Loyalty programs are a huge hit with retailers! You’ve heard it all: Starbucks Rewards is a key driver in increasing the company’s revenue, Nordstrom Rewards members contribute to more than half of total sales and Amazon Prime members spend more than twice as much as non-members. That’s not all- 72% of consumers prefer shopping with retailers who offer a loyalty program, and most customers agree that these programs encourage them to continue shopping with a brand. These programs have clearly proven to increase sales, customer satisfaction and brand reputation. In short, loyalty programs reward loyal customers as much as they reward you.
It is thus unsurprising that you, along with more than half of the top 100 retailers, have a loyalty program. What is surprising is the fact that most loyalty programs are severely unsecured, despite being highly targeted by fraudsters. 3 out of 4 loyalty programs suffer from account takeover (ATO) attacks, and the costs can be significant. Not forgetting the fact that investing in a loyalty program can cost as much as 5% of sales, it is crucial to make your program well worth the money.
This means that in order to get the most out of your loyalty program, it is important to secure it against fraud. We have discussed why you need a comprehensive fraud solution to guard your loyalty accounts. Now it’s a matter of choosing one that can best cultivate true customer loyalty- by increasing account security to increase customer engagement.
Choosing the right fraud protection for building customer loyalty
When implementing a fraud management solution, it is paramount to choose one that aligns with your business and the goals of your loyalty program. That way, it can drive growth by dealing efficiently with fraud while delivering the best customer loyalty experience. To identify your ideal fraud solution, let’s examine the goals you might have.
1. Goals of loyalty program: to encourage frequent, short-term purchases
You belong to the retail or ecommerce industry, selling low to mid-range items. Your customers shop with you on a low-commitment basis. You might already have some loyal customers, but it’s always good to have more. After all, returning customers produce 23% more revenue than new customers. Furthermore, your industry is extremely competitive- you need to make it difficult for your customers to switch brands. Therefore, you have invested in a loyalty program to stand out against your competitors and increase retention efforts. Good on you! Your goal is to encourage your customers to shop with you more frequently, at the same time spending more.
Loyalty program: point system
You probably have a points program, in which customers accumulate points with every transaction, after which these points can be redeemed for rewards. These rewards can range from discounts to products to services. This system is simple and fuss-free, making it the most popular type of loyalty program. Good choice! With an incentive to rack up more points, your customers will shop more frequently with you and make bigger purchases. To further increase customer engagement, entice them with a variety of attractive rewards. By having curated rewards that appeal to your customer base and are flexible to redeem, your program will keep your customers coming back to you.
Recommendation: an end-to-end fraud protection
Everybody loves points, but nobody loves having their points stolen. Unfortunately, most point systems only implement a security measure at the point of login. This gives fraudsters plenty of opportunities- they can make big purchases with stolen credit cards to rack up more points, redeem the points easily without having to input any form of verification, or transfer the points to a dummy account. The truth is fraud can happen at any point of the entire user journey, and it is crucial to cover all loopholes.
Additionally, you might have partnered with other complementary brands to offer a wider range of rewards. Good move, since 72% of Americans prefer a loyalty program that allows them to shop with more than one store. Unfortunately, this increases the points of entry for fraud. Your reward partners might also be less strict with their security, allowing fraudulent users to redeem their points without thoroughly checking their identity. You must thus be extra cautious when reviewing logins and transactions. An end-to-end fraud solution that covers all points of entry, from account creation to login to points redemption, will give you and your customers a peace of mind.
2. Goals of loyalty program: to encourage high commitment, higher price-point purchases
You sell high-end products, probably belonging to the retail, airline or hospitality industry. Your goods are sold at a higher price-point, which is why your customer base might be small, but high-value. Since your customers only shop with you occasionally, opportunities to win them over are few and far between. Make good use of them! The price of your products does not matter that much- rather, it is the experience your brand delivers. Buyers of big-ticket items expect exceptional levels of attention and service. Your customers like a sense of recognition and exclusivity; indulging them will set you apart from your competitors. Your goal of implementing a loyalty program is to encourage your customers to spend more and discourage them from switching to another brand, therefore boosting your average order value and customer lifetime value.
