Loyalty Management

From Loyalty Programs to Omnichannel Customer Experiences

Cristina Ziliani, Marco Ieva

• Publisher: Routledge
• Year: 2019
• ISBN:
  9780429663420
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

In this insightful new text, Cristina Ziliani and Marco Ieva trace the evolution of thinking and practice in loyalty management. From trading stamps to Amazon Prime and Alibaba 88 Membership, they present a fresh take on the tools, strategies and skills that underpin its key significance in marketing today.

Loyalty management is increasingly identified with the design and management of a quality customer experience on the journey across the many touchpoints that connect the customer with the brand. Evaluating the research on best practice and offering concrete examples from industry, the authors argue that existing schemes and systems are not just things of the past but should be the optimal starting point for companies needing to foster customer loyalty in an omnichannel world.

Drawing on 20 years of experience in research, consulting and teaching, the authors have compiled a unique research-based practice-oriented text. It will guide marketers, business leaders and students through the changes in marketing thought and practice on loyalty management as well as offering practical guidance on the skills and capabilities that companies need if they want to be successful at delivering essential loyalty-driving customer experiences.

1

LOYALTY AND MARKETING

Cristina Ziliani

Amazon and Alibaba: loyalty-centred strategies

The concept of customer loyalty has long been at the heart of marketing. But its centrality, as well as understandings of what precisely it is have varied and evolved as much as the tools, strategies and technologies that companies have employed to achieve it have. It can seem like the Holy Grail: something to do with the customer’s attitude or revealed behaviour, something shaped by an individual’s context and circumstances, something that manifests in repeat buying and recommendation – ultimately something that can help a company keep existing customers and acquire new ones. But although it may seem complex and multifaceted to some, and downright elusive to others, it has increasingly dawned on the business world that pursuing customer loyalty as a strategic objective is worth doing. And as more and more companies adopt loyalty-centred strategies, the results are paying off. We need look no further than two companies who are currently leading the way: Amazon and Alibaba.

Amazon Prime and customer insight

In October 2018 Amazon opened its first 4-star store in New York City. This is relevant for several reasons. First, it is a testimony to the need for retailers to operate multiple channels, and specifically for purely e-commerce players to develop a physical presence and weave it with their online operations in ways that are more and more integrated or ‘omnichannel’. Second, the new store mirrors two of Amazon’s greatest strengths online: its star-rating system and customer reviews. Customers visiting the 4-star store discover that merchandise is displayed according to rating (all are rated four stars and above, hence the store’s name) or by other categories such as ‘Frequently Bought Together’, ‘Most-Wished-For’ or ‘Trending Around NYC’ (Howland, 2018).

Since the emergence of e-commerce in the 1980s and 1990s, the online shopping process has been refined and shaped around features that customers today find familiar, such as wish lists, reviews, rankings and recommendations based on previous purchases or derived from similar customers’ shopping histories. All this has been applied to the store layout and product displays in the Amazon 4–star store. Amazon has thus applied the insight gained from analysing customer shopping behaviour in one channel (online) to the design of the customer experience in another (in-store), creating a consistent look and feel of the brand across channels. The third reason why Amazon’s new store is relevant to our purposes has to do with loyalty. Every item in the store is accompanied by an electronic shelf label, a kind of digital price tag. The label gives the name of the product, its star rating and number of customer reviews. Beneath that, two prices are given: the regular price and the discounted price for Amazon Prime customers. Non-members can register there and then in the store for a 30-day free trial subscription. Thus the launch of the 4-star store is yet another move by Amazon to acquire new members to its Prime loyalty scheme.

Amazon Prime was launched in 2005 and grew to over 100 million members by 2019, attracting interest in the now flourishing subscription model and demonstrating its pivotal role in sustaining Amazon’s growth. Users gain access to free two-hour, one-day or two-day delivery of over 100 million items, streaming of thousands of movies and TV episodes, Alexa voice shopping, free access to thousands of Kindle books and other content. The annual charge in the US increased from $99 to $119 in May 2018. The subscription model incentivizes users to make additional purchases in order to achieve a return on their investment. From 2015 to 2018 the programme boomed. The penetration of Prime among US households grew from 23% in 2015 to 51% in 2018 (Columbus, 2018). With 63% of Amazon online shoppers also being Prime members, according to Columbus, attracting more members from the existing online user base has started to slow down compared to other areas of Prime that are experiencing double-digit growth. Amazon has been adding services and devices to get more consumers into their Prime ecosystem. In early 2018, revenue for online subscriptions to services like its Amazon Prime, Prime Video, and Prime Music Unlimited was up 49% year over year, more than twice the growth of Amazon’s online store revenues (Columbus, 2018).

