From the Editor: Whether Loyalty Marketing has lost its way is a question that we hear from time to time. It’s a valid question to ask, and we posed it recently to Nick Chambers for an opinion from across the pond. Nick has launched and managing a number of highly successful mobile loyalty programmes for retail & hospitality clients. He is Director of Norwood Hill Associates, a UK based consultancy specialising in building stronger relationships between customers and client mobile apps.
We are publishing Nick’s opinions in 2 parts. In Part 1, Nick hits the question hard with some candid opinions based on first hand market experience. In Part 2, he asserts why now is exactly the right time to adopt a “mobile first” approach to customer loyalty.
Has Loyalty Marketing Lost its way? By Nick Chambers
Before offering some solutions for success in the next generation of customer loyalty, it makes sense to provide some context to the two key challenges faced by loyalty program managers:
- Loyalty has lost its appeal with customers
Primarily, this is a result of the current levels of promotional intensity. Within the UK grocery sector price competition has resulted in over 60% of sales being on promotion. Such a staggering amount has trained consumers that they would be a fool to do anything other than shop around constantly. Since consumers are not fools, this is exactly what they now do.
In turn, this promotional activity has had a huge effect on the integrity of the customer data captured by loyalty programs. If 60% of a customer’s basket spend is down to promotion, basket spend can no longer act as a predictor of future purchase habits & therefore be used to target customers effectively. By talking about price all the time, retailers have effectively eroded the value of their loyalty data as a means of differentiation.
Where customers do respond positively to loyalty messages, their attitudes to loyalty have changed significantly. Shoppers are now questioning whether loyalty programs are designed to be more helpful to the organisation than they are to themselves. As a result, loyalty is viewed by customers very much as an entitlement, offering very little in a way of actual emotional engagement with the brand. Loyalty has come to represent a contract between the brand and the customer.
This current situation runs contrary to what loyalty marketing was originally set up to deliver; customer engagement over an extended period. For consumer relationships to be lasting, any engagement needs to have strong emotional connections, connections based on surprise and delight and not just about selling more.
- Loyalty has lost its way with marketers:
The apparent success of major loyalty programs has meant that ‘loyalty’ is now seen by marketers as a mechanism for points collection – a process in which points simply equals prizes.
It is important for marketers to remember that loyalty is an output of consumer behaviour, not a strategy or a card or a point program. The primary purpose of any loyalty program is to leverage knowledge of the customer to help drive specific behavioural change. A drop in a customer’s loyalty should trigger an offer with an incentive to make a repeat purchase. A rise in a customer’s loyalty, or a special event, should result in a ‘thank-you’. Why you bought something is the key to loyalty, not what you bought.
Point collection, however, is now firmly entrenched with traditional marketers as the only possible way by which to achieve customer loyalty. The very fact loyalty has become so closely related to a ‘points’ mechanic has made it difficult for programs to become integrated with the other marketing disciplines relating to brand & sales promotion. As a result loyalty programmes are largely self-contained silos within businesses, cut off from the other marketing disciplines and unable to deliver in a single coherent approach to customer management. For this reason, they have become largely marginalised and undervalued by senior management
As a perceived low cost alternative, marketers are now looking to social media channels to engage with customers or, they are trying to make the traditional methods of email & direct mail work more efficiently. By taking this approach, marketers have become distracted by the direct marketing targeting capability afforded by their loyalty schemes. The result is to send members ever less relevant offers knowing brands will fund direct switching more than they will the rewards for repeat purchases. As a result the loyalty scheme becomes another unsolicited marketing channel and one that is now based on incomplete customer data.
So where does this leave customer loyalty?
Our current world of retail suggests you need either be cheap (a discount grocery chain) or convenient (my corner store). You have to either be easy (Amazon) or authentic (my local bookshop) where I value the knowledgeable advice they give me.
This new retail landscape has created an opportunity for loyalty programs to reinvent & redefine themselves. We now see that needing a loyalty scheme has become different to needing loyal customers.
Loyalty programs, now more than ever, are able to create those highly personalised connections between the ongoing customer purchase and the core values of the organisation. Reinforcing trust in the products, service & pricing of companies and hard wiring customers into the overall brand proposition remains the core mission of most marketers.
In part 2, I’ll explain why now is the perfect time for you to adopt a mobile first approach to customer loyalty and re-establish what a loyal relationship can mean between your brand and its customers.