The Future of Loyalty Isn’t Loyalty
Despite the good news that UK retail sales have surged since the easing of lockdown restrictions, we still face a fundamental shift to the way consumers shop.
One approach to manage this is to invest more in “loyalty” to retain customers, drive repeat sales and increase brand preference. Brands like Burger King, who have typically not used loyalty as a marketing strategy, are trialling a programme to reward customers in the US and, in the UK, retailers continue to invest, with both Marks & Spencer and Tesco relaunching ‘loyalty’ in the past 18 months and John Lewis announcing a combined loyalty offering with Waitrose in 2020.
And why not? We know that, in the past, loyalty programmes have contributed significantly to the bottom line - that it’s cheaper to retain customers than acquire new ones and that companies using data to personalise content to their loyal customers are more successful. I know it because I’ve spent most of my career working on some of the world’s best, like Tesco Clubcard and Avios.
However, we also know that, whilst the concept of loyalty as a marketing strategy still works well for some retailers, the future of brand loyalty for most brands isn’t, well, loyalty. Certainly not as we have ever known it before.
Traditionally, loyalty programmes have operated by giving a (usually) financial reward to say thank you after a transaction has been made. The act of giving of something back creates additional brand preference or, at best, an added reason for the customer to repeat the transaction.
But here’s the thing - when we talk about “driving loyalty’, what we really mean is preference – making your product or service front of mind before a consumer chooses what or where to buy. Therefore, when loyalty programmes give something to customers after they have bought something, increased repeat purchase will only happen if the behaviour would not have taken place otherwise – something that Byron Sharp argues is unlikely. And, with only 37% of consumers saying that today’s loyalty programmes influence their purchases, this doesn’t sound like enough to justify the margin-reducing commercial investment that retailers are making into points and rewards-based programmes.
Similarly, the loyalty market is over-saturated, making it difficult for brands to capture attention and create differentiation. A recent Mintel study showed that, in the UK, over 80% of adults are members of at least one loyalty programme and 55% are members of more than 4 - yet most people engage with fewer than half of them. And, while the Mintel study shows a general satisfaction with loyalty programmes, in a survey of more than 18,000 customers in 20 countries, KPMG’s found 96% of customers agreeing that loyalty programmes could be improved. And, unfortunately, it is us marketers who are creating this dissatisfaction with loyalty programmes that are too hard to join or engage with for 60% of respondents.
Inevitably, loyalty is seen as a tick-box item. A 2019 study showed that 69% of C-suite executives say their loyalty investment increased in the past two years. This usually translates into CRM department headcount or data and/or technology infrastructure but fails to recognise that each customer’s experience is made up of thousands of tiny interactions with your brand – not just targeted communications. Organisations which silo loyalty into a separate department, therefore, are missing a trick. The best marketing in the world cannot undo a bad experience.
Loyalty goes two ways
Loyalty as a concept was around long before businesses appropriated it in the name of selling stuff.
And, whilst retailers try to use loyalty programmes to support their customers, we have already seen that most customers simply don’t care enough. When you ask customers why they buy your goods, product quality, pricing and customer experience take centre stage, not the loyalty programme. They want to buy the things they want, with minimum effort and at the right price.
Therefore, whilst retailers can easily invest in ‘loyalty’, it is the consumer response of loyalty that is far harder to achieve. In order for loyalty to truly drive ROI, your customers need to feel emotionally connected to the brand. They need to continue engaging with your content; recommending you to others; forgiving bad experiences… oh, and buying your products regularly, too. And, with all the generous rewards, brilliant content and cutting-edge technology in the world, that is really hard to force. As Clarence Francis, the Chairman of General Foods said in 1958 “you cannot buy enthusiasm; you cannot buy initiative; you cannot buy loyalty; you cannot buy the devotion of hearts, minds and souls”. So, what can you do?
Loyalty is dead. Long live Loyalty!
Retailers need to change their expectations. Launching a programme and expecting customers to respond, without improving the customer experience, is naïve and could be both financially and reputationally damaging to your brand. Doing what has been done before and expecting the same results is today’s definition of madness. Loyalty no longer fits into a box.
Points programmes have given way to experiences, memberships and subscriptions, all designed to create intimacy and capture sales, through progressive data capture, content generation and personalisation. And, whilst points programmes and subscription models do have their place, modern loyalty is fluid, intangible, human and authentic. And, most importantly it is an output, not an input.
Some organisations have recognised that starting with what the customer wants and needs and investing accordingly will yield results. Like Nike, who built closer, direct customer relationships and c.86% additional revenue by cutting distribution partners and controlling the brand experience. Like Peloton, whose high-fives and milestone recognition generates cult-like behaviour for 1.67m users globally. Like Supreme, an organisation whose weekly collection drops see overnight queues and indiscriminate purchasing – anything as long as it’s by Supreme.
Here are some ways that retailers today can improve their customer experience to get the kind of unwavering support; brand preference; incremental revenue and repeat purchase that Byron Sharp dreams of:
- Understand what customers genuinely need from you and give it to them. Recognise that the real reason they are using your brand or service is usually as a means to an end, rather than the end in itself. Amazon Prime gives them the products they want, ASAP. Peloton gives them a reason to show up to their workout. Spotify gives them cool new artists. Their regular supermarket may give points, but it also gives free parking, a known layout and that niche product they need for their favourite recipe. Using data to understand their ‘why’, allows you to pre-empt how to make regular customers’ lives easier through additive ‘loyalty’ propositions.
- Don’t do the same things as other brands like yours, but be inspired by companies that are setting the new standard of loyalty-inducing customer experiences. Experiences around curation (Stich Fix), product (Beauty Pie), sustainability (Patagonia), convenience (Mindful Chef) or personalisation (Netflix) might be intriguing enough to create the preference and habits you seek.
- Create reasons to engage outside of their shopping mission through genuine and authentic content or experiences. Find opportunities to make them think of you even when they’re not shopping, so you can capture data on their behaviours and create ongoing preference. Anthropologie’s monthly workshops, Nike Plus’ fitness content or Lick Paint’s Home Inspo social content are great examples of this.
As lockdown eases, physical stores open up and the future (hopefully) looks brighter, retailers will be watching anxiously to understand the shape of things to come. One thing for sure, is that the pandemic has taught us that living in a different way is possible. I can only hope that retailers realise the new normal for loyalty must be different too.
Katy Dunn is strategy partner at RAPP UK
