Insight

Rethink Loyalty to Get More Share of Wallet, Mind and Heart

Mountains of evidence show that buyers are loyal to a brand because they receive ongoing value at a price they are willing to pay. Sure, there are categories such as travel and hospitality, where loyalty points do indeed play a role in repeat purchases. And, buyers are famous for giving repeat business to providers out of habit (for example, continued loyalty to one’s dentist or gardener despite some level of dissatisfaction). But generally speaking, buyers don’t cite points or discounts as a leading motivator of loyalty. Yet, that’s exactly how many marketers are continuing to manage their loyalty programs.¹ 

There’s even more contrary evidence about loyalty. Retail marketers admit that loyalty is important, yet according to one study, they don’t name loyalty initiatives in their leading investments. The loyalty paradox is further evidenced by buyers who reportedly admit to actively using just two or three of the average 10 loyalty programs they subscribe to.²  These same buyers, while admitting they’ve grown weary of points-based loyalty programs, also admit they expect to be rewarded for their loyalty.

Managing the loyalty paradox

Are marketers and their customers out of touch with each other when it comes to understanding the motivations of loyalty and how it should be rewarded? While it would be easy to say "yes," the counterintuitive findings about loyalty are a function of a changing society. In today’s digital world where choices are varied and switching costs are low, traditional loyalty programs are overlooking or at least diminishing, the real motivators of loyalty: a consistently fulfilled brand promise within a unified retail experience that makes it easy to buy. And, as more and more products become commodities, competing on an experience, which is both measured and actively nurtured, becomes critical to earning a buyer’s loyalty.

The imperative of brands to become indispensable—through strong customer bonds and a superior experience—is where Amazon gets it right. Its Prime offering, though not specifically positioned as a loyalty program, steadily generates repeat purchases from retained customers, a primary measure of loyalty (Prime customers spend $1300 annually vs non-Prime customers who spend $700³).

Amazon’s competitors, especially those that are trying to position themselves as unique alternatives to digital e-commerce mega-giants, should take note. Growing evidence shows that service and convenience are moving front and center when it comes to brand differentiation. Consider the success of Amazon’s delivery of Whole Foods groceries (to Prime subscribers) which makes it easy to get quality products, including meat and produce, within two hours. The program has had huge success in tests with Prime subscribers in four American cities.⁴

Wallet share is only one aspect of loyalty

With its Prime offering, Amazon becomes a larger, more integral part of the buyer’s lifestyle and in the process, gets more wallet share in more categories. Equinox Fitness centers take a similar lifestyle approach to loyalty. When a fitness club member—we’ll refer to as Jane—refers another member, she is rewarded with a gift card that entitles her to a choice of a free personal training session, a spa treatment or sports apparel from the club’s shop. Opportunities to try a broader set of services are made more convenient with an app that makes it easy to schedule a massage, track her fitness goals or reserve a spot in an upcoming cycle class.

When Jane asks the club manager to suspend her membership because she’s expecting a child, she is introduced to special classes designed for women just like her (inviting her to join a community of women that share mutual interests and experiences).

Jane cancels her suspension, then refers a friend who is also pregnant, and her participation in the club’s loyalty ecosystem begins all over again. Jane goes on to advocate the club to friends, family and peers on Yelp and Facebook, sharing how Equinox has become a regular component of her daily routine and lifestyle. As a result, two of her office colleagues join the club through its corporate discount program.

Jane has reached the pinnacle of the two-way, mutually beneficial relationship, which has resulted in a strong emotional bond. Now, Equinox isn’t just her fitness club, it’s an integral part of her lifestyle as evidenced by her purchase behavior in multiple categories. She also leverages the club’s convenience features through its multiple channels of interaction. But what is even more valuable: she brings others with her through her love for the brand as evidenced by her advocacy.  

As a result, not only has Equinox earned more share of Jane’s wallet, but the gym has also become a more valued (and cherished) part of her life. In the past, the club would have rewarded Jane’s referral with a month’s free dues, something she was already prepared to pay. By using the referral as an opportunity to broaden and deepen the relationship, the club plays a more prominent role in Jane’s daily routine and lifestyle.

