I once worked with a consultant named Whit who was obsessed with airline points. He did the most ridiculous things. He would connect—sometimes twice—when direct flights were readily available. He chose to work from the office with the most out-of-town project assignments. He would criticize something almost every flight to get free miles from customer service. Once, he proactively inspected the expiration dates on the life preservers and complained that one was past date.
But here’s the secret, while Whit liked getting miles to redeem for free flights, the real reason he did all these crazy things was so he could get status with the airlines. For the non-road warriors out there, status on airlines grants your membership into an elite club. It’s not just about redeeming points to get a ticket. Status gets you the royal treatment. For example, on Delta, Diamond Medallion members get benefits such as free upgrades to First Class, access to airport lounges, special treatment from the flight crew onboard, free Global Entry and TSA Pre-Check, the ability to gift Gold status to a friend or family member, a $200 gift card to Tiffany & Co, and more.
Discount Programs Don’t Serve You or Your Whales
Today, I see a lot of “loyalty programs” that are centered around a very blunt instrument: You come X number of times, you get something for free. Effectively, this is a discount. Discounts alone don’t build true brand loyalty. They don’t create a community. Discounts attract cheapskates who want a good deal. They don’t attract your whales.
Credit card companies have learned this the hard way. The Wall Street Journal reports that banks are re-engineering their rewards programs because too many people are gaming the system. Customers are taking advantage of the sign up bonuses, fee-free first year, and special loopholes, then canceling the card once it’s time to pay the annual fee.
Look, there are some benefits to discount-based loyalty programs. According to Forrester Research, retail loyalty program participants spend, on average, $42.33 more than non-participants (note I used the word “participants” and not “members”). And if you’re big enough, you can use the loyalty card data to inform your marketing activities.
Leaving the Discount Program Behind
But what if you’re not a giant company, like a CVS or Stop & Shop? For most brands, it’s hard to justify a discount card program. The brands that have moved beyond the discount card to true membership understand a few things.
They get that a one-size-fits-all approach doesn’t work, that they need to tailor benefits segment by segment. And they realize they need a balanced portfolio of benefits that resonate with the target segment.
Discounts are nice but not sufficient. Remember that Forrester Research report? They also found that 69 percent of people who regularly participate in loyalty programs do so because they find special treatment important.
How Sephora Got it Right
Let’s look at what Sephora did with their loyalty program. Sephora is a retail company that sells beauty products. In 2003, they launched a pretty standard rebate/discount-like loyalty program. It took 10 years for management to realize, “Hey, this is pretty generic, we can do better. We need to do better. Retail is tough!”
So what did Sephora do? They went to the data and found one new piece of information other beauty retailers were not leveraging: The most enthusiastic followers of beauty celebrities aspired to be influencers as well. So instead of just sending coupons in the mail based on level of spend, Sephora created a tiered Beauty Insider program. Each tier contains benefits relevant to that group’s preferences.
The basic Beauty Insider level is open to everyone. You’re upgraded to Very Important Beauty Insider (VIB) after spending $350 in one year. To get admitted to the elite level, VIB Rouge, you need to shell out $1,000 a year. That’s a lot of lipstick!
Yes, members in the program earn points that they can redeem for free products, but it’s so much bigger than that. VIB Rouge members get benefits like invitations to special events, early access to new products, special birthday gifts, and free shipping.
More importantly, VIB Rouge has become a coveted status symbol in the cosmetics enthusiast community. Fans aspire to attain this level. They brag about it online! There are even unboxing videos of members revealing their experience with the program.
Sephora now has over 10 million Beauty Insider members and counting! They are performing well in a challenging environment for retail. In fact, they were named Retailer of the Year in 2018.
So ask yourself, do you have a loyalty program? Be honest: Is it just a discount program in disguise? Do your members do insane things like Whit to get inducted into your program? If not, what can you do to make your members feel like they’re getting special treatment and are part of an exclusive club?
About the Sterling Woods Group, LLC
The Sterling Woods Group’s mission is to help clients make sense of their data to predictably grow sales. We apply data science to help you optimize your sales funnel, improve your marketing ROI, launch new products successfully, and enter new markets profitably.
We use a hypothesis-driven, data-supported methodology to discover insights that no one else is paying attention to. Then, we help you assemble the right sales strategies, marketing plans, technologies, and resources to seize this opportunity.
About the Author
Rob Ristagno, founder and CEO of the Sterling Woods Group, previously served as a senior executive at several digital media and e-commerce businesses, including as COO of America’s Test Kitchen. Starting his career at McKinsey, his focus has always been on embracing digital technology and data science to spur strategic growth.
Rob is the author of A Member is Worth a Thousand Visitors and is a regular keynote speaker at conferences around the world. He has been featured on ABC, NBC, CBS, Fox, and Digiday.
He holds degrees from the Harvard Business School and Dartmouth College and has taught at both Harvard and Boston College.
Rob lives outside Boston, MA with his wife, Kate; daughter, Leni; and black lab, Royce.