As online commerce becomes an everyday part of many consumers’ lives, somecompanies are switching their focus from attracting new customers — anever-decreasing pool of recruits — to rewarding frequent shoppers.
Conventional loyalty programs typically consist of point-based systems. Consumers accumulate points that can be redeemed for airline miles, cash, free meals and so forth. The American Express rewards program is a classic example of an old-line customer-retention strategy. New companies — and, in particular, pure-play e-commerce companies — have been struggling to find just the right formula for the new medium.
Although loyalty programs may be innovative in the e-tail realm, the biggest online success stories still come from the companies that have been doing business offline for a long time. According to estimates by research firm Gartner, more than 75 percent of consumers have more than one loyalty card that rewards them with redeemable points. In 2003, U.S. companies spent a total of more than US$1.2 billion on customer loyalty programs, and that figure is expected to rise in the future.
Transferring loyalty programs to the Internet, however, has proven to bea tricky endeavor. Some Web sites have tried to emulate the personalization and customization strategies used by traditional loyalty programs, with only mixed success.
So, which companies are doing it right?
Not surprisingly, the most successful programs on the Internet are runby the types of companies that have perfected offline loyalty programs:airlines, casinos and hotels.
John Bartold, account director at loyalty marketing firm FrequencyMarketing, told the E-Commerce Times that airlines and hotels in particularhave the strongest online loyalty plays because they have focused on thisarea for long enough to know what works.
“These are very mature programs — they’ve been at this for a long time,” hesaid. “They’ve been able to build these programs slowly, and that’s made adifference.”
Bartold noted that transferring an established offline program to theInternet seems to work better than trying to create an online-onlyprogram from scratch.
Ahead of the Pack
Of course, some companies’ programs are more popular and have more features thanothers. Bartold cited American Airlines, Delta Air Lines, Marriott and Hiltonas top purveyors of online loyalty efforts.
Randy Petersen, publisher of frequent flier comparison site WebFlyer, toldthe E-Commerce Times that while he favors the programs run by American Airlinesand Continental, he thinks hotels still need to perform some offline-to-onlinetransition work.
“Hilton is a player, but they’re stuck in two worlds because they haven’tfully converted,” he said. “Hyatt is probably farther behind in the game,but a major Web site [re]design would fix that.”
Petersen added that the Intercontinental Hotel Group has proven to be aleader in rewarding frequent online shoppers — and should remain in thelead for some time.
In terms of online-only companies, Bartold said he has only rarely beenimpressed. He cited Amazon and eBay for their loyalty efforts but noted that,on the whole, loyalty programs from pure-play e-tailers have not caught onwith customers.
Although customers may not be familiar with Web-only loyalty programs yet, thatdoes not mean e-tailers have abandoned their attempts to craft successful offerings.Mike Sands, chief marketing officer at Orbitz, told the E-Commerce Times that hiscompany continually is trying to perfect its customer loyalty program.
“We think we’re unique in the industry,” he said, “and we want customers tofeel that way as well. We’ve made a big investment in customer service andtechnology, so a loyalty program is a logical addition. It’s a proactiveapproach to service.”
Orbitz may buck the trend of weak online loyalty programs, as might othertravel sites, Petersen said, noting that customers are used to encounteringsuch programs in the travel sector.
In the future, he added, consumers likely will see a rise in online programs offeredby other major offline players, such as credit card companies.
“There’s a big rise in participation in programs run by American Express,Visa and other cards,” he said. “These have already come online in some ways,since you get points whether you shop online or not, but they can do more withit. I think that’s going to be the next wave in loyalty programson the Internet.”
Know Thy Customers
One of the difficulties of running an online loyalty program is thatcustomers are familiar with the intricacies of airline and hotel programsbut may be hesitant to participate in similar Internet-only strategies.
“[Loyalty] programs require a level of personalization and customization,” Bartoldsaid. “As a company, you have to know a lot about the customer, and that doesn’tseem to bother them when you’re American Airlines. However, when you’re somesmall site and you have a lot of information about them right there online,they get nervous.”
Trouble also can ensue if online loyalty programs are too intricate orstray too far from the familiar. Those were stumbling blocks for somepure-play loyalty programs, such as Netcentives and Zebrapass, thatproliferated in the early days of e-commerce.
Bartold noted that although early online loyalty sites garnered interest andactivity, the business model ultimately did not attract enough members to survive.”People didn’t like having everything be only online,” he said. “They shopped onlineand got reward points for more online shopping. That wasn’t too appealing.”
The loyalty programs that are currently solid and those that will dominatein the future will let customers blend online shopping with offline rewards,such as hotel-room discounts or flight coupons, he said.
As Bartold noted: “Blending offline and online fits better with consumerbehavior. That’s why it’s working with the companies that do it.”