This new orientation of loyalty is fortified by the attitudes of Generation Z, who over the past several years has pushed its expectations for consistent, service-driven experiences (Generation Z includes teens through adults in their early 20s). Collectively, Generation Z numbers 2.5 billion out of the world’s 7.5 billion people. In the US, Gen Z comprises 26 percent of the population, making them a larger demographic than both millennials and baby boomers.¹¹ 

To remain loyal, members of Generation Z demand regular engagement as well as opportunities to interact with the brand (vs being sold by the brand). This generation also prefers brands that support and recognize the causes they care about. And, they don’t differentiate between online and offline experiences.¹²  

General consumers are inspired by Generation Z’s willingness to share its feelings and experiences, not just with each other but with retailers. No topic is off limits. Feedback ranges from preventing changes to brand logos to admonishing retailers for mistakes and inefficient operations. As stated by loyalty expert Kelsie Marian, “The collaborative, entrepreneurial and socially responsible bent of Gen Z means that they want to be involved in giving feedback.”¹³ But Gen Z’s zeal to be involved goes beyond the shopping experience–as they participate in the design of product and services, even the ways the brand conducts itself (note David Hogg’s influence in single-handedly convincing advertisers to abandon a cable news program that didn’t support his generation’s cause).¹⁴

Brands are taking note. Nike offers NIKEiD and Starbucks IdeaCommunity has generated over 200,000 ideas (resulting in almond milk and stevia in its stores as well as cold brew coffee buyers make at home). In one survey, nearly 70 percent of Gen Z shoppers said they post reviews. Forty percent give regular feedback. Eighty percent report using social media to inform a purchase. The behavior behind these expectations will surely grow as Gen Zs age.

Mainstream adoption of voice-activated assistants (Amazon’s Alexa, Google Assistant, and Apple’s Siri) provide another level of convenience by making it easy to do business as noted in a Publicis Media report titled The Rise of Voice. Ford drivers can now instruct Alexa to “have Starbucks start my usual order.” ¹⁵ A chatbot from The North Face lets buyers quickly narrow down jacket choices based on a series of questions. H&M’s chatbot greets buyers with "pick your favorite piece of clothing, and we'll build an outfit around it from joggers and jeans to tops and shirts.”  

At the Mobile Marketing Association’s recent Impact Conference, Mindshare’s Jeff Malmad advised marketers to develop an “audio brand” to drive loyalty from AI-powered devices that learn what products its owners tend to buy and like, predicting that consumers will increasingly set up subscriptions for specific items through their smart speaker, which will automatically reorder their favorite consumables.

Make loyalty a cross-discipline, cross-functional initiative

Managing loyal customers is often the job of the marketing department even though the strength of the customer relationship should also be measured by call center interactions, negative tweets about an in-store experience, or the actions of brand advocates (which many marketers never see). As a result, out-of-date processes and organizational silos miss opportunities to recognize true customer loyalty. 

While every industry and company is different, take a look at all of the customer actions your company should be using to assess true loyalty. For example, a company that identifies a customer as loyal that continues to buy out of sheer habit, won't recognize early warning signs that they may be at risk.

Reward incremental engagement, not assumed behavior

Rewarding customers for what they’ll do anyway isn’t going to help the top or bottom line. Instead, use your knowledge of customers to introduce them to a new product category or a new shopping opportunity. Starbucks got customers to use its mobile and mobile payment platforms but at the expense of margin. Rather than reward customers for sustaining a habitual use, a more effective alternative might be to earn their loyalty with a new breakfast sandwich or an invitation to “happy hour,” recognizing their exploratory behavior (which paves a path to growth).

Don’t limit measurement to a single metric

Connected experiences that conveniently open doors to a wide array of choices, buttressed by recommendations and opinions of our peers, have also created new levels of transparency that make it tough to hide from unhappy customers. This same transparency, however, makes it easy to recommend a favorite brand, for which we’ve pledged our loyalty, to friends and family. The resulting loyalty ecosystem presents a range of metrics we can use to measure the strength of a relationship.  Share of wallet, mind and heart represents a more modern composite score, built with data science techniques (See Figure 4 on next page).

Evaluate emerging technologies

A lot of innovation has occurred from thousands of vendors that participate in the giant customer relationship management (CRM) market. Some solutions make programs more seamless like “cards” in a mobile wallet or points earned through credit/debit cards. And many retailers are finding success through an “exchange” method—an e-commerce site may let consumers pay with Amex points for example (which acts as advertising for partners). Other retailers are personalizing offers or offering extra perks based on purchasing patterns. And many companies are leaning on leading software players like Aimia, Brierley and CrowdTwist to create something unique to their business. Consider vendors that help marketers benefit from conversational commerce such as Cognitive Code, Drastin, noHold or Semantic Machines.