13 Dec Featured in AlleyWatch: Look for A Middle-Way Solution to Customer Loyalty in the Age of Big Data Concerns

Originally published at AlleyWatch.com.

By Ray Clopton, CEO and President of  STS & Wilbur

Although loyalty rewards programs have changed dramatically since they began in the 1700s, not all of these developments actually have advanced customer loyalty, especially in recent years.

Innovations in technology have led many marketers to collect and use increasingly granular data and personal information as part of their loyalty programs. Not only does this help marketers better categorize and understand their increasingly fragmented target markets, but it also provides insights for them to offer more “personalized rewards.”

But there are four big issues with a big data approach:

• Marketers are not always effectively using the data they collect, which is an especially expensive mistake to make.
• Customers are growing increasingly reticent to open their figurative curtains to peeping brands.
• Tracking your customers’ spending habits does not necessarily improve their opinion of your brand.
• Customer profiles are being targeted by hackers. If the database is ever compromised, this is a serious liability for the company and a potential PR nightmare.

A recent CrowdTwist study found that only 46 percent of consumers (and 50 percent of Millennial and Gen Z consumers) are willing to share their data in exchange for personalized experiences. This is a significant change—down nearly 50 percent—from just last year when 98 percent of the Millennial and Gen Z consumers were willing to share their personal information.

Why?

Facebook sparked a global controversy concerning the ethics of data mining, which led to a $120B loss in a single day, and this is just the tip of the iceberg.

Venmo’s public API also allowed anyone to download a full transaction history on any user, including their personal messages to each other, and hackers stole the personal and financial data of more than 147M Americans—including social security numbers, dates of birth, home addresses, drivers’ licenses, and credit card numbers—from the credit bureau Equifax.

These are just some of the many examples of unfortunate events that have occurred.

Against this broader cultural and political backdrop, it’s easy to see why consumers are paying closer attention to how they are being targeted by marketers and why they are on high alert when it comes to sharing their personal data with companies.

Increasing Data Privacy Concerns Color Rewards Programs

A new survey underscores how U.S. consumers’ concerns around data privacy are directly at odds with the prevailing approach that most marketers today use to deliver personalized offers and promotions.

Consumers—by a 2:1 margin—want brands to require consent before using personal data for targeted marketing, according to the report “Privacy, Personalization and Promotions,” published by Kelton Research and SheerID.

The study found 73% of shoppers believe when they’re redeeming an offer, brands are using their personal information without their consent.

Just because they know what’s going on does not mean they don’t care: 92% of consumers said it’s important that they know their personal information won’t be shared when redeeming an exclusive offer.

Building Trust, Not Just Databases

It’s important to remember why loyalty programs truly exist: To build and reward customer loyalty—not to collect customer data to sell them more.

Whether or not we will look back on data mining for the sake of “personalized rewards and experiences” as an earnest step toward this remains to be seen. But one thing is certain: All businesses are in the business of staying in business, so loyalty and rewards programs today must do more than just ask customers to hand over a bunch of their personal information for a vague promise of “points”—especially in a day and age where data privacy and data breaches are such hot, controversial topics.

And, if these programs are not as appealing, convenient, transparent and safe as possible, then companies risk severely damaging the trust those consumers have in their brands.

A Middle-Way Solution to Loyalty in a Big Data Era

There is a middle-way solution that doesn’t return to the retro ages of punch cards or requiring customers to use data-tracking cards or apps: Mobile-based rewards programs that just ask for a customer’s first name and only text them with rewards updates.

These text-to-join platforms are easy-to-use and easy-to-join, and they empower small businesses to stay modern and “with the times” without wading into the treacherous cesspool of big data-fueled mistrust—or gathering sensitive data that they don’t have the time or resources to mine anyway.

Startups may not want to follow in the footsteps of big data-chasing big business anyway, given that only 25 percent of Americans now trust big business, according to a recent Gallup poll, versus 67 percent who still trust small businesses.

At the end of the day, the success of a loyalty rewards program is predicated on a company’s ability to create or adopt one that customers can understand in 30 seconds or less.

Can employees explain the company’s loyalty program in two sentences? Is the loyalty program using technology as a novelty, or in a way that makes it easier for customers to join and remain active in that loyalty program?