Emotional Loyalty: How It’s Earned
Strategies and tactics to earn customer loyalty have become a C-suite priority. Credit the rewards associated with the heightened role of loyalty as a growth driver offset by risks associated with its potentially fleeting nature. In a digital world, an enticing offer from an established competitor or start-up with a compelling value proposition is but a few taps away. No one has a better view of this evolving loyalty landscape than Bryan Pearson, the longtime CEO of market leading solution provider LoyaltyOne, a division of Alliance Data. Pearson spoke with Retail Leader about customer behavior, the forces driving change and a recently completed landmark study of loyalty.
Retail Leader: How big has the loyalty industry become and how do you quantify it?
Bryan Pearson: Customer loyalty is big business and getting bigger. Our just-released research report “Loyalty Big Picture,” shows the total 2019 customer marketing ecosystem is a whopping $323 billion. That loyalty landscape includes $126 billion in direct loyalty and customer relationship management, along with significant investments in technology, easier purchase systems and customer engagement platforms. And the loyalty industry is growing: 69% of C-suite executives told us they’ve increased their loyalty spending in the past two years, and 55% said their investments will continue to grow over the next two years.
RL: You have a broad perspective on loyalty across industries. Where does the retail industry stack up compared to other sectors?
BP: The retail industry dominates loyalty, with 42% of all memberships, according to the 2017 COLLOQUY Loyalty Census. It’s followed by the travel and hospitality sector, at just 20%, so you get an idea of just how important loyalty is for retail. Loyalty, and the data it generates, is especially critical for retailers trying to stand apart in a market increasingly crowded by new-model players, such as Rent the Runway and Warby Parker. These concepts are offering consumers a completely different shopping experience; they are recalculating consumer value, so traditional brands have to step up.
RL: Any tactics from other sectors you think have application for retail?
BP: Tactics from all sectors apply to retail, and vice versa. For example, airlines and rental car companies offer priority check-in to their best loyalty members. Retail can do the same, even via mobile checkout while in the store.
RL: As shoppers, we are bombarded with a lot of familiar offers to sign up for cards, download apps, earn points, share personal information, etc. What are you seeing that is innovative in the loyalty world?
BP: We’re seeing the emergence of exponential technologies like virtual reality experiences to create more immersive experiences and rewards. And there are cool new multi-channel programs like Shake & Win, where viewers are prompted with loyalty challenges on TV, and rewarded instantly through their digital app. While the use of blockchain technology is still limited, we are seeing more offers of digital tokens that are redeemable for bitcoin or other crypto-currencies that are transferrable, tradeable, and redeemable across borders. And we’re also seeing innovative programs sponsored by local governments that reward customers for lowering their energy use, recycling or drive times. We’re also seeing healthy living programs sponsored by insurance companies that reward members for healthy eating, exercise, medication compliance.
RL: If you were starting a loyalty program from scratch today, what would be your first step?
BP: Before any organization even puts pen to paper on a loyalty plan concept, it first needs to understand its ideal loyal customer and how it can serve that customer. Many companies are opportunists, looking only at their sales revenues and margins and not at who actually creates these numbers. Often these same companies focus on competitive activity to guide their loyalty plans but that is the wrong place to start. Customer insights are the real fuel of great loyalty plans and data is key to making those insights so responsible data use is an important task.
RL: Talk about the Big Picture research project Loyalty One completed last fall. Why undertake such a massive research effort?
BP: After working with clients in 51 countries on thousands of programs, we believed that it was time to transform our research from an academic consulting exercise into an industry conversation. We invited leaders to chime in. We surveyed 1,200 loyalty program operators and thousands of consumers across five global markets (the U.S., U.K., Brazil, Singapore and Canada). Our Big Picture Loyalty report shares those results and provides a roadmap for retailers to generate emotional loyalty.
RL: How are you applying the insights from loyalty program owners and consumers?
BP: Our Loyalty Big Picture report unveils plenty of opportunities for retailers and other program operators to better capitalize on their marketing investments. One such area: consideration of fee-based programs. More than three-fourths of consumers (76%) told us they do not pay a fee for the loyalty programs in which they participate, but 64% would do so in exchange for discounts, expedited free shipping, better earn rates and other perks. To that end, more than half of companies surveyed said they are considering implementing fee-based programs.