In 2017, soon after the Federal Trade Commission approved the $13.7 billion merger of Amazon and Whole Foods Market, the two companies announced their joint vision of ‘making Whole Foods Market’s high-quality, natural and organic food affordable for everyone’ (Springer, 2017). Whole Foods’ high-quality private label products such as 365 Everyday Value, Whole Foods Market and Whole Paws were made available through Amazon.com, Amazon Fresh, Prime Pantry and Prime Now (Kolodny, 2017) thus increasing the variety and appeal of Amazon’s range to fresh products. Amazon Lockers were installed in Whole Foods Market stores so that customers could conveniently pick up or return products purchased from Amazon.com at their local supermarket. With this move, Amazon gained 350 new locations.

Amazon had been developing its online grocery offer through Amazon Pantry and Amazon Fresh. But what consumers purchase online to put in their pantries doesn’t drive purchase frequency like fresh perishables and prepared foods do, and although consumers know Amazon for its logistics expertise, they don’t think of it for its line in groceries. A deal with Whole Foods Market, then, looked attractive precisely because it would instantly lend Amazon credibility in this category. The merger has since benefited Amazon. In April 2018 it reported a net profit of $1.6 billion and revenues of $51 billion (a 43% increase year over year). A significant slice of that revenue – $4.2 billion – came from Whole Foods (Thakker, 2018). After the acquisition, 2,000 of Whole Foods’ 365 private-label products became available via the Amazon website, and almost all sold out, generating sales worth more than $500,000 in the first week (Thakker, 2018). More growth is projected ahead, however, by means of a loyalty-building strategy. Amazon announced that Prime would become Whole Foods Market’s customer rewards programme, providing members with special savings and other in-store benefits – which happened six months after the deal. This was not welcome news for everybody else in the grocery industry. Competitors’ stocks started dropping the same day of the announcement. In fact, shares in Kroger, Costco and Sprouts all hit their lowest trading prices in months (Huston, 2017; Kilgore, 2017).

Adding new customers to Prime means a lot for current and future growth at Amazon. In fact, Prime members spend an average of $1,400 a year with Amazon as opposed to non-members, who spend only $600, a difference that has been widening over time (Green, 2018). Just under half (46%) of Amazon Prime members make a purchase online by using the benefits of Prime at least once a week. Weekly purchases, by contrast, are made by only 13% of non-Prime customers (Chadha, 2018). As far as the value for the customer is concerned, J.P. Morgan estimates that the compound of Prime service is actually worth $785 a year – that’s six times the cost of a year’s subscription (Green, 2018). Let’s compare this with the original Whole Foods Market loyalty programme that offered 10% discount on purchases. Under Amazon Prime, Whole Foods Market shoppers receive an additional 10% off on already discounted products, free delivery of Whole Foods Market products to Prime members in certain locations, 5% cashback when members use Amazon Visa rewards card at Whole Foods Market stores, and exclusive member deals. Customers who have their groceries delivered through Prime Now will also have access to these discounts online (Thakker, 2018).

Another reason, besides value, that makes Whole Foods Market shoppers likely to be receptive to Prime is their demographic similarity: both customer bases tend to be younger and affluent. Seventy per cent of Americans with incomes of $150,000 or more who shop online have Amazon Prime memberships (Columbus, 2018). Estimates differ on the percentage of Whole Foods’ shoppers who are already Prime members. Just after the merger, Morgan Stanley estimated that value at 62% (Sonenshine, 2018), or a 38% acquisition opportunity thanks to the extension of Prime as the stores’ loyalty programme (at the same time, just 20% of US Amazon Prime members were Whole Foods Market shoppers). That figure may indeed grow, since the opportunity to enjoy the benefits of Prime on their grocery shopping at Whole Foods and to try Whole Foods products by ordering them online might attract a substantial number of new customers to the stores.

In a nutshell, a value-rich loyalty scheme developed for the online channel will be extended to the physical store and ultimately enriched by new benefits. The possibility of merging data and insight on each customer’s behaviour both online and in the store will create a richer, fuller picture and highlight opportunities to exploit that with targeted offers and communication. This will drive enhanced retention of those who are already in the scheme that translates to a higher long-term value for the company. At the same time it will power the acquisition of qualified prospects, who can be selected based on their similarities with Whole Foods’ best customers. Last, but not least, Prime, and the wealth of data-driven targeting opportunities that it opens up, is an opportunity for Whole Foods suppliers – manufacturers of local, natural and organic brands – to improve their own retention and acquisition efforts. Most Whole Foods suppliers reach small, niche customer bases that Amazon analytics and recommendations will help identify, target and leverage in order to find similar ones online and retain them over time.

