Customer Loyalty

Loyal Consumers Stick by Retailers in Uncertain Times

Offering rewards that engage customers further in the value they seek from the existing relationship will be key this year.
Elizabeth Christenson
Editor, Retail Leader
Elizabeth Christenson

Pro Tip: Consumers often ask the question, “What’s in it for me?” For a consumer in the driver's seat of their own consumption, retailers are often on the back foot in trying to help shoppers derive value from those purchases and spur repeat demand. Loyalty plays are more important than ever, while it’s also important for retailers to lean into their specialty, whether it be a category, level of service or experience. (Click here to jump to the full RL Pro Analyst Take below.)

Nothing in the 21st century remains static for long, but this year the loyalty drivers in 91% of the 110 categories tracked (a total of 987 brands) in Brand Keys’ "Customer Loyalty Engagement Index" have fundamentally changed. The research firm tracked dramatic changes in how customers view their ideal brand, how they compare offerings in the category and, ultimately, how they will buy and remain loyal during the next 18 to 24 months.

Leading retailers by category in the "2023 Customer Loyalty Engagement Index" include:

  • Natural Food Stores: Trader Joe’s
  • Online Retailers: Amazon
  • Online Shoes: Zappos
  • Pharmacies: CVS
  • Price Clubs: Costco
  • Retail (Apparel): Levi Strauss
  • Retail (Department Store): T.J. Maxx
  • Retail (Discount): Walmart
  • Retail (Home Improvement): Home Depot
  • Retail (Sporting Goods): Dick’s Sporting Goods

‘Normalized’ Loyalty

So what happened to consumers’ loyalty? Two and a half years after the COVID-19 pandemic upended life, the marketplace is normalizing. Still, the characterization “normalized” now takes into account extraordinarily complex levels of social and consumer advocacy, combative political tribalism and economic headwinds — all of which explain consumers’ new views of product categories and brands amid frighteningly higher expectations.

Customer Loyalty

Consequently, retaining consumer loyalty in 2023 has become of uppermost importance.

“Loyalty is always important, but in this instance, loyal customers are six times more likely to support a brand during uncertain circumstances,” Robert Passikoff, Brand Keys’ founder and president, told Retail Leader Pro. “For retail, those ‘uncertain circumstances’ have an additional multiplier effect. Causes can be attributed to COVID and the economy and the ‘normalization’ of the marketplace. Combine all that, and it’s more important than ever for a customer to be loyal to a retail brand.”

The current shift in macroeconomic conditions is impacting the way brands engage with customers. 

“Between inflation and a potential recession on the horizon, pocketbooks are tightening and consumers are becoming increasingly more thoughtful about their spending,” Tiffany Johnson, Railsr’s head of product North America and global credit, told Retail Leader Pro. “We reached out to 200 decision-makers to gauge the current state of their business and how they’re gearing up for the difficult season ahead. The majority of these decision-makers are leveraging financial products and loyalty programs to protect their businesses from inflationary pressures and macroeconomic risks ahead.”

New economic pressures are causing brands’ most loyal customers to reconsider their alliances in favor of finding better prices. More than four in 10 (43%) survey respondents globally stopped shopping with a specific retailer as a result of rising prices, Mirakl said. Fewer than 1 in 5 respondents (17%) continue to shop with the brands they trust regardless of price, putting pressure on brands that rely on loyalty from high-value customers to take agile approaches to product and pricing strategy in order to ensure growth. 

"Previous crises like the Great Recession and the dot-com bubble taught us that consumers won’t stop spending altogether when budgets are tight,” Adrien Nussenbaum, Mirakl’s CEO and co-founder, told Retail Leader Pro. “Instead, they’ll shift their spending down the brand ladder —  from Talbots to T.J. Maxx, Nike to New Balance, new to pre-owned — in 2023. If retailers want to protect and strengthen customer loyalty, they need to anticipate this shift and put strategies in place to offer more affordable options without compromising on their brand. Here, retailers with marketplaces have an advantage over conventional retailers. They’re able to quickly source, test and refine offerings at a range of price points to meet changing budgets, ensuring that they’re always offering what their loyal customers are looking for."