Another area of opportunity: Only 30% of companies that have increased their loyalty investments over the past two years did so to improve the value to members. Many loyalty operators fail to fully dig into the data that loyalty programs collect and realize all the benefits. The fact is, many loyalty operators benchmark against the competition and take their leads from market forces, not realizing that demand is being shaped by their customers.
RL: Loyalty programs are most often associated with retailers, but what are you seeing from CPG companies, especially as many are selling direct to consumer?
BP: Loyalty is not new to CPG. L’Oréal has a program, Kellogg has a program, and Pampers too. And retailers like Ulta and Sephora sell a lot of their own brand, as well as national labels, direct to consumer. But to really capitalize on their great work, all CPG brands, and retailers, would benefit from combining their loyalty efforts and leveraging the data they gather. Customers can get double points if they buy their Pampers at Kroger, for example. CPG companies would have much to gain from these partnerships because food retailers have robust and constantly-updated data files. If, for example, a customer has a health issue or a dietary restriction that says he or she can’t eat gluten products, it shows up instantly in the purchasing data. It’s an analytics-driven environment that is constantly rescoring customers. Our company, Precima, does this for retailers and is a strong advocate for retail-manufacturer partnerships for this reason.
RL: Are there things you see companies, be they retailers or CPGs, consistently get wrong with their loyalty strategy or tactical execution?
BP: If you want to maintain long-term customer loyalty, then you have to invest your talent and resources in creating relevant ways to interact with customers across all channels. Context and content are critical and you need to be timely – it makes no sense to send diaper coupons to a mother who just sent her youngest off to college. A misstep like this will cost you credibility. Remember: when a consumer agrees to share personal information with a retailer, she does so with the expectation that she will get something of mutual value in return.
Of course, creating meaningful interactions can be an around-the-clock job, especially since the ways in which we reach consumers are continually changing and multiplying. Tools like dynamic segmentation, learning systems (both AI and machine learning) are game changers. But there are some basics we should not ignore. For starters, customer groups are best addressed after they have been segmented based on behavioral and attitudinal motivations. Then we can create the appropriate experience for each.
RL: You wrote a book a few years back called “The Loyalty Leap,” which highlighted some interesting concepts around customer intimacy and brand fatigue. What’s changed since you wrote the book?
BP: Many of the trends identified in the book have grown exponentially since its publication:
- The fragmentation of media: Today, the average consumer is racking up almost twice as much TV, computer and mobile screen time as he or she did five years ago. Yet he or she STILL pays attention only to those messages that strike a resonant chord.
- Consumer to the power of 10: Social media has increased the power of word-of-mouth and changed the dialogue from brand-to-consumer to customer-to-community; anyone can share rave reviews or announce a bad experience. That means brands are being held to account for their actions and require true authenticity in their marketing efforts.
- The capability revolution: Thanks to advanced analytical tools , advances in AI and machine learning, the Internet and digital media, retailers can now track much more consumer data and better segment and customize offers – at dramatically improved delivery costs and turnaround. Additionally, variable content and specials can be offered live, as the customer interacts via website or smartphone. But unfortunately, few organizations have taken full advantage of the customer information they possess.
To those I’d add a couple of new trends:
- Retail as a platform: The Amazon effect, in combination with Google, YouTube and Facebook, opens up an opportunity for retailers to think of themselves as platforms and content creators.
- The new Three R’s of loyalty (Recycle, Rent and Responsibility): Millennial and Gen Z shoppers are embracing the sharing economy and flocking to retailers that adhere to and promote social responsibility, such as through produce reuse and sustainability.
RL: Let’s end on this. How many loyalty programs do you belong to and do you have a favorite retail app?
BP: I have belonged to hundreds of loyalty programs just out of professional interest. It’s important to truly understand what is being accomplished. As for a favorite, I have to say that I would need a “Frankenstein” application. I have yet to find one single program that has ALL the elements right but there are some really cool experiences and features across a variety of retail players. Putting that together would require a whole new Q&A.