“Transactional reward programs are easy, but do they build customer loyalty?” by Tara Kirkpatrick via Retail Wire

“Transactional reward programs are easy, but do they build customer loyalty?” by Tara Kirkpatrick via Retail Wire

Another day, another retail loyalty program launch. Bath & Body Works earlier this week debuted its “new” rewards program, which was soft-launched in July after it began testing in March.

Bath & Body Works joins a slew of retailers and brands, including Lowe’s, Walmart and General Mills, that are doubling down on rewards to encourage customer loyalty in the face of rising prices. Is it a sustainable route to routine spending?

Navigate to and a splash screen incentivizes downloading the app to access the rewards program. “PERK ALERT: ALL NEW REWARDS MEMBERS GET $10 OFF A $30 PURCHASE! (Offer and details will be in your Wallet within 72 hours of joining),” it reads. App downloads jumped 147 percent in the first two days of launch, according to our findings, but it will take a couple of months before engagement can be observed.

On its face, Bath & Body Works rewards look similar to Sephora Beauty Insider rewards: both programs enable customers to earn points with every dollar spent. Sephora notably, however, does not focus its program on “transactional loyalty” or “doing whatever it takes to make the next sale, which usually hinges on a discount,” as the retailer’s VP of loyalty, Allegra Stanley told Forbes in 2020.

Sephora did not join the bandwagon of rewards program updates this year; instead, it launched another digital experience to encourage loyalty, “auto-replenish,” or subscription refills of products. In July, it went further, partnering with Klarna to offer buy now, pay later for auto-replenish subscriptions.

Arguably both subscriptions and rewards programs are oversaturated and require delicate design to drive value for both the consumer and the business itself. Kearny Global Consulting wrote this spring that a subscription apocalypse is on the horizon. It found that more than half of subscribers wanted to reduce their paid subscription exposure to about $50 per month. Overall 40 percent of the consumers think they have too many subscriptions.

Meanwhile, recent research from Forrester, Brand Keys and Novous Loyalty acknowledges the prevalence of rewards programs these days and points to transactional rewards — especially when auto-applied — as the most conducive to retaining loyalty.

Insider Intelligence published research from Brand Keys about simplicity as the key to loyalty program success. Sixty-one percent of survey respondents rated the automatic application of rewards (versus required redemption) as a reason they would use a loyalty program more often.

A recent Forrester report on customer loyalty found that “value propositions remained centered on cash back redeemable at the brand.”

Novous Loyalty writes this month that programs are “over-saturated” and “cash credits were preferred the most and placed at top position followed by discount vouchers, free surprise rewards & Gift Card Loyalty Program.”

DISCUSSION QUESTIONS: What are the keys to creating real customer loyalty? Do you think recent retail rewards program updates focused on discounts are more effective, equally effective or less effective than the approach taken by Sephora?

Neil Saunders, Managing Director, Global Data

The loyalty program depends on the customers and the nature of the retailer. For Bath & Body Works a rewards program is the right way to go as many of its customers are frequent shoppers who can be nudged into buying more items. Target’s Circle is another example of a great loyalty scheme as it gives consumers a reason – albeit a small one – to shop at Target where they can accrue “cash” to spend on other things. Of course, one thing most loyalty schemes do is gather a lot of data on customers and that’s a major benefit for retailers.

Georganne Bender, Principal, KIZER & BENDER Speaking

Pushing auto-replenish and Klarna makes Sephora’s loyalty program more Sephora-friendly than consumer-friendly because it openly encourages ways to make it easier to spend more more at Sephora.

Just the opposite, the Bath & Body Works loyalty program is a winner because it’s easy to understand, and easy to accumulate rewards. It’s perfectly designed for the retailer’s rabid candle and lotion loving consumers.

The key to a good loyalty program is obvious: Keep it simple and customer-focused.

Gene Detroyer, Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.

Georganne, I am curious. Does the Sephora loyalty program follow purchases made in Kohl’s?

Ken Morris, Managing Partner Cambridge Retail Advisors

Frictionless rewards with immediate ROI is the key. My best example of this is Amazon Prime and Whole Foods. They get me every time and I see the result upon checkout. I believe they could go further with this but they have generally been non-intrusive/frictionless.

Shoppers also respond to gamification. Keep that streak going and rack up the points to one day beat the system. This is essentially what transactional reward programs are trying to accomplish. Starbucks is an excellent example of how they offer “challenges” of buying specific items within a limited amount of time. But you can’t push anyone to buy multiple rounds of lipstick during the week which is why subscription could work best.

Jeff Sward, Founding Partner, Merchandising Metrics

Transactional reward programs are pretty much table stakes these days. But I’m not sure they always build loyalty. Sometimes the customer is just happy to be bribed to keep coming back until a better bribe comes along. Loyalty is a powerful emotion. It’s not supposed to be bought and sold. True loyalty is to the brand, the product and the experience. Loyalty is the cake. Transactional rewards the icing. Best enjoyed together.

David Slavick, Co-Founder & Partner, Ascendant Loyalty

Hard benefits in the form of rebates, certificates, and dollars spent to points ratio programs are not inspirational. The trend today is for experiential rewards at a personalized level. This means taking advantage of what the brand itself offers its valued customers that is unique and differentiated vs. the competition. Take care of me. Show me that you know me. Give me personal shopping assistance, content that matches my interests, invitations to events that matter, give value that is beneficial to me and my family and so much more. Lastly, paid programs are a risk if you don’t build a benefit that is DOUBLE what you are charging. The tightness in the economy coupled with a weak value proposition within these paid programs naturally drives renewals or cancellations. That is a headache which should have been anticipated and should always be front and center when constructing these programs. Not everyone can be Amazon nor should they. A program must aspire at conception or as part of a re-fresh to much more than a transaction-based give and get – that is deal loyalty vs. Big L emotional loyalty that truly drives affinity for a lifetime.

Ken Wyker, President, Circular Logic

The key to tapping into the power of loyalty marketing is emotional connection with the customer. That means the optimal reward structure will vary by retailer based on the nature of their relationship with their customers.

A promotionally oriented retailer like Bath & Body Works can strengthen the emotional bond with customers by sweetening the deal or making it easier for customers to find the best deals. A retailer that is more aspirational and less price focused like Sephora will be better served by helping their customers discover new products and ideas.

The key is to deliver value in a way that strengthens the bond with your customer.

Phil Rubin, Founder, Grey Space Matters

Real loyalty – which consumers define as being “willing to go out of [their] way and/or pay a premium to do business with a brand” is by definition not completely transactional. Transactional loyalty is, when done right, a more productive way to be promotional so that rewards, aka discounts and free stuff, are more aligned with customer value.

That said, transactional loyalty is more often an expensive way for retailers to discount, especially when there is little brand differentiation or experiential value.

Consumers of course love discounts and free stuff, but to equate that with loyalty, which is often inclusive of advocacy, engagement, incremental data sharing and margin, is far from an absolute truth.

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