Lack of Customer Loyalty Can Be a Major Roadblock to Success for Today’s Retailer
With so many choices for consumers today, it’s more important than ever for brands to give added attention to customer loyalty. The overriding goal of any customer loyalty program is to build a strong, lasting relationship with the individual to create lifetime value. The relationship can typically be measured through a repeat purchase rate but, as our internal data shows, just 16 percent of customers will come back again and buy something. The real kicker is that once you pay for customer acquisition costs, there’s a good chance that the shopper will only become profitable after the second purchase, presenting loyalty as a major opportunity to seize.
In fact, loyalty is evolving. Many brands are gamifying the loyalty experience by offering distinct benefits at each tier of their loyalty program, according to a recent Gartner L2 report on the topic. Fifty-five percent of the brands featured in the report adopted a tiered loyalty structure in 2018, compared with 48 percent in 2017, so the trend is becoming more widespread. One of these brands, Nordstrom, revamped its loyalty program last September to include several tiers and offer a range of benefits — from personal double points days to a personal in-home stylist. The strategy appears to be paying off for Nordstrom — active loyalty members spend four times more than customers that are not members.
The focus on customer loyalty seems to be catching on. Glossy’s recent report, “The New Retail Model,” finds that 50 percent of respondents don’t have a loyalty program but are considering it, 18.1 percent have had one for more than a year, and 14.5 percent have launched one within the past year.
There’s another great reason to invest in loyalty: acquiring new customers is costly. The goal should be to nurture the customers you have, moving them from the first purchase to the second, etc. Retention strategies to re-engage and inspire those you’ve worked so hard to acquire can be a huge opportunity for growth. The fact is, retailers that focus on loyalty engender trust with consumers and ensure that their brand stands out amongst their competitors
Loyalty viewed through two lenses
First, the customer’s view.
A customer wants to know that a brand is “listening” to their intent. In practice, this means picking up on the data they give you in real-time, in multiple visits or across different channels, to inform contextual experiences for every engagement. For example, if you know a customer always buys high-heels, why then would you recommend flat shoes on their next visit?
Additionally, segmentation strategies focused on tiering customers based on their loyalty can be an effective way of scaling personalization to different groups of valued customers. Whether you have a robust loyalty scheme or you use behavioral data to infer segments (i.e. has spent <$100, or has made >10 purchases, or has been consistently purchasing from you for >5 years), you can use that data to inform experiences. For VIPs, that could be first looks at new ranges or invites to exclusive events.
And it doesn’t end there; today’s customer expects ongoing “special” treatment. McKinsey wrote on a concept some years ago that still holds true today: there are two kinds of loyal customers, active and passive. Active customers are those that stick with the brand, love the brand and recommend the brand. Passive customers are those who stay with the brand without being committed to it. These visitors are open to messages from competitors who give them a reason to switch. In fact, our internal data shows that 81 percent of consumers would switch loyalty if another brand provided a more personalized service.
Second, the brand’s view.
Customer loyalty will, naturally, generate an increase in the frequency of engagement from an individual. A brand will become the consumer’s default choice in what McKinsey calls “the initial consideration set,” or the small number of brands regarded at the outset as potential purchasing options.
McKinsey also found that the traditional sales funnel has evolved. The customer decision-making process is now a circular journey with four phases:
1. initial consideration
2. active evaluation, or the process of researching potential purchases
3. closure, when consumers buy brands
4. and post-purchase, when consumers experience them
Engendering loyalty is a pervasive exercise for brands at every stage of the customer journey, even post-purchase. The McKinsey research also showed that more than 60 percent of shoppers who buy facial skincare products, for example, go online to conduct further research after the purchase, hence the cyclical nature of the new sales process.
The metric for brands building loyalty is repeat purchases, increasing average order values, and overall customer lifetime value. Today, brands should pay special focus to double down on loyalty shown by active customers and prioritize engagement campaigns with passive customers so they don’t jump ship.
One of the best examples of a company that does loyalty right is, of course, Amazon; be that through Prime membership or in the way they tailor their recommendations and journey to your previous intent and past purchases. Amazon’s strategy to continually market to their customer base in a circular fashion, soliciting reviews post-purchase, making continual product recommendations and new offers has paid off — as of 2018, Amazon Prime boasted more than 100 million paying members, globally.
The key ingredient to success is the effective, and appropriate, use of customer data. A Qubit survey found that 68 percent of customers are willing to share their data with brands that use that data to create a more relevant and personalized experience. Twenty-nine percent of shoppers actually expect tailored experiences based on the data they share. Whether that’s explicit data from the purchase history or a survey, or it’s implicit data where you use their behavior and intent to infer the most relevant experience in their journey, every data point can be used to build effective personalizations at scale.
Why retailers should stay focused on building loyalty
While building customer loyalty is just one tangible use case for personalization, as the cost of customer acquisition increases, loyalty programs have become more popular, especially for retail and fashion brands. Using personalization to activate real-time customer data to tailor the experience around the individual is how many brands are now differentiating their online shopping journey. Building a customer loyalty program based on 1:1 customer experiences by using strategies centered on the customer should focus on bringing the brand to life and knowing key indicators such as time spent on site, frequency of purchase and the average basket value of a specific customer segment. As a consequence, you’ll learn more about an individual’s affinity to your brand and can tailor the experience to drive increased customer loyalty. There’s a multimillion-dollar opportunity for any brand that focuses more attention on moving customers beyond the first, and oftentimes only, purchase.
Simon Jaffery-Reed is Vice President of Product at Qubit, a leader in marketing personalization technology. He is responsible for the direction of the company’s product roadmap as well as overseeing product management, product specialists and product design teams.