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The Journey From Price to Value, From Prospects to Customers

February 22, 2017

Asia Pacific Report: Disruption at Lightning Speed

In Asia Pacific and beyond, the world is changing with every passing second – from customer attitudes to loyalty, payments to technology. Is your company keeping up? Download a special 26-page COLLOQUY Asia Pacific Report to learn more about this vibrant customer engagement landscape and the lessons it holds for brands and marketers worldwide. Here's one of the stories from this compelling report.

The customer Paradox of China: There are so many customers for retailers to build market share and so many e-commerce players to build a marketplace that the focus has been on attracting customers rather than keeping them.

By Caroline Papadatos

Newly enabled digital experiences and constant deals and discounts are the order of the day, with exploding numbers of new shopping apps being released every week. The sheer volume of offers and personalized communications through WeChat cover up the fact that retailers really don’t know their own customers. Surprisingly, for all the talk of Big Data and AI, the use of customer information to drive customer basket lift, shopping visits and retention is very limited, and that is further evidenced by retailers’ loyalty results.

China is poised for a customer revolution. The energy, excitement and economic clout are palpable; the International Monetary Fund has deemed China the world’s largest economy in terms of purchasing power, and the disposable income of urban consumers is predicted to double by 2020 from 2010 levels.

While the market is ripe for success, the retail marketing focus may need to shift from platforms to people. Every retailer has a loyalty program, but they are targeted to new prospects and few of them deliver on the promise of customer engagement. Consumers have become wise to the lack of value, and while sign-up rates are in line with retail norms, continued activation rates are shockingly low. But there is great potential to harness the power of customer data in ways that drive meaningful customer experiences.

LoyaltyOne conducted qualitative research in North and South China, as well as Shanghai, and quantitative research in 10 cities of varying sizes throughout China to understand the rich retail landscape and complex attitudes toward loyalty. In general, consumers were cynical about retail loyalty programs and generally favored bank programs over others. As compared to their Western counterparts, survey respondents were generally unconcerned about data collection. Also, in all 10 markets, consumers favored the idea of a coalition where they could accumulate value, achieve attainable rewards and get quality products.

To raise the bar on loyalty, retailers must heed several important considerations:

Enrolled, but not engaged.

Loyalty programs are prevalent, and most consumers are members — but that’s often where it ends. While two-thirds of consumers in China (66%) belong to a program and 25% belong to three or more, 10% have let those memberships lapse and program activity levels are very low. Customers enroll easily, but the financial value proposition is disappointing and few continue to participate. A smart model must provide a mix of discounts and rewards to engage them and build excitement, including promotional pricing, personalized rewards, VIP treatment, exclusive offers and more. 

Don’t make it so difficult.

Consumers consistently say they hate restrictive expiry policies and are discouraged by low dividends — realities they encounter from most brands in the market, limiting their points-earning and restricting rewards accessibility. In fact, dividends are consistently half those of other markets, well below 1% in high-frequency retail and financial services, and loyalty marketers need not kid themselves — consumers always notice this. As for unfavorable expiry rates, the issue gets right under consumers’ skin in China: Half of those surveyed by LoyaltyOne (47%) cited “program points that never expire” as a desired program feature. 

What is this junk!?

It doesn’t get more direct than what one rewards member told us: “I didn’t do all this work to get a pair of Hello Kitty chopsticks!” Consumers frequently mention their frustration with the quality of rewards offered by loyalty programs in China; 35% told LoyaltyOne they want a wider choice. Rewards don’t have to come just in the form of prizes or merchandise:  Consumers value perks such as event access, personalized experiences and exclusive privileges; 37% say they want to be recognized for being a best customer.

Go beyond points.

The simple fact is that points have a stigma. Consumers strongly prefer discounts, which are more tangible and immediate. Retailers have trained consumers to devalue points by overinvesting in discounts and underinvesting in their own loyalty currencies. Loyalty operators that devalue their own programs — and reputations — in this way should not be surprised when the programs underperform.

Promiscuous, or just bored? Chinese consumers have been painted as indiscriminate discount-hunters who show little allegiance to brands or rewards programs. But retailers can do something about this by changing focus — from the typical intense, undifferentiated price competition to a strategic, personalized and customer-centric approach. The loyalty market must evolve; consumers tell us that programs are designed to be almost entirely for the benefit of the retailers rather than them.

Loyalty as it exists in China — with conventional approaches, proprietary programs and a reliance on discounts — just isn’t driving sustainable behavior change. But that doesn’t mean loyalty can’t create amazing, deep relationships: 73% of consumers told LoyaltyOne they felt more or equally loyal to brands in the presence of effective loyalty programs.

As West meets East, there are lessons to be learned in China from loyalty operators in smaller countries that do not have the luxury of attracting a never-ending stream of prospects. A loyalty model that combines Old World data and customer experience best practices and New World digital applications can deliver excitement and value to consumers while helping retailers get the most out of their data assets and customer engagement efforts. For consumers, this would spell greater value, excitement, trust and long-term engagement. For retailers, it would resolve hurdles including under- penetrated share of wallet, declining customer acquisition and market share, and increasing customer attrition.

Caroline Papadatos is senior vice president of LoyaltyOne Global Solutions. She can be reached at