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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.
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.
"Loyalty programs have become commoditized to the point where they aren't used, aren't relevant and reward the wrong things."
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
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. A modern approach to loyalty uses customer data to remain relevant to buyers through multiple touchpoints and by broadening and deepening the strength of the relationship as customers change and evolve. Today's retailers strengthen and reward the relationship with broader, deeper experiences that comprise a well-tuned loyalty ecosystem.
The upside revenue from loyal advocates that express their brand love through word-of-mouth (“I can’t imagine life without Costco”) is encouraging many retailers to operationalize word-of-mouth marketing. According to several studies, the emotional bond loyal advocates create with their favorite brand results in profitable customers that consistently generate higher lifetime value. And, the customers that advocates refer are 37 percent more likely to be retained. In a pre-digital world, brand advocates shared their story with four or five people. Today, given the enormous adoption of social networks, customer advocates share their love with thousands of peers, making them some of the most effective salespeople.
When L’Oreal advocate Kristina Baan, a 22-year-old Swiss model/blogger, was named as the brand’s ambassador, she brought her 2 million Facebook connections and 2.3 million Instagram followers with her, giving L’Oreal an instant uplift in sales. One of Tesla's advocates helped sell 188 cars in two months, amounting to $16 million in revenue. And, according to a Wharton study, the lifetime value of a new referral is 16 percent higher than customers who are not referred. Retail loyalty managers in these brands find the social sites and tactics their advocates use most to recommend them. They also deploy listening and analytics to validate the impact of social networks on revenue (See Table 1 below).
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.
Measuring the strength of relationship with customers requires multiple perspectives. Wallet share, mind share and heart share are composite scores built using data science techniques. This removes the blind spots of a single set of metrics and more quickly pinpoints the underlying change needed in the ecosystem.
To learn how you and your cross-functional team can benefit from our new measurement techniques for assessing the strength of relationships that generate more share of wallet, mind and heart, contact your Publicis Sapient account executive.
Group Vice President, Customer Experience Strategy
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Travel and Hospitality Strategy Lead
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Director, Experience Strategy
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