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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 bathandbodyworks.com 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?

18 Comments on "Transactional reward programs are easy, but do they build customer loyalty?"

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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.

The loyalty program model has to extend beyond the transactional elements of the customer experience. With so many retail touchpoints, consumers seek new and innovative ways to engage with brands. Loyalty programs must evolve from the current business model of offering points and discounts to an engagement model that extends into exclusive product offerings and members-only in-person and virtual events.

With a digital and customer-first operating model, Sephora’s approach around personalized loyalty program benefits is directionally where things need to go. In our customer-first world, robust, organic, and authentic loyalty programs are a growth driver for retail business and a unique opportunity for retailers to establish stronger relationships with customers beyond the transaction.

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.

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

That’s a hard question to answer but I clicked around Google and I think that you can. A 2022 post on the Sephora community board complained that you can’t use Sephora gift cards inside Kohl’s locations. It looks like Sephora and Kohl’s programs work together seamlessly.

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.

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.

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.

For me, make it simple. I don’t want to think about it. Surprise me with a reward (preferably cash or special item discounts), and I will keep coming back.

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.

Oh yes, there’s no customer loyalty until you get to lock-in like being in the Apple ecosystem or Amazon Prime. At my company we offer a discount on the first order after signing up — and what I’ve learned from the data is just how good the public is at spinning out entirely new email addresses. Hey Shopify, can we get account matching on more than just the email dimension so we don’t keep giving the same people new-customer incentives?

Let’s be real. Up front discounts and promotions are practically table stakes to gain opt-ins for loyalty of all kinds – whether it’s a loyalty program, an email list, or a text channel.

The trick to avoiding the opt out kickback is to continue to offer value without having to keep offering steep discounts. You can’t only send spammy marketing messages and expect to keep earning loyalty. Brands that can a.) offer true personalization based on loyalist’s preferences and buying patterns; and b.) make browsing and shopping faster and easier for loyalists will win in the long run.

Most loyalty rewards are discount programs disguised as a loyalty program. That’s marketing. Sephora’s VP of loyalty, Allegra Stanley recognizes that and realizes there must be more. Loyalty comes from an emotional connection to the company. Sometimes that comes from trust. Even in e-commerce, there are opportunities to create a process that customers trust and enjoy. Sometimes it’s the consistent way the customer is treated. They like it and trust it will happen again and again. Here’s how you know if you have true loyalty. It’s actually a question. If you took away all the points and perks, would a customer still come back? I think you know the answer.

Consistent high quality communication, interaction, responsiveness, and demonstrable change are the way to create real customer loyalty, everything else is just a discounting mechanism. There’s a big difference between “loyalty” that’s earned and “loyalty” that is bought.

True customer loyalty is to the brand itself, built on product alignment, customer experience and service, over the repeating cycle of enticements and offers to induce a transaction.

Rewarding shoppers based on frequency of visits or dollar spend is most effective when it’s simple, and customer can see/sense they are getting something they want of value. Free product or a substantial discount at point of sale works because its immediate, customers can see it. It feels tangible.

One of the best rewards programs was created by Dorothy Lane Market of Dayton, Ohio, who gifts customers in high quality food, wine, and steaks based on annual purchases.

Just what we need – more rewards programs! The rewards programs such as the ones at Safeway and Kroger, that require consumers to go to their website or app, sift through a long line of rewards to choose the ones you want, are a lot of work and certainly not tailored to the consumer. In addition they both have programs for special discounts that require downloading the digital coupon while you are in the store that are frustrating because the internet inside those stores is so bad the digital coupons do not download and then you have to ask the associate to look it up before being able to take advantage of the discount! Working so hard to take advantage of the rewards program is not worth it! Fee based programs are great if you know when you have saved more money than the cost of the program. Neither of these programs engenders loyalty.

Frictionless rewards are the best. It annoys me that CVS knows what I buy and serves up digital coupons but then requires me to ‘add to card’ to get the savings. Grrrr …. why the extra step? At least they (finally) implemented digital receipts!

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?