With the announcement of a long-awaited loyalty program, Whole Foods demonstrates a few do’s and don’ts for retention marketers.

Whole Foods made a splash announcing a loyalty pilot in Princeton, New Jersey earlier this quarter. Should the Whole Foods loyalty program prove successful, the company plans to take it to Philadelphia in the near term and then nationwide by late 2015. As with any big move from a large brand, retention marketers should take note – particularly when that big brand strays from how it traditionally has done business. Let’s have a look at the four most important takeaways:

1) Brands Need To Define Rewards On Their Own Terms

Many traditional loyalty programs focus exclusively on monetary rewards such as BOGOs and cashback. Whole Foods plans to focus on experiential rewards, even though monetary incentives would probably mean a lot to customers given high price points. They are two reasons for this strategy:

• Brand value: strict monetary rewards do nothing for the sponsoring brand’s value. Customers come to expect rewards and inevitably resist ever paying full price. Experiential rewards can have the opposite effect, essentially making customers value the sponsoring brand even more.
• Customer loyalty: brands with cash-only retention programs create loyalty that’s only wallet deep. As one of my favorite professors outlines better than I, loyalty actually has two more profound levels. Using experiential rewards, Whole Foods plans to create more meaningful connections with customers in order to increase customer lifetime value above what strictly a monetary program could ever achieve.

For retention marketers, the Whole Foods loyalty program shows how to customize retention for one’s own brand. The widely-publicized cooking classes incentive aligns nicely with the Whole Foods mission and positioning. Retention marketers should use this example to fuel their own brainstorming sessions. Think through non-monetary assets, including time, access, privilege, and enrichment, as a way to arrive at an experiential reward that customers would value. After brainstorming, keep in mind that ideation is much different than implementation. Unless Whole Foods can handle the technological complexities of delivering experiential rewards, the program will never see success.

Moreover, remember that monetary rewards in and of themselves aren’t negative. Like anything, find a balance. This is where analytics come in, as companies need a way to track success in order to understand how to iterate programs going forward.

2) Brands Need Actionable Customer Data To Create Personalization

Not surprising, but the Whole Foods announcement stands as more confirmation that all brands need a competent data strategy to target content to modern customers. Having a data strategy is no longer a differentiator; it’s a requirement (particularly as millennials form an even bigger piece of the spending pie). The Whole Foods loyalty program announcement contains a couple of points about data that marketers should remember for their own programs:

• Privacy: utilizing customer data should not make customers feel uneasy. Be upfront about data collection, allow customers to opt-in, never save payment information where it can be hacked, and, most important, provide value. Customers will share data as long as they receive tangible benefits in return.
• Personalization: Whole Foods plans to make each shopper feel special by responding with personalized content based on the data collected – another must for businesses looking to establish a deeper connection with modern customers.

The key challenge for the Whole Foods program will be making sure that the data accumulated remains actionable. It’s easy to collect information, but understanding what to do distinguishes the strongest programs from the rest of the pack (quick hat tip to Starbucks in this respect – the company’s massive loyalty success has shown brands the financial gains that come from a data strategy focused on recency, frequency, and lifetime value).

Brands Need a Retention Marketing Strategy

For 30 years, Whole Foods has resisted implementing a loyalty program. However, as the company’s stock price started taking a hit, management had to take action. Ultimately, an investment in retention marketing made the most sense.

No surprise here. Retention marketing ensures that those customers who visit continue coming back. For fun, let’s run through a quick thought experiment:

• Assume the average Whole Foods customer spends $30.
• Assume that this new rewards program can turn a single one-time customer into a repeat customer every day at every location
• Whole Foods just generated ~$4.5 million dollars in incremental revenue

Companies facing stiff competition, like Whole Foods, can make huge gains by focusing on increasing revenue from existing customers. If I were a betting man, I’d say that we’ll soon see more large, brand-conscious retailers making a similar move. There’s too much at risk for merchants that do have effective retention programs in place.

4) Whole Foods Still Hasn’t Figured Out How To Market This New Program

A thorough check of the company’s website reveals no promotion of the new loyalty program. The Princeton, New Jersey location-specific site and Facebook Page also have yet to post any specific calls to action.

In this case, brands looking for a model about how to launch a loyalty program should not follow the Whole Foods example. Unless companies promote retention marketing across online and offline, subscriptions will remain flat. Customers in the modern age don’t trust what they cannot find on Google or in store.

Whole Foods should use the local Facebook page to run some test campaigns promoting the new rewards program. This way, the company could target a specific audience during the pilot and gain insight into how the program would actually work. Unless tested under actual conditions, pilots probably won’t provide a useful example of real-world customer behavior.

Now, certainly it’s early and Whole Foods is furiously working to figure out what to do next. Will be interesting to see how the program does once launched at a group of stores, as opposed to just one. With multiple stores comes operations complexities that are instrumental in revealing how a program will work at the national level.

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