14 Trends That Will Change Loyalty and CRM in 2016

Now that the new year has arrived and we have had a chance to reflect on 2015, we’re ready to turn our attention back to

Now that the new year has arrived and we have had a chance to reflect on 2015, we’re ready to turn our attention back to our work and the year ahead. 2015 seemed to bring a fundamental shift to the way marketers are thinking, turning more to the deep customer insights and verifiable ROI impact delivered by CRM and Loyalty. Read on to see where we believe the industry is going in 2016:

Consolidation begins in the hotel industry

Following years of airline consolidations that have reduced the U.S. to the big three (or four, if we count Southwest) it’s hotels’ turn. First: Marriott and Starwood. Right behind: Accor and Fairmont. But this trend is attributable as much to a need to better compete with online travel agencies (OTAs) as it is to compete with one another. Even OTAs themselves have consolidated, including Expedia’s recent purchase of HomeAway. Watch for this strategy to backfire with consumers, but not for the obvious reasons. Frequent guest programs (FGPs) will not suffer like frequent flyer programs (FFPs) did under airline consolidation, because hotels don’t fund awards themselves like airlines do. Thanks, hotel franchisees! But don’t expect any real innovation anytime soon—or any real anything. Instead, the desire for authentic experiences will drive consumers to smaller chains, independent hotels…and Airbnb.

The great unbundling begins for airlines

Score a huge victory for low-cost carriers. Heavily— and deservedly—criticized for communicating their unbundled pricing approach that left consumers feeling nickeled and dimed, they’ve learned their lessons and are bringing a fresh infusion of retail into their pricing, designed to let consumers feel they should only buy what they want and to be winners in the process. This trend has clearly caught the attention of American Airlines, for example, whose CEO claims that more than 50% of its revenue comes from travelers who fly once per year and who intends on matching Spirit and other low-cost carriers on price. For its part, Delta has launched its own no-frills fare, Basic Economy. Quite a change from last year, when the news was all about airline consolidation.

The year of the little guy

What a difference a year makes. While American is joining the ranks of Delta and United in moving to a revenue-based loyalty program that favors the heavy traveler, the rise of low-cost carriers and unbundled pricing creates an opportunity to leverage this business model by offering a choice to rebundle one or more of these services for free after, say, a couple of flights. Kind of a virtual elite program benefit for less frequent travelers. Especially cool if all this happens in the booking path. More generally, this will spur the industry to develop new loyalty program structures for less frequent travelers.

Fashion Statement

With Amazon setting up shop in the neighborhood and offering same-day or even one-hour delivery, adding to the stiff challenges faced by the retail sector, retailers need to get smarter. Savvy retailers are integrating people, process and technology across the enterprise to finally deliver the kind of omnichannel marketing and relevant customer experience required to win with customers and against competitors. Loyalty programs are integral to this effort, ensuring a customer is identified—and better understood—with each sale. But look for retailers to move their programs away from free goods and discounts and more toward experiential elements, in-store perks and treatment of high-value customers. It’s a lucky confluence of retailer needs to cut costs and consumer desire for authentic, high-touch, premium experiences. Done right, retail loyalty could be back in fashion.

Is Plenti enough?

Coalition programs invading the U.S. have been rumored for so long we kind of forgot about them. Indeed, when American Express launched Plenti last year, it almost caught us napping. Well, apparently everyone else was asleep, too: merchant and consumer acceptance has been really low, despite the marketing and loyalty chops of Amex, not to mention their brand. Hey, doesn’t this sound a lot like mobile payments? Hint: improve the value proposition. This country invented loyalty programs and, according to Colloquy, we participate in hundreds of them. Or something. Look for Plenti to hit the reset button and give us a better deal.

Apple goes all loyalty

Apple has gotten the memo: the experience of mobile payments needs to be secure. Check. (Sort of). And the process needs to be super simple and elegant. Check. (They’re Apple, remember). And unless and until it delivers value beyond a slicker way of paying for stuff, broad consumer acceptance won’t happen. Got it. Finally. Apple has started down this path with what appears to be some seriousness—signing up Walgreens’ loyalty program—and no doubt has a long list of similar merchants with whom it’s working to do the same. This is a step in the right direction, but sadly it’s just a first step and we will need to be patient. We can’t wait for Apple to realize that there’s a lot more to it and at some point it will need to actually market this service. Then things will happen. Just don’t expect it all this year.

