5 Marketing Lessons From The GameStop Stock Surge

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If You Bend The Rules of Investing, Expect Limited Rewards

Traders aren’t the only ones who should learn the hard rules of short-sightedness in the aftermath of the GameStop stock surge.

The incident, initiated in January, occurred when a large group of amateur traders acquired shares in the gaming company expressly to undermine short-sellers who had expected the stock to decline. Instead, GameStop stock rose 1,500% over 14 days, and the short-sellers scrambled to find profit in what they thought was a sure bet.

The fallout is a lesson that applies well beyond Wall Street and to the many practices in which a company invests – including its loyalty initiatives. Loyalty platforms are not a small bet, after all: Companies invested $126 billion in direct loyalty and customer-relationship management in 2019.

 As the creator of GameStop’s more than 55 million-member PowerUp rewards program, I have a rare perspective of those potential consequences. Chief among them: If you’re going to approach a trade as if it’s a game, then at least know the rules to win.

Investing For Bonus Points: 5 Reward Program Guidelines

A profit-generating loyalty program is a highly complex endeavor. Tactically, it requires not only gathering member data, but knowing which data to collect and how to use it. That takes accurately interpreting those insights and transforming them into communications and rewards that are progressively relevant.

A lot of technology, and above all expertise, is required to make all this happen within margin. Any company planning to attain this by investing in a loyalty plan should follow these directives inspired by the GameStop stock event.

Lesson 1: Envision a loyalty program as a business. What makes a good business? A highly desired experience, profitability that affords growth and a reasonable return to shareholders and/or owners. The same goes for a loyalty program. What makes one essential is magnetic engagement and a clear value proposition for members. But engagement and value are only sustainable if they profit the program operator, as well. Think: Even a 7% increase in loyalty can boost lifetime profits per customer by as much as 85%. Achieving this takes understanding the data in new ways every day. Even if members beat a path to unbeatable rewards, their activities won’t maximize returns (or opportunities) unless their actions make sense. Such insights will help gauge, for example, the potential consequences of investing in untested concepts.

Lesson 2: Don’t invest in, or try to create, something you don’t understand. As a perceived extension of the marketing department, a new loyalty initiative may seem like an easy in-house investment. So lots of companies embark on developing their own loyalty programs internally, by committee and/or by copying a competitor’s program. However, while reward programs are ubiquitous, successful ones with high ROI are not. In the case of GameStop’s short sellers, and some novice buyers, the unpredicted whims of the market ate their lunch. Similarly, homegrown loyalty programs – especially those modeled after a competitor’s program – often don’t work out as expected. A key reason: The reward program’s design doesn’t synch with the company’s end goal. In essence, these companies are building “better” mousetraps when their targets are butterflies. This leads to the next point …

Lesson 3: There are consequences to not having an end-plan. In the case of GameStop, many of the novice investors who made a bundle didn’t realize that they’d have to pay capital gains taxes on their windfalls. That’s after they bought houses, paid off student loans, booked bucket-list trips, etc. This doesn’t just happen in the stock market – companies also get caught up in “fear of missing out” moments that can fog logic. This is, for example, why some merchants end up investing in private label credit cards – because their competitor had launched one. They may not first consider: What is the role of this card, or any endeavor, in achieving the end goal of our loyalty initiative? There is a reason why 77% of traditional loyalty program software fails in the first two years, and it involves a disconnect between the means and the end.

Lesson 4: Learn the positive (and potentially negative) power of buzz: The GameStop stock surge generated the type of buzz that instilled a sense of urgency and suspicion among investors: Will I regret not taking a risk on this? A loyalty program can manufacture buzz, too, in the form of “epic rewards” or experiences most people can’t access without the right credentials – think VIP tickets to a movie premier or access to a penthouse suite. This can get pricey. Loyalty operators can find affordable ways to offer buzz-worthy rewards through strategic partnerships, but never forget this is a business (see rule 1). The partnership and reward, no matter how shiny, must make financial sense. Put on those dark glasses and take the needed steps to assess the risks of that reward’s price.

Lesson 5: Avoid short-sighted highs and build for the long-term. Building wealth from customer relationships takes time. Unlike GameStop’s surging stock, reward program memberships and data are not shares to be bought and sold, and they don’t generate a return on investment overnight. They need time to scale and build up – this is one reason customer relationship marketing is such a hard area in which to consistently excel. Many companies want estimable gains they can project on the short-term, which can lead to cutting corners. In truth, the “stock price” of a reward program only rises with the commensurate building of customer lifetime value. That is the goal of a loyalty program, and that doesn’t happen in a quarter.

Above all, companies that want to invest in loyalty should never lose sight of what their business means to their customers. And they should revisit that meaning, regularly. Because unlike stock, it’s not good when a member splits.

This article previously appeared on The Customer.

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