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No, You Can’t Beat Amazon Prime. But Here’s How to Create an Effective Loyalty Program

Loyalty is in short supply at retail today. With millions of choices and the tools to search by every metric including price, today’s consumer can—and will—flit from one store to the next, spending little time and even less money in any one place. But some retailers have discovered the key to capturing consumers longer—and it’s not a new idea.

Loyalty programs are the latest to capture retail executives’ attention as they attempt to find ways to keep shoppers engaged and spending.

Tom Caporaso, CEO of Clarus Commerce, a marketing and technology platform for loyalty programs, said the reason for this focus on keeping current fans happy is clear. “It’s five to 10 times more to attract a new customer than to keep one,” he said.

When it comes to attracting and keeping customers, “the phrase ‘money talks’ still speaks volumes,” said Susan Akbarpour, the founder and CEO of Mavatar, an e-commerce service provider whose mCart technology allows influencers to create shoppable content that attributes subsequent sales to them. “Put simply, cash back programs are proving quite popular in the current consumer climate.”

While Caporaso agrees that traditional monetary rewards work, he said today the challenge is also creating perks that pique individual interests. “Retailers need to figure out what’s important to their consumers and how they can provide benefits that speak to them,” he said.

For American Eagle Outfitters, the answer was to provide its young shoppers with access to cool events and emerging musicians. AEO Connected, the loyalty program that rolled out eight months ago, allows the most avid—and spendy—fans to earn their way into music festivals like Lollapalooza. Chad Kessler, global brand president for American Eagle, said thus far the program is generating excitement and the company is seeing “dollars spent, overall transactions and jeans purchases per member increase.”

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Similarly, Macy’s Star Rewards program is gaining traction after its October launch. “At the platinum level, our most valuable customer, is spending more with us. And while it is still early, we are starting to see improvement at the gold and silver levels as well,” CEO Jeff Gennette noted in the company’s earnings call in May. In addition to deals and cashback, the upper tier also enjoys special access to events like the New York Flower Show.

J.C. Penney added Bonus Bucks to its already established rewards program, which allows customers to earn digital money that can be spent immediately in the store (as compared to department stores like Kohl’s, which offers bonus cash that can only be used during a subsequent visit).

Kate Coultas, J.C. Penney’s director of corporate communications and public relations, said the loyalty program is a key factor in helping the department store drive sales and traffic.

“J.C. Penney Rewards members shop and spend more than twice as much as non- J.C. Penney Rewards customers,” said JCP’s director of corporate communications and public relations Kate Coultas. “Today, over 68 percent of our sales are driven by customers that are J.C. Penney Rewards members.”

At DSW, the company attributes 90 percent of sales to its loyalty program. It’s one reason the company took pains when revamping its loyalty program, which rolled out in May. The new concept offers three tiers of memberships with the highest spenders, VIP Elite members, getting extra perks like free 2-day shipping.

Competing with Prime

Even with in-store incentives and “free money,” major retailers are still facing a tough challenge, the mother of all reward programs: Amazon Prime.

Caporaso said while retailers can forget about competing with Prime, they should be taking note of why it’s so dominant. “Amazon Prime rewards is built around pain points of ease of use and convenience,” he said, listing the fast shipping and streaming entertainment as just two examples.

According to March 2018 report by financial services firm Cowen and Co., Prime’s dominance seems to be on track for continued growth.

“We view Prime as the biggest driver of Amazon’s eCommerce business near and longer-term,” said Cowen managing director John Blackledge. “Our proprietary data suggests there are about 60MM US Prime households and Amazon stated a few months ago that is has passed 100MM global Prime households. Our data also suggests there are 20-25MM non-Prime USHHs that purchase goods in any given month, so there is a pathway to further Prime adoption. Our data suggests US Prime households purchase four times per month and across four different shopping verticals per month.”

As shoppers have become accustomed to the site’s endless aisle and enticing perks, it’s also training them to shop in new ways. Cowen said 30 percent of respondents began their Internet search for a new item of clothing on Amazon; only 11 percent looked to a favorite store’s website.

Even with an Amazon Prime membership, 28 percent of those polled still indicated a preference for buying clothing in stores.

Caporaso said this propensity for shopping in store is the key for retailers looking to create a program that differentiates them from the e-commerce giant.

“[Retailers] must figure out the experiential benefits that can happen in-store where Amazon doesn’t have a huge footprint. That’s where you’ll make the difference. You can’t go head to head with Prime at this point because it’s so far ahead of everything out there,” he said.

Making your footprint count

At J.C. Penney, the company is attempting to do just that.

“Customers are more educated than ever and look for true value from loyalty programs, but value for customers means more than just saving money,” says Coultas. “Loyalty programs have to be easy, convenient and offer exclusive benefits that truly make the customer feel special. That’s why we’ve also added non-monetary perks to our program that are not tied to points or a Rewards certificate. Throughout the year, J.C. Penney Rewards members are treated to early access and specially discounted prices on select merchandise.”

Outside of the apparel realm, experiential rewards are becoming a standard part of loyalty programs. AMC Theaters provides reserved seating and special concessions lines for their VIPs in an attempt to make going to the movies more enjoyable. At Sephora, becoming a Beauty Insider gets you into special events and free makeovers.

In both cases, those companies have been able to tap into what their consumers value most.

“It’s important to not just create a look-a-like program instead of one that makes customers see more value in your brand,” Caporasco said. “Data is a huge part of loyalty. If retailers aren’t understanding the customer, they’re shooting in the dark.”

Even with the loads of information retailers are amassing, Akbarpour said it’s still important for them to remain flexible, offering a menu of options.

“Today’s consumer wants options and that’s what the best rewards programs of the future will offer,” she said. “The option of using rewards towards dollars or a percentage off a purchase or towards services like a restaurant or spa affiliated with the establishment means loyal shoppers have options for what they do with the rewards earned from being your repeat customer.”