The holy grail of FMCG companies is to get on the shopping lists of as many consumers as possible. However, building loyalty in this segment is a demanding challenge. Today, shoppers have so many choices that it is increasingly difficult to develop loyalty to a single brand. In addition, pandemics and inflation have specifically affected customers’ purchasing decisions. The challenge these companies face is how easy it is for customers in the FMCG segment to change brands and existing habits. McKinsey & Company proves that up to 75% of consumers exhibit new shopping behavior, including interacting with new stores and brands.

Consumer loyalty in the FMCG industry – characteristics

The FMCG industry is otherwise known as the fast-moving consumer goods industry and is one of the fastest growing sectors of the economy. The main task of companies in this category is to supply stores with products that are usually necessities. There are many strong FMCG brands on the market, which have great potential for creating engagement and gaining customer data. Many FMCG brands have already introduced loyalty mechanisms that aim to increase repeat purchases, engage and retain customers by building mutually beneficial, long-term relationships.

For companies that deal directly with customers, such as retailers or hospitality companies, customer retention is often simpler. Because of the form in which products are sold, the challenge is to reach the customer. For the most part, these brands sell through other retailers or stationary stores. That’s why standing out on the store shelf is so important. Among FMCG brands, it is difficult to talk about a typical loyalty program or mechanism. Companies, in order to reward customers for buying their products, have to work a little harder. The key is to have a detailed mechanism to confirm each purchase made under the loyalty program. This is usually done by registering a receipt on the manufacturer’s website.

How can brands that sell their products through intermediaries directly engage their customers when there is often no direct contact between the brand and the end consumer along the customer journey?

Burands can increase customer loyalty 

Successful FMCG companies are analyzing customer data and buying behavior to provide a more personalized experience. Below are examples of the most common data that brands analyze and from which they draw conclusions:

• Transactional data: purchase history, total spend average spend per purchase, return and refund rate, abandoned cart rate.
• Engagement data: website and app activity, email open and click-through rates (CTR), social media engagement, customer service interactions.
• Demographic data: age/gender, place of purchase, lifestyle and interests.
• Behavioral data: site and app user paths, product views and clicks, user search queries.
• Direct customer feedback:  Net Promoter Score (NPS), open feedback, social media conversations.

The main challenge for FMCG companies is the limited ability to have direct interaction channels, which leads to higher marketing costs. However, the brand’s direct communication with the end customer allows it to send notifications about contests or new products and encourage customers to buy a particular company’s products again. 

Lowest price = best strategy?

The price of a product is one of the most important factors in consumers’ purchasing decisions. For many companies, promotions are important elements of their sales strategy. Among FMCG brands, however, there are questions about their effectiveness. A simple analysis is often insufficient. Reducing the price of a product usually results in an increase in its sales. However, observing only the sales dynamics during a promotional period may suggest a favorable impact. In reality, it is necessary to find the answer to the question of how sales would have developed if there had been no promotion. Comparing these two values – actual sales and hypothetical sales without promotion – allows a more accurate assessment of the effect of promotion. Advanced data science models can accurately estimate baseline sales, taking into account factors such as seasonality, cannibalization, weather variability and calendar effects.

To effectively manage assortment and pricing, it is essential to use advanced data analysis. By examining the shopping cart, you can understand customer preferences. Receipt analysis allows you to identify related purchases and understand the relationship between different products. The brand gains access to all kinds of invaluable information, such as what customers buy, when they buy it, how often they buy it. This information helps the brand make informed decisions about which aspects of its business and products need to be improved, adjusted. In addition, companies can use the collected data to develop promotional strategies, create product bundles and provide personalized recommendations, which in turn increases customer engagement and builds long-term loyalty.

FMCG loyalty – summary

Building customer loyalty in the FMCG industry is becoming increasingly challenging in the face of changing purchase preferences, the impact of pandemics and inflation. Companies in this sector need to focus on personalized experiences, analyzing customer data and effectively managing assortment and pricing. Limited opportunities for direct customer interaction require innovative approaches to engaging consumers, such as leveraging transactional, engagement, demographic, behavioral and customer feedback data. Despite the challenges, FMCG companies have an opportunity to build long-term loyalty using advanced data science models. It’s also critical to skillfully differentiate themselves on store shelves and create mutually beneficial, long-term relationships with customers.

At Loyalty Point, we work for many brands in the FMCG sector. Holistic analysis of consumers and the characteristics of the products offered by the brand allows us to plan a schedule of loyalty activities. We successfully deal with the organization of all kinds of consumer promotions. Valuable support in the optimization of activities are dashboards created by our experts, which, providing automation of reporting, significantly improve the speed of decision-making and the ability to respond to the actions of competitors.

The need for a distinctive and attractive loyalty program among retail companies has grown significantly over the past few years. This has been driven not only by the ever-increasing and intensifying competition in the retail market, but also by the recent economic crisis and the associated growing need for savings among consumers. Gartner reports that already more than 70% of retail brands are using loyalty programs to boost business performance. With personalized loyalty programs, retailers are providing regular customers with the best prices and excellent customer service. What should you go for when creating a consumer loyalty program?