The sharing economy just keeps rolling on

Led by Airbnb and Uber, the sharing economy has been in the headlines—if not the headlights—every day this year. Recent challenges, including those by cities trying to protect the status quo or local housing stock amount to gentle headwinds, and the response by hotel chains to add private room rental to their portfolios is a pretty clear admission that Airbnb is here to stay. Look for them to aggressively enter the business travel market. That and the fact that Airbnb and Uber are valued at more than $25B and $50B, respectively. Uber seems to have a pretty clear path. If there is any cause for unrest for Airbnb, it’s that its listings are increasingly dominated by corporations, not individuals, which threatens local authenticity—its main appeal. If Airbnb allowed consumers to sort by this criterion, it would be very revealing.

OTA's just keep rolling on

OTAs will continue to be a travel bellwether in 2016. Whether it’s consolidation that is creating supersized traditional competitors Expedia and Priceline, the emergence of Google as a major new(er) player, the growth in hotel direct booking capabilities through Trip Advisor or Google, this industry’s got it all. Two trends to watch that could keep this advance in check are hotels’ increasing use of so-called closed user groups to beat rate parity provisions (a boon to frequent hotel program members) as a way to attract direct hotel bookings, and Airbnb’s potential ability to enter the booking game. With Airbnb charging hosts roughly six times less than OTAs charge hotels, OTAs actually may have more to fear from Airbnb than hotels do.

Time will tell

Led by Fitbit and the launch of Apple Watch, wearables were a hot topic in 2015. Hype is still high heading into 2016 and we should expect brisk holiday sales. But the real test of time will be whether consumers replace these wearables during their next upgrade cycles, which can be shorter in fashion than tech. Will Apple Watch run out of time? Will fitness trackers stay in shape or fizzle out like so many New Year’s resolutions? Time will tell. Meantime, watch for the real action to be centered around enterprise or industrial applications in places like the factory floor or hospitals where the opportunity for wearables to deliver real value is highest.

Too many apps in the kitchen

Brands will come to realize that consumers are only keeping apps they really use and will pivot a bit more to mobile web. The app field is especially crowded among quick service restaurants (QSRs), who have been racing to develop and launch apps that feature online ordering and payment…and loyalty. Look for a proxy food fight coming soon as the app winners reflect the relative consumer usage of and loyalty towards QSRs themselves. Tough choices ahead for both brands and consumers here, as mobile web doesn’t offer the same level of mobile payments or push notifications, for example, compared to an app. An opportunity for Apple Pay?

Loyalty: Here for good

Imagine: CRM and Loyalty programs that encourage members to utilize less, not more, and in smarter ways. That’s what’s increasingly happening in health care and energy. Sure, there are the familiar individual benefits designed to motivate specific purchase behaviors. But spurred on by real pressures that increasingly threaten the health of these industries—and the planet—watch for the health care and energy verticals to creatively leverage loyalty to drive down total consumption and yield better outcomes. The new medicine tastes good!

The coming disruption in financial services

Bankcard loyalty programs have been predictably slow to respond to changes all around them. They haven’t really reacted to opportunities such as airline program devaluation (that weakens cobrand credit cards) or threats like mobile payments or coalition programs hitting our shores. But the bill may come due this year as disruptive forces continue to challenge the financial services industry. Look for new programs to gain currency, finally replacing or at least refreshing the “What’s in Your Wallet” mantra.

The pace of change acceslerates in loyalty

Loyalty itself continues to be disrupted. The minimum requirement is now personalization and now those pesky customers are no longer content to be recipients but increasingly want to be program participants with an active role, a speaking part. Watch for smart brands and loyalty programs that recognize this to rapidly move past transactional rewards to something consumers value a lot more: a program that helps deliver a brand they can believe in.

Retailers innovate to stay trendy

Retailers will continue to be challenged by changing consumer shopping habits, tastes and trends that seem to be catching on faster and dying off sooner, and, of course, increased competition. In fact, competition is straining many retailers on both ends. Pure-play online retailers like Amazon have a distinct pricing advantage while local vendors, who are often more responsive and in tune with regional trends and tastes, appeal to today’s consumers’ yearning for authenticity and to “shop local.” While we expect to see continued price matching at legacy major national retailers, many retailers will begin efforts to build communities of shoppers who are loyal at any price. For example, expect to see more retailers mimic concepts like Lululemon’s practice of offering free yoga classes. We also expect to see increases in in-store services like a concierge and on demand features like opening the store on demand or home delivery. Finally, we expect to see continued deference to consumers’ product preferences like increased differences in regional product assortments, voting on items before they’re manufactured, and increases in transparency around sourcing and production.

If you would like to discuss any of our predictions in more detail, or our loyalty and CRM offerings, please contact Margaret Murphy at MMurphy@icfolson.com, and we would be happy to give you more information.