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Customer Loyalty Is Changing—And You Should Too

Retailers are squandering time, energy, and investment on outdated loyalty models that don’t work.

According to a recent Accenture survey, 78 percent of U.S. consumers are retracting from loyalty programs. Most of that withdrawal can be attributed to customers flocking to the most evolved programs that are more aligned to their expectations and needs.

While that benefits a select few, for most retailers, that means a shrinking customer base, less lifetime value and possibly the demise of a program.

Below are some of the new rules of loyalty to keep your customers coming back.

Innovation = customer satisfaction

If there’s one consistent driver in loyalty today, it’s that innovation compels customers to join loyalty programs. Many of the most recognized loyalty offerings are transforming their programs to be hubs where rich customer experiences converge with technological advances.

Walgreen’s concept stores are a great example of how digital advancements and loyalty can drive store traffic. In certain stores, Walgreen’s carts now come with a digital monitor with augmented reality functions overlaid on aisles to show consumers promotions, item locations and even product information.

If customers have a Walgreen’s card, it can easily track what products they’re looking for to get customers in and out quickly and provide the best deals.

But innovation doesn’t breed satisfaction itself. Each innovation must communicate to the customer that the brand is trying to make their lives better, regardless of profits.

Make your customer better

There are a lot of great loyalty programs out there, but to produce a transformative program, brands must obsessively focus the program around the individual customer. Rewards are nice, they can produce a great model that completes the program’s objectives, but what if the program can truly change a customer’s brand view?

That’s what transformative programs can do—they fervently align individuals to a brand, creating a wealth of engagement, brand ambassadors and purchase cycles.

Imagine if you could take your top decile and increase the average order value (AOV) and frequency, and create a new first-time buyer from each member. That’s the power of emotional loyalty.

A couple of great examples of this come from the fitness apparel industry--mainly from Under Armour and Nike.

Under Armour has created a suite of linked apps that track health and fitness. It’s not a selling platform; it’s purely intended for the individual to track caloric intake or running and biking information. In other words: it seems altruistic to the customer. Yet each of those apps links back to an overarching program called UA Record, which brings members back to the Under Armour community and product.

Nike’s situation is similar, but with greater brand equity. Their apps include Nike Run, Move, Fuel and a vast stack of others for every type of customer, from sneaker heads to health nuts.

In each situation, the strategy remains the same: provide altruistic value to align brand and customer. It’s a long-term strategy, but then again, so is loyalty and lifetime value.

Personalization is paramount

In Accenture’s study, 59 percent of U.S. consumers felt loyalty to brands that showed personalized affection in the form of discounts or other offers for their loyalty. Also, more than 40 percent of consumers remain loyal to brands that engage them in product creation, services or new experiences.

Personalization is the key to loyalty. It’s the driving force of what makes a member feel special and builds emotional alignment.

The extreme examples are co-creation of products, but smaller outreach also helps increase the voice of the customer. That includes personalized email—anything from a separate loyalty template, to 1-to-1 email marketing.

Customer surveys also let customers feel more responsible for the program when their voice is being heard, and personalized product offerings show that you’re listening to each member based on their shopping behaviors.

The list is limitless, but personalization is a driving force to create brand loyalists.

Get your finances in order

Perhaps the most intrinsic problem for loyalty programs is the idea of inclusion. That’s not to say a program should exclude people on any specific basis. But the 80/20 rule applies. Only 20 percent of your customer base truly matters for loyalty, so don’t waste time, energy and budget trying to activate or re-activate a cohort that doesn’t provide a clear benefit to the program. Some of those customers will stay, some will go, but in the long-run it won’t impact the program’s success.

In the instance of soft or altruistic benefits, they either apply to everyone or a select few. That depends on the budgetary needs for each benefit.

For example, Under Armour and Nike’s apps don’t require any additional costs to provide that service to all customers—therefore it’s open to the public.

Whereas specific soft rewards ultimately need to exclude the clear majority of your member base. Examples include store events, gifts or other rewards that hit your budget on an individual basis.

Yes, tiers still matter

While loyalty has seen a drastic shift in expectations, transformative technologies and innovative strategies, tiered member benefits are still a driving force for most programs and that’s not going to change anytime soon.

Tiers are simply the best strategy to create a smart, financially-driven program that motivates members to hit thresholds for brand goals. In fact, tiers are even more imperative with retail’s current store traffic exodus and digital disruption.

They’re a stabilizing force in an era of retail that has been defined by instability.

Tiers are—in many cases—the loyalty catalyst that allows marketers to push forward into the incredible innovation that we’ve seen over the last decade.

The fact is, many retailers are still operating on a 20-year-old model with the adage “if it isn’t broke, don’t fix it.”

But it is broken.

Customers are converging on the new styles of programs with a fresh perspective and a deeper understanding of behavior. Marketers need to evolve the standard prototype with the customer in mind.

Yes, loyalty can’t forget its roots in transactional rewards, but it must also look to the future in every nook and cranny to innovate and build emotional customer allegiance.