Higher Expectations

Still, consumers have higher expectations than ever before regarding what they expect brands to deliver. Brand Keys anticipates expectations to go up annually,  but this year the increases dwarf previous years.

Loyalty Program

“Given that satisfaction and primacy of product are just the price of entry to categories, meeting expectations is the paradigm for loyalty,” Passikoff said.

Brands that best meet expectations always have the most-loyal customers. Accurate loyalty metrics can help identify those expectation gaps, help inform how to close them and help keep retail marketers and their brands profitable, Passikoff explained. 

“Loyalty can be calibrated precisely to customers’ expectations, but as expectations are more emotional than rational, identifying them is tricky,” he said. “It’s tricky because expectations are often unarticulated and more-often subconsciously felt. Hence our use of psychological measures. Shifts in expectations result in massive changes in consumer wants, needs and desires, and how brands are seen capable of delivering against those expectations. You really do need to be able to measure both those things.”

Beyond more point systems or reward programs, which are tactics and not addressing real loyalty per se, Passikoff sees the biggest loyalty trend in 2023 will be meeting expectations. 

“It’s problematic, because even though brands say ‘we want to exceed your expectations,’ you can watch them shut up or just babble if you ask, ‘What are those expectations?’ he said. “Retailers need to measure and identify them if they want to succeed at real loyalty.”

Customer Retention

Credit cards are a preferred tool for businesses who want to improve brand loyalty and retention, reward their best customers, increase average customer value, and gather data insights, according to a new study from Railsr

“Loyalty is often seen as a cost center, with 44% of respondents quoting cost as being the largest constraint on implementing an effective program,” Johnson said. “Companies hire 12 people on average to support credit card programs, and an additional 11 on average to support loyalty — with 23% employing more than 20 people just to manage the loyalty program. The total costs of launching and managing credit card and loyalty programs have historically been prohibitive, often pricing mid-sized companies out of the market.”

How is Railsr seeing consumers change the most in regard to being loyal?

  • Rewards must be personalized in order to be most effective in customer retention and satisfaction.
  • Consumers want to be made a hero by their rewards. No one writes home about the 1.5% cash back credited on their statement at the end of the month. 

“Offering rewards that engage customers further in the value they seek from the existing relationship will be key,” Johnson said. “Crypto companies rewarding in crypto, retailers rewarding in premier interactions and experiences, fitness companies rewarding users for being healthy, etc. Give consumers something to be proud of in an area that piques their unique interest that drives real loyalty.” 

For 2023, a trend that the travel and entertainment industry has realized for decades is making its way into other industries, and Johnson believes it will have a great impact for retailers this year. 

“Companies are beginning to recognize the flywheel effect card programs and loyalty programs can have on the bottom line of their core value proposition,” Johnson said. “More personalized and embedded rewards will appear. We will see more programs moving away from the cashback race to the bottom line toward more meaningful rewards that resonate with a particular consumer group.”

Elizabeth Lafontaine

RL Analyst Take 

In a retail industry that is more fragmented than ever, loyalty continues to be forgotten by consumers as they have more choices at their fingertips when it comes to retail purchasing. Consumers often ask the question, “What’s in it for me?” For a consumer in the driver's seat of their own consumption, retailers are often on the back foot in trying to help shoppers derive value from those purchases and spur repeat demand. Loyalty plays are more important than ever, while it’s also important for retailers to lean into their specialty, whether it be a category, level of service or experience. 

As mentioned in this piece, other industries have long focused on loyalty programs that truly reward customers for repeat usage and help make life better for the consumer, such as the travel sector. Retail — especially sectors like grocery, convenience and drug stores — can easily reward customers for everyday spending and drive loyalty. Kroger’s gas program is a prime example of this that continues to create value in the industry. The future of loyalty is unknown as the consumer continues to look at mission-driven shopping and fragmented purchasing, but retailers need to create a first line of defense through comprehensive programs to entice new and existing customers. 

 

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