Loyalty program: tiered rewards
You have probably implemented a tiered rewards program, where customers can unlock additional benefits and incentives as they earn points and move up through tiers. The rewards typically increase in value, motivating customers to earn points towards the top-tier statuses. This program is extremely effective- 50% of customers will shop more and increase their spending to level up. Membership in the program also creates a sense of an elite community, with high-tier rewards such as exclusive products and events. Everyone wants to be a VIP- exclusive and status-based rewards are a great incentive for your customers to keep coming back. Personalizing rewards also goes a long way in building an emotional connection. By making your customers feel special and recognized, there is a 2.7 times increase in satisfaction and customer loyalty.
Recommendation: a scalable fraud protection with little reliance on manual reviews
The key here is to ensure that your customer experience is consistently high-quality. In addition to your customers’ shopping experience, their loyalty program experience must also be seamless and luxurious. In fact, most consumers are less inclined to sign up for a loyalty program if it is inconvenient and complicated. These affluent customers expect premium service- imagine their reactions if their points are stolen, or if they have to wait for your manual reviewers to confirm their transaction. Most manual reviewers also tend to err on the side of caution, and we all know that customers who are falsely declined will not return.
It is thus paramount that your fraud solution is frictionless and does not affect your customer experience in any way. A fraud solution with little reliance on manual reviews is able to scale to meet the demands of an increasing volume of transactions. By increasing reliance on machine learning and less on manual reviews, you can streamline your operations. This means to focus more efforts on customer engagement, as well as provide instant delivery of goods to your customers. This ensures that you can keep fraud away while still providing your customers the best loyalty experience.
3. Goals of loyalty program: to encourage price-sensitive customers to make purchases more frequently
No matter what business you do, there will be a group of customers that is more price-conscious than the rest. Don’t give up on them! As long as they have expressed interest in your brand by adding an item into their cart, or signing up for your newsletters, they have the potential to boost your sales. You want to activate these “dormant” customers- those who are interested in your products but refrain from purchasing due to pricing concerns. You can do so by offering strategic discounts, such as student prices or discount gift cards. However, it is crucial that you do not compromise your brand’s overall value perception. You can only target the price-sensitive customers- without hurting your profit margins or being perceived as a discount brand. Your goal of launching a loyalty program is to encourage these budget-minded customers to shop with you more frequently.
Loyalty program: discount coupons
You reach out to potential customers by issuing discount coupons, offering them opportunities to save money. Frugal Felicia often visits your website but cannot bear to pay full price; you send her an email with a discount code. Sensible Sandra has shopped with you previously but is prudent with her spending; you send her an exclusive discount on her birthday. Such strategic discounting is a good move- 91% of coupon redeemers will visit the retailer again. By segmenting your customers based on their buying behavior and tailoring discounts to them, you are creating long-term value. Delivering relevant and valuable discounts to your price-sensitive customers can spark customer loyalty, increasing their purchase frequency and lifetime value. Plus, here’s the icing on the cake: your brand name is intact, if not boosted.
Recommendation: a real-time, automated fraud protection
Promo abuse usually happens when customers create multiple accounts to make use of a discount coupon or share the coupon with others. It is thus important to be able to differentiate between a genuine and fraudulent user, increasing account security to increase customer engagement. A solution that deploys machine learning with real-time pattern recognition can do so accurately, by analyzing every transaction based on user behavior. The system runs through millions of data points within seconds, identifying good behavior from bad behavior. Even if the discount code were to go viral, only the genuine owner will be able to redeem it. It is also important that transactions are processed in real time since discount coupons are redeemed and used immediately.
Additionally, the whole fraud screening process should be automated for greater efficiency. Since these price-sensitive customers are only one segment of your customer base, you do not want to dedicate all your time and effort here. A fully automated fraud solution means that you can streamline your operations, by directing your resources to other parts of your business.
Loyal customers are the best customers
Ensure that you have a fraud solution that not only protects your loyalty program, but also drives its success. By increasing account security to increase customer engagement, you can truly cultivate customer loyalty. The right fraud solution will propel your growth, allowing you and your customers to get the most out of your loyalty program.