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Live From the NRF: Walgreens, LoyaltyOne on Motivating Behavior Change

$html.esc($author.firstName) Biank Fasig By Lisa Biank Fasig on January 12, 2015

Today, an effective loyalty program is not just the sum of many moving parts; it can be a part of a constantly moving, multi-dimensional engagement platform.

“Savvy retailers are adapting and getting ahead of the customer. Loyalty programs are a tool but not the whole toolbox,” Caroline Papadatos, senior vice president of international corporate marketing at LoyaltyOne, told an audience at the National Retail Federation’s Big Show on Monday.

Papadatos partnered with David Zychinski, senior manager of loyalty strategy and insights at Walgreens, to discuss the multi-motivator approach to engaging a broader segment of customers. This would be the strategy of employing various promotional activities, including weekly sales, exclusive benefits, seasonal promotions and contests, to run along with a loyalty program.

The need, Papadatos said, is unavoidable. As consumers become increasingly tech-savvy, they are equally as overwhelmed. Straightforward loyalty programs can no longer be viewed as the single most powerful tool for engagement. This is where multi-motivators come in. The trick is balancing the right number of programs and maintaining the intelligence to run them all effectively and profitably.

To illustrate, Zychinski highlighted details of Walgreens’ Balance Rewards program, which after two years counts nearly 120 million registrations and 80 million active members. One of Walgreens’ top three strategies is fostering loyalty among its best customers, Zychinski said. To do that, Walgreens has to better understand its customers.

Where do loyalty and multi-motivator strategies fit in? “We think of loyalty as an ecosystem, not just a program. It’s about rewarding our best customers for making Walgreens their health and well-being destination,” Zychinski said.

So Walgreens uses its loyalty insights to inform everything from one-to-one customer offerings to store layout. And, importantly, it is evolving Balance Rewards to serve its best customers, who account for a greater return on investment. He said 15% of Walgreens’ best customers generate two-thirds of its value.

To reach these customers, Walgreens employs direct and indirect methods. For example, its quarterly direct-mail campaign, called Thank You, offers highly personalized sets of offers that are different for each customer. Its Balance Rewards for Healthy Choices, a subprogram that rewards members for activities and other non-transactional activities, counts more than 1 million registrants. And receipt and email offers reward a broader group of customers, encouraging behavior change.

“What we found is it does build loyalty,” Zychinski said of Walgreen’s direct offers. “Those customers just become better customers.” Such efforts require a major investment, he said, which served to segue Papadatos into effective multi-motivator strategies.

She illustrated how one consumer, a student, might not look like a high-value customer unless the merchant looks at what she buys, which can include a category of high-margin products. Then if the merchant looks further at her category behavior, she looks like a mother, but if it examines her redemption activity, she is a world traveler.

Such individual complexities are causing data investments to outpace loyalty investments – most companies in 2014 invested $8 million in data, Papadatos said, citing International Data Group.

Yet customer satisfaction is down, and even the best loyalty programs may not appeal to everyone. “To get that other 50% of customers you have to expand the motivator set,” she said. Done well, such programs can generate 3% to 5% lift in sales over a sustained period. Promotional pricing alone could translate to a 2% to 5% increase.

The challenge, Papadatos said, is capturing the ability to integrate and optimize the program. “You will be hard-pressed if running six or seven programs to lift sales to the action you took if you do not have the intelligence,” she said. “You do not know where to focus or invest.”

Ideally, merchants will shift from running six or seven initiatives to operating an integrated platform that allows them to see the benefits of each motivator underway.

“Because data is not a decision tool if you have six or seven decisions and no way to prioritize.”