Are loyalty programs still attractive? Or could they be? The coronavirus pandemic has shown that investing in loyalty is currently more important than ever. Customer habits have changed, so the approach to loyalty programs should change as well. The companies that want to be customer-centric offer a variety of suggestions to increase customer activity. Paul Martin, Head of Retail KPMG, aptly notes that:
There is no doubt that loyalty programs are evolving. We are more and more moving away from collecting points and exchanging them for prizes to step towards more attractive and better profiled benefits. To effectively reach consumers, the companies need to prepare smarter predictive analyses that not only help understand the participants’ purchasing decisions, but also make it possible to reach them with personalised offers. In 2020, we’ve seen a shift away from old habits. The consumer loyalty has been re-evaluated due to the pandemic and a shift in how we make purchasing decisions. In addition, we have been hit hard by the ubiquitous digitalisation that has gained momentum with most of our daily activities going online.
A study by The Digital Transformation Institute shows that keeping a loyal customer is up to six times cheaper than acquiring a new one. Additionally, the cart value of an emotionally involved customer is twice as high. According to the study, 70% of loyal consumers spend, on average, twice as much, and almost half of the respondents are able to admit that their spending for the brand would be adequately higher if they had an emotional bond. The calculation is simple. Customer retention is therefore not only cheaper, but will also bring in more profit, which is why investing in loyalty should still be a major focus for marketers — also in these volatile times.
In fact, a factor that has significantly redefined the approach to consumer loyalty is uncertainty. 2020 has proven to be an extremely unpredictable year, and the experience we have gained from working with clients over the past few months shows us that the average consumer is now much more prudent in planning and managing their spending. This means that another obstacle stands in the way of acquiring a new customer. Hence, the effort to retain a regular customer turns out to be all the more important.
The special role of e-commerce and small formats
Faced with an ever-present pandemic, we had to find new ways to have a social life in a world where social distancing was quickly becoming the norm. Most of the old habits had to change, including daily shopping or visits to shopping malls. This involves a change in approach to loyalty programs and marketing. Smaller stores closer to home and e-commerce have gained in importance.
When it comes to small formats, where as a rule the cart value is smaller, this definitely needs to be taken into account in the program’s offer. You want to consider this low cart value when planning benefits and if possible the benefits should be immediate. On the other hand, a low cart value often means that the transactions are very frequent. Then, the benefits are a great tool that can be used by the customer on their next visit to the store.
We also get huge opportunities here in terms of data analytics. We can, and indeed should, respond to any deviation from the observed patterns of participant behaviour. You can find a handful of information here because purchases are made very frequently. Such an approach is possible precisely because of loyalty. By encouraging customers to identify themselves we are able to get a full insight into their profile. Therefore, we can conduct effective actions aimed at using the potentials defined as a result of such an analysis.
E-commerce is the second format that has significantly gained in importance. All solutions designed for e-commerce have gained momentum practically overnight. The shift towards online shopping is causing brands to place more and more importance on data analytics, as every customer leaves behind a mass of information.
While loyalty itself is difficult to measure, loyalty actions, on the other hand, are quantifiable characteristics. Thanks to a reasonable policy of acquiring and using data, which is, or at least should be, the main objective of loyalty-building activities, we are moving away from an intuitive approach based on general statistical data to a model in which we can verify the effectiveness of our actions with great reliability. Appropriate collection and analysis of data allows you to act on a mass scale, but, what’s important, in a highly personalised way. This would not be possible with ‘classic’ tools, using the same general communication to all the beneficiaries of a loyalty program. In this sense, more and more companies are beginning to appreciate the potential inherent in gathering customer information and treat CRM as a verifiable investment rather than an unnecessary cost.
The natural shift of some sales to the internet results in a tsunami of contacts in online channels. Here, too, a well-integrated loyalty program supports customer service processes, allowing for faster customer identification, integration with purchase history, history of complaints, returns, received benefits and promotional offers, and many other valuable information in the process of handling customer inquiries. All of this translates into increased service efficiency and reduced time.
While digitisation will certainly change the approach to loyalty programs for years to come, it’s hard to predict how long the effects of the pandemic itself will last In the near future, the relationship between the consumer and the company will become increasingly relational, meaning that everything that happens in any part of a brand’s marketing activity can have an impact on customer loyalty. This trend also reinforces the need for companies to become truly customer-centric and ensure that customer data are fully integrated into company systems so they can improve their loyalty offerings.
You must also take note of the dynamics of change in the market. At Loyalty Point, we pay particularly close attention to ensuring that each project can clearly prove its direct, positive impact on customer value over time. High-quality and large program database combined with good communication processes is the driving force behind most of our projects. In practice, this means an increase in purchase decisions by as much as 60% compared to the control group. Effective campaigns for the participants significantly increase sales and generate up to 10% of additional turnover brought by the program beneficiaries. Another important issue is the ability to reach out to your customers immediately to let them know how you are doing in these very dynamic times with store closures, new customer service processes, additional safety procedures. This means that you are communicating everything that translates into customer comfort and a sense of security.
The companies are increasingly treating their customers as partners who should be protected, nurtured and invested in strategically and systematically. Very dynamic changes have become a natural part of everyday life of most organisations. In this field, the loyalty program is a reservoir of knowledge about the needs, habits and preferences of customers.
In conclusion, the pandemic has accelerated the already progressive digitisation of loyalty programs, further boosted the development of mobile applications and the significance of data collected and properly analysed has never been more important and promising.