Traditional Customer Loyalty is dead. Shoppers are no longer committed to brands or products regardless of convenience or price because they just don’t have to. While improvements to manufacturing and globalisation have enabled more choice than consumers can throw a stick at, the ’08 recession has also made them thriftier and more willing to shop around (read: cheat) to get the best value exchange. As a result they’ve discovered that loyalty no longer pays. When once upon a time, loyal customers were treated as god’s gift, many brands have now become complacent as KPIs have shifted the focus towards acquisition, often at the expense of loyalty. As always, there are exceptions to this rule (Apple and Coca-Cola to name but a few), but the trend is clear: loyalty doesn’t pay, and customers know it.
If loyalty is dead, so too is the traditional loyalty programme
As customers become less loyal, the value of loyalty programmes is also called into question. Where once they provided a little something extra, the declining value of the loyalty point as well as price competition has led many to re-evaluate where and when they participate. While there’s no arguing that loyalty cards are still in vogue (just have a look at the number in your wallet), the fact that the average person is a member of numerous loyalty programmes shows that loyalty is not what it once was. The make-up of many of these programmes is also serving to reinforce the transactional nature of the relationship as money is exchanged for ‘points’, where loyalty is graded into ‘tiers’ (!) and rewards offered based on money spent rather than loyal behaviour (which comes in many forms). And it’s not as if brands are seeing their worth either. Tesco’s recent sales and market share declines for example point to diminishing Club Card loyalty despite convenient locations and strong price competitiveness. Sainsbury’s too were recently forced to drop the value of in-store Nectar point redemption in order to ensure continued financial viability - all signs of a need for loyalty and loyalty programme reinvention.
The birth of Preference
If not ‘loyalty’ then what? While loyalty necessitates purchase regardless of convenience or price, Preference demands only ‘a greater liking for one alternative over another or others. While some may believe the difference is semantic, a drive for preference over loyalty does change a business’ points of view and in turn their behaviour towards frequent customers. Instead of the belief that loyalty = unadulterated faithfulness, Prefer-ists (Preference-seekers) understand that customers may have a fondness for, partiality or predilection towards them, yet still shop around. The effect on KPIs is also significant as brands that believe in loyalty (loyal-ists) are much more likely to prioritise getting people into the pot (acquisition) over keeping them there (retention) thanks to their loyalty programme which does the retention for them. Prefer-ists on the other hand understand that faithfulness doesn’t exist, that re-evaluation is frequent, and shopping around just part of the game. As a result their attention is turned to retaining customers through the constant improvement of customers’ experience measured both through preference and advocacy measures such as ‘willingness to recommend’.
New behaviours to be celebrated
‘Shopping around’ behaviour is not all bad news though. While the benefit to customers is obvious (better value and (often) stronger purchasing options); there is a benefit to brands too. While loyalty traditionally shunned those who ‘shopped around’ as it made brands’ jobs much more difficult; preference celebrates the healthy competition it brings. As consumers realise the value of evaluation (both financially and otherwise) so too should brands not least because evaluation enables innovation, which is never a bad thing. While constant evaluation and innovation undoubtedly requires more work it does keep brands on their toes, driving stronger business propositions as well as better customer-brand relationships and ultimately preference.
The Path to Preference
So aside from using a new term, having a new point of view and changing a few KPIs, how different is The Path to Preference really? Well, significantly different if you think about how much of your time and effort in 2016 was actually spent on maintaining loyalty. Surprisingly few businesses have to date achieved a full ‘Customer First’ approach, despite their best efforts. And this is in large part due to our assumptions about loyalty and the behaviour of loyal customers. The Path to Preference won’t be quite as easy as setting up a preference programme, and thanks to Big Data will undoubtedly require a unique, industry-by-industry if not business-by-business approach. At the heart of this transformation lies the customer-brand relationship and the need to develop greater connections and more meaningful experiences at every stage of the customer journey. Personalisation will be a key element of this success, as will adherence to the new codes of value: choice, control and community, putting the power of the relationship firmly in customers’ hands. Empowering customers to take charge of the value-reward exchange will enable them to get what they want when they want it and in turn drive more meaningful longer-term preference as a result.
Where to from here?
Yes, loyalty is dead and traditional loyalty programmes are also defunct, but it’s not all bad news. A customer focus and a drive for Preference IS the future and with it a new and improved way of driving value for both brands and customers. While its approach requires a new way of thinking and a new method of measuring the success of customer retention; those that take the key codes of value into consideration (choice, control, community) will be the most likely to succeed.
Belinda Collins, Senior Digital Strategist.
This was featured on Little Black Book.