When a shopper signs up, they opt-in to share their information with the retailer (essential in the age of GDPR and increasing privacy regulation) in exchange for the program's benefits. Now, says Collins, "hopefully J.Crew can start to capture those customers who already like their brand and use the program to learn more about them." In that sense, their goal isn't just to drive sales by slashing prices, but rather "to build customer understanding so that they can deliver offers, content and experiences that help them really connect with their customers and shore up those relationships."

The Nordstrom brick-and-mortar in New York City. Photo: Monica Schipper/Getty Images

The Nordstrom brick-and-mortar in New York City. Photo: Monica Schipper/Getty Images

Nordstrom also relaunched its loyalty program back in September. Rechristened "The Nordy Club," it is split into four tiers dependent on how much shoppers spend in a given year: Member ($0-500), Insider ($500-$1999), Influencer ($2000-$4999) and Ambassador ($5000-plus). Each offers additional benefits, from curbside pickup and free alterations to priority access to workshops and events. Membership is free, but customers that sign up for the Nordstrom credit card automatically start at the "influencer" level and get special perks, like early access to the retailer's much-hyped Anniversary Sale as well as extra points with every purchase. The aim, of course, is to entice shoppers that are already participating in the gamified program to level up and become a cardholder to earn (and spend) more.

Nordstrom's famously great customer service puts it at an advantage here: According to Forrester research, department store shoppers in particular prize special treatment, with more than three-quarters saying they want to receive premium service through loyalty programs.

What's perhaps most important, though, is that companies make these programs easy for customers to understand and take advantage of. That's why Kohl's, for instance, is currently piloting a program that simplifies its three-pronged loyalty system — Kohl's Charge, Kohl's Cash and the points-based Yes2You Rewards — into a single program called Kohl's Rewards, which is set to roll out nationwide in 2019. The new platform will keep track of customers' Kohl's Cash earnings, giving all members access to sale events, as well as offering free shipping and early Black Friday shopping to cardholders that spend $600 or more in a calendar year.

"I tend to think something that most retailers should be thinking about is how to really compress and promote the value of the program in a way that creates a high perceived value versus spreading it out across too many different things that consumers don't have time to learn and pay attention to," says Collins.

In other words, keep it simple and the customers will keep coming back for more.

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