Loyalty program in the retail industry – characteristics

The retail industry has a very high value in the market. It consists of a multitude of entities and millions of customers. Therefore, in this case, loyalty programs usually operate on a very large scale. It is becoming standard in the industry to simultaneously use several channels in which consumers are active. The distinguishing factor in the retail industry is primarily the frequency of customer contact with the brand.  In clothing stores, customers shop several times a month, in grocery stores – even several times a week, and online even more often.

This translates into the ability to better and more accurately tailor content in a loyalty program. The more transactions, the more data from which the retailer can refine its strategy. Consumers are eager for loyalty programs – research shows that the average shopper now has more than 16 loyalty programs on their mobile device.  Retailers are doing a tremendous amount of work every day to enhance the in-store shopping experience and provide loyalty offerings that meet consumer demand. What does this mean in practice?

Key elements of customer loyalty programs in retail industry

Building customer loyalty is a complex process that requires continuous optimization. A loyalty program should be created with the conditions, challenges and requirements specific to a particular industry, in this case retail. An effective loyalty system goes beyond a purely transactional relationship and ensures that the customer includes a particular company in their purchasing decision funnel because of the value it offers. Customers expect flexibility – free shipping, no cancellation fees, extended return periods. These are factors that make shopping with a particular brand or retailer much more convenient. Here are some considerations to take into account when creating a loyalty program:

Personalization

To provide targeted recommendations and personalized promotions, marketers should focus on understanding demographics, purchase history and individual preferences. Tailoring offers to individual needs makes customers feel valued and understood, which strengthens the bond with the brand. 

But don’t forget that customers are increasingly aware of the value that their personal data represents to companies. As a result, they expect companies to protect and use their data responsibly. Retailers must show appreciation to customers for the information they provide and offer them additional value in return.

Point of sale integration for omni-channel capabilities

A loyalty program today is synonymous with automation and omnichannelism. As a result, it is necessary to integrate it with point-of-sale and cash register systems so that it can identify the customer everywhere. The integration allows data to be transferred on an ongoing basis between the POS system and the loyalty program. This ensures that any changes to the loyalty program, such as new offers or changes in terms and conditions, are immediately available in the checkout system. The integration also makes it possible to automatically track customer transactions without having to combine different data from several channels.

Mobile App

The mobile app is now the company’s main channel of contact with customers. It makes it possible to send push notifications about new promotions, sales or special offers, and thus reach the club member beyond the transactions, at essentially no cost. For customers to want to use the available solution on a regular basis, the app must first and foremost provide value to users. In this way, they will feel the need not only to install it to show the virtual card while shopping, but also to use it regularly. The application should include not only basic functionalities such as the aforementioned virtual card or transaction history, but also additional facilities to facilitate participation in the program and improve the customer experience, such as click & collect shopping, mobile payments, an up-to-date promotional newspaper or a price scanner, among others.

Addressing customer expectations for rewards

It is hard to imagine a loyalty program without rewards. A reward does not always have to mean a material object. Modern loyalty programs adapt to customer expectations and increasingly offer rewards in the form of cashback or discounts on subsequent purchases. In this way, the customer feels that he or she is getting the most out of the reward. The more valuable the rewards, the more difficult they are to earn, which can sometimes translate negatively into engagement. There is no one-size-fits-all reward. The most important thing in selecting a rewards catalog is to tailor it to the specifics of a particular industry and to put customers and their individual needs at the center.

Advantages of retail loyalty program

The advantages of running loyalty programs are many, as we wrote about, among others, in the article “Loyalty program from the organizer’s point of view. 5 benefits for the company”. However, it is worth adding that loyalty programs are an effective instrument for supporting sales processes. Thanks to it, the company gains a competitive advantage. It has access to valuable data on its customers. In this way, it can reach out to the recipient, respond in real time to his needs and – with the right mechanics – encourage the desired behavior.

The right loyalty strategy not only ensures an influx of new customers, but allows it to retain those once acquired. In addition, analysis of available data makes it possible to identify typical behaviors of customers at risk of leaving. The use of direct communication models helps find the optimal timing, channel and content of the anti-churn message. The model can also identify a good enough offer for a given customer. In this way, the brand acts proactively and can take antichurn action in a timely manner.

Why do retailers build customer loyalty?

Recently, loyalty programs have become a necessary part of marketing efforts. They are an expected aspect of the customer experience and serve to secure a given company’s market share. A retailer is an intermediary connecting manufacturers with customers. This special position forces him to constantly juggle between the manufacturers’ offerings and customer expectations. With a loyalty program, he can respond to the challenges of suppliers while at the same time aligning himself with the needs of consumers with his offerings. You can read more about the reasons to invest in loyalty in one of our articles.