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Why retailers need a payment and loyalty program

Global Trends
6 Mins.

Bricks-and-mortar stores can stand out from the competition and prepare for a future in which the physical and the digital are intertwined with a payment and loyalty program

It’s no secret that many traditional retailers have had a difficult time recently. Bricks-and-mortar stores, including those belonging to the best-known and most successful global brands, have suffered from enforced closures, a challenging macroeconomic environment, and customer behavior that has changed dramatically.

As we start to emerge from the pandemic, introducing or improving a payment and loyalty program can make a real difference to retailers. Successful loyalty schemes can help to win new customers and increase engagement with existing ones. Marrying a closed-loop payment system with a well-crafted loyalty program can improve both the customer experience and a brand’s financial performance.

Starbucks saw global store sales decline 5% between October and December 2020, mainly due to COVID-19. However, the number of active members in its Rewards loyalty program in the US grew by 15% to 21.8 million in the same period. This followed a recent update that enabled members to make payments without having to use a physical card. 1

Deepening member engagement

The ubiquitous coffee company, which has around 33,000 stores – including a significant number of franchises – predicts sales growth of 18–23% in 2021.2 It anticipates that Rewards will play a key role as its finances bounce back. “We expect the expansion of payment options will appeal to an even wider customer audience and deepen engagement with our members,” said Brady Brewer, Chief Marketing Officer, Starbucks.

Loyalty programs remain a popular choice for many brands. A staggering 96% of American consumers said they use at least one loyalty or rewards program, according to one survey.3 Understandably, the pandemic has affected how often they have been able to use them – 28% of consumers actively earned rewards from fuel-related programs last year, down from 36% in 2019, for example. But a majority of businesses surveyed said implementing a loyalty program app and cashierless checkout would be their top priority once the pandemic subsides, suggesting they still see value in their payment and loyalty strategies.

“We expect the expansion of payment options will appeal to an even wider customer audience and deepen engagement with our members“
Brady Brewer
Chief Marketing Officer, Starbucks

At the same time the shopping habits of consumers are changing, driven by digital technology. During the pandemic, about 15% of consumers in France, Germany, Italy, Spain, and the UK shopped for groceries on a website that they had never used before, according to McKinsey.4

Adapting to an evolving landscape

Of course, consumers also desire to return to physical shops, restaurants, and other venues. However, these businesses need to ensure they adapt to the evolving landscape. Enhanced health and safety features are likely to be required, at least in the short term. New technology, such as self-order screens at McDonald’s grab-and-go stores, or increased use of experiential marketing, as demonstrated by the House of Vans, are other options that may be required to tempt consumers back to bricks-and-mortar stores.5,6

“It’s an exciting, but challenging, time to be in the restaurant sector. Changing tastes, new technology, and more competition mean we need to continue to focus on investing in what matters most to our customers,” said Henry Trickey, SVP Development & IT, McDonald’s UK & Ireland.

Woman checking her mobile

Payment and loyalty programs can play an important role in meeting evolving customer expectations. Lidl credited its rewards app with helping to deliver record Christmas sales in the UK in 2020. The supermarket’s customers can use the app to redeem money-off coupons, keep track of receipts, and access offers from partner companies.7

On their own, well-crafted loyalty programs can help to deliver an improved customer experience that benefits a company’s top line. Bespoke, timely offers, for example, increase engagement and drive sales. But integrated with a flexible payment ecosystem that incorporates everything from closed-loop systems to multiple credit and debit cards, as well as emerging digital payment options, companies can stand out from their competitors and better position themselves for a future in which the physical and the digital become ever more intertwined.

Closed-loop vs. open-loop payment systems

Closed-loop payment systems – which enable people to pre-load money onto a card to spend with a specific brand – give companies increased control and reduce service fees, which can improve their profitability. The float associated with customers pre-loading money onto cards also provides companies with additional working capital. A branded card, meanwhile, boosts brand awareness and provides important information about spending habits. In contrast, many open-loop systems have significant fees and it is the service provider, not the retailer, that controls access to customer data.

The quick-service restaurant (QSR) industry is one sector that has turned to global technology provider G+D to introduce a new payment and loyalty program. One of the largest QSR chains in Asia wanted a closed-loop, online-only loyalty program that worked alongside their existing processes. G+D’s Convego® Pearl solution – an all-in-one platform that enables brands to own and control the payment transaction and the customer relationship – helped the company to achieve a 13% uplift in sales.

The rewards of customer loyalty continue to be exponential. The latest data shows that 78% of consumers think loyalty programs make them more likely to continue to do business with a brand, and 72% say they are more likely to recommend brands with good loyalty programs.8

Not everyone will be as globally successful as Lidl, McDonald’s, or Starbucks, but an integrated payment and loyalty program can make a material difference to the customer experience you provide and the financial performance you deliver.

  1. “Starbucks to Update Loyalty Program and App This Fall to Offer More Ways to Pay and Earn Stars,” Starbucks, 2020

  2. “Starbucks Reports Q1 Fiscal 2021 Results,” Starbucks, 2021

  3. “PDI Releases 2020 Study Revealing the Impact of COVID-19 on Loyalty Programs and Rewards Currencies,” Professional Datasolutions Inc. (PDI), 2020

  4. “How European shoppers will buy groceries in the next normal,” McKinsey, 2020

  5. “McDonald’s UK trials new ‘grab-and-go’ store in London,” McDonalds.com, 2019

  6. “House of Vans,” HouseOfVansLondon.com, 2020

  7. “Big savings, no fuss, that’s Lidl Plus,” Lidl, 2021

  8. “The Loyalty Report,” Bond Brand Loyalty Inc., 2021

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