Alibaba 88 Membership and a global loyalty ecosystem

As this was taking place in the Western hemisphere, even bigger developments were underway in China. In 2017, Alibaba Group merged its Tmall and Taobao loyalty programmes into a single membership club (Chou, 2017). The new ‘88 Membership’ programme (88, a number considered lucky in China, is pronounced ‘baba’) offers members greater discounts and benefits than the preceding loyalty clubs. Over 500 million users will receive a personalized and more convenient experience, rich in offers from domestic and international brands such as L’Oréal, Hugo Boss, Rimowa and Clarks (who were among the first to join), brands eager to connect with Alibaba’s top shoppers. AI algorithms power the personalization of offers and communication with members, and the focus is on customer experience. Alibaba’s head of the scheme Jiang Fan clarifies: ‘We used to place a lot of importance on growth, rapid growth every year … . Today, we are looking beyond growth to experiences’ (quoted in Chou, 2017).

The 88 Membership programme rewards customers equally for their purchasing activity on Alibaba’s platforms, and for their online engagement. This can take the form of writing product reviews, posting images of product pages on social media, or posting or answering questions in community forums. The fact that engagement is rewarded with points and privileges should drive more activity and engagement in a reinforcing cycle that supports repeat visits and purchases on the platforms as well as referrals. If one considers that Taobao is not simply an e-commerce website but a huge consumer community, the strategy is sensible.

Members accumulate points based on the number and variety of online stores visited, amount spent and types of goods they buy, in addition to the above-mentioned engagement activities. Points are translated into a score, called Taoqizhi. Based on the score, customers are divided into three groups: Standard Members, Super Members, who have a score of 1,000 or more, and APASS Members (Alibaba Passport), whose score is higher than 2,500. APASS members are customers who spend a minimum of $15,000 per year. They do 90% of their purchases online, and spend an average of $45,000 per year, or eight times the average programme member. The majority were born in the 1980s. There were around 100,000 APASS members in 2017 (Leaver, 2018). They are assigned personal account managers/shopping assistants and are invited to wine tastings and fashion shows.

Alibaba Group held its first 88 Members’ festival on 8 August 2017. It was intended as an annual shopping festival to deliver rewards to the club. Super Members were taken to Shanghai for a private concert. They received exclusive discounts in selected stores such as Gap and Old Navy. Online, they received gift cards from a variety of brands entitling them to 12% off the original price. Super Members also received a promotion for Tmall Supermarket and access to an exclusive Super Members’ shop on Tmall that offers fresh produce, not open to other customers. The company is constantly working with brands to create non-price rewards for members such as access to limited edition or bespoke products. In turn, brands receive in-depth insights on shopper preferences and behaviours (Chou, 2017).

In 2018 a new tier was added to the 88 Membership programme called ‘88 VIP’. What is interesting about this move is that 88 VIP resembles Amazon Prime in that it is a subscription service that, for an annual fee of 888 yuan (around $128) entitles members to access content on the video-streaming platform Youku Tudou and Alibaba’s music platform Xiami, discounts on food delivery platform Ele.me and a 5% discount on Tmall Supermarket and the flagship stores of 88 local and international brands on Taobao and Tmall (Bluesea Research, 2018). The total value of benefits available to an 88 VIP member across the Alibaba ecosystem is estimated to reach 2,000 yuan. Existing 88 Membership members who have accumulated 1,000 points can upgrade their membership to 88 VIP with an annual payment of 88 yuan (Kwok, 2018).

Alibaba also formed a joint venture with global hospitality company Marriott International. Overall, the move was aimed at profiting from the new behaviours of Chinese consumers, who travel more and combine online and offline more than ever to plan, discover, book, shop and enjoy their holidays. In July 2018 a facial recognition check-in pilot was launched in two Marriott locations in partnership with Fliggy, Alibaba’s travel service platform. Fliggy’s facial recognition technology will automate and speed up the check-in process from three to one minute, freeing up time for hotel staff to deliver a more personalized service (Hotel Business, 2018). As part of their partnership, the two companies plan to link Marriott’s loyalty platform, Marriott Rewards, the Ritz-Carlton Rewards programme and Starwood Preferred Guest status with Alibaba’s 88 Membership programme. The initiative will include benefits such as status-tier matching and the possibility to exchange and redeem points between the two programmes for purchases (Brennan, 2017).

But it doesn’t stop there. Alibaba also announced a series of smart mobility initiatives in partnership with auto brands and technology service providers (Retail News Asia, 2018a). They focus on the ‘connected car’ and the opportunity to provide services – information, navigation, ordering, booking, purchasing and paying – on the go. Just as Amazon is striving to own more moments in the customer life by placing smart devices like Echo and the Dash buttons in consumers’ homes, Alibaba is concentrating on connecting to customers while they are in their cars – a substantial portion of daily routines for millions. The company sees the idea of connecting different brands’ loyalty programmes as another way of delivering seamless experiences. As its CEO Daniel Zh...