• by Jamie Anderson , Op-Ed Contributor, December 6, 2016

For retailers, loyalty schemes make a lot of sense. They bring together all types of different strands of customer data that can be segmented, spliced, and melded into invaluable insights. But, it’s not necessarily the best route for all brands. The promises might sound good in theory, but they don't always make sense in reality. Even if a consumer has managed to accrue points in a loyalty scheme, it might not be easy to see how to spend them. 

A 2015 Colloquy census shows that U.S. customer loyalty programs have topped $3 billion for the first time. But at the same time, an estimated eight million people have not bothered to redeem their points in the past year and three million have never even cashed them in. 

For most modern consumers, winning extra points will always play second fiddle to price and convenience. It doesn’t matter how many brand loyalty cards are packing your purse — if it’s a simple product, then cheapest and closest are what will make up most people’s minds. When there’s added cachet to “membership” — such as social bragging rights — then it’s different as consumers are paying a premium to be seen to shop there.

According to a 2014 McKinsey report, loyalty programs may work well in some sectors (such as hospitality), but in others (like airlines, car rentals, and food retail) they can actually destroy value for the companies that own them. The survey found that companies with a higher focus and spend on loyalty enjoyed comparatively fast-growing market caps, but had Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) margins that were about 10% lower than their peers who spent less. 

Frustrations with airlines will continue to be top of mind for many consumers. But the status quo shouldn’t be mistaken for the potential for change. What could they learn from the companies who do it right?

I’ll give you two examples: Amazon Prime and Under Armor. Amazon’s premium service is a really interesting example because it’s so straightforward. There isn’t any convoluted points accrual — it’s simply a service promise based around the online shopper’s prime pain point: slow, unreliable delivery. Fixing that is a win-win and as a result, Amazon Prime’s members spend more than its standard shoppers.

Under Armour is exciting because it combines innovations in its products (the Gemini 2 shoe has a built-in chip that tracks, analyzes, and stores workout data plus GPS information) with an ecosystem of products that affect the way you monitor and manage your quality of life: sleep, fitness, activity, and nutrition. And it’s not about winning points for future discount. Instead, Under Armour is consciously developing a relationship that begins with the initial purchase but then evolves beyond the promise of better training or faster running. It gives you the tools to improve your life.

This is clever stuff – and it goes pretty deep. At one end of the spectrum we’ve got the old-fashioned loyalty schemes where customers rack up points that can be swapped for goods. At the other, the new way of doing things is a customer engagement community that actually makes material, measurable changes to people’s daily grind and in doing so creates powerful brand advocates. You can bet that the more sophisticated the offer to customers, the more intriguing and useful the insights that companies will be able to find.

Is it the job of the older schemes’ owners to help people spend their points more easily? Maybe not technically, but in a world where service is key, and price comparison is already aging news, this has all the hallmarks of an area that’s ripe for disruption.