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Customer loyalty in the time of COVID-19

Exploring customer loyalty programs and their relevance, role and future after the COVID-19 crisis

Customer loyalty programs have become a ubiquitous aspect of brand marketing, adopted as much for their efficiency in harvesting customer data as for their ability to keep customers buying.

And like pretty much every other aspect of marketing, they have taken a spanner to the face thanks to the COVID-19 crisis.

So what value does a loyalty program hold when a customer can no longer transact? And how can a brand ensure its loyal customers are still loyal once restrictions are lifted?

Customer comfort

The onset of the COVID-19 social distancing lockdown led to a flurry of brand communications, including a stream of messages intended to ease the minds of loyal customers.

Prominent among these were messages from the operators of status-based schemes such as hotels and frequent flyer programs, who were keen to reassure clients that the crisis would not impact their loyalty relationship. Both Qantas and Virgin, for example, quickly announced they would extend customers’ status for 12 months without review, with Virgin gifting additional status credits to its top three tiers of membership. Hilton also paused the expiration of all points scheduled to expire between now and December 31, 2020.

But for most brands, such actions won’t do much to keep cash flowing in the interim.

According to managing partner at customer experience management and loyalty consultancy Ellipsis & Co, David Parsons, the operators of brand loyalty programs are likely to be experiencing one of four different responses to the crisis – reaction, rebound, recession and reimagination.

The first of these describes the reactive response typified by the ‘we are with you’ emails sent out by many brands in the early days of the crisis. But Parsons says brands most likely to come through this crisis in the best shape are those already thinking more strategically about their communications and have moved on to more useful ‘here’s something to help’ messages.

Aside from Qantas, Virgin and Hilton extending status and points expiration dates, Parsons highlights other examples, such as Cathay Pacific automatically adding monthly increments of points to get travellers closer to status thresholds even when they cannot travel. From a different perspective, the FoodWorks grocery chain has created special shopping windows for elderly residents. These efforts are all design to solve different problems for customers and demonstrate action rather than just sentiment.

But many other brands have, however, struggled to find anything meaningful to say. Most are not as fortunate as Qantas, where even though it is unable to service travel needs, can tap into other products and services within its loyalty family which are more relevant right now, such as its wine and healthcare offers.

For other brands, where the core offer has been effectively shut down by social distancing measures, keeping the conversation going is proving to be a lot harder.

Partnership

According to the CEO at loyalty management consultants Loyalty & Reward Co, Philip Shelper, it is important for brands to think about new conversations they can have, possibly by creating new service offerings and partnerships.

“It’s a matter of the company thinking about the role it plays in that member’s life and asking what is an approach it can take to provide the member with support within the context of that day to day relationship,” Shelper tells CMO. “There is a really great opportunity here for some of these bigger brands to provide different types of resources for the member based on what they know about them to help them.”

Shelper says Loyalty & Reward Co has been involved in several such projects, including one for an aged care facility that is providing customers with activities they can engage in during lockdown. Another project has seen a superannuation provider connecting customers to free high-quality online educational courses.

These offers often come about as the result of partnerships, which Shelper expects to see formed more frequently as brands with large customer databases seek relevant offers outside of their own products and services.

“It’s a result of companies wanting to provide value to their members but not really having the opportunity to do so within their own business,” Shelper says. “That has proved to be very popular and is really good at driving engagement and reducing churn, and so a lot of companies are replicating that model in different ways. We think it is one of the big boom areas of loyalty that we will see continue, and the way those deals are structured will become more sophisticated as well.”

One group in high demand is the creators of well-being and meditation apps. “They are telling us they are being absolutely overwhelmed by inquiries at the moment,” Shelper says.

Subscriptions in particular hold appeal for brands, according to Parsons, as they do more to guarantee revenue than ad-hoc purchasing.

“Amazon really innovated first in this space and disrupted what loyalty was by getting the customer to pay upfront and then earn the benefits over time,” Parsons says. “And we have seen some really good responses to that, like eBay Plus. We have also seen AirAsia offer a subscription-based product where people prepay unlimited flights for a period of time.”

According to general manager at customer lifecycle management specialists Customology, Michael Barnard, part of the solution is to move away from sending generic messages to everyone, with effort redirected to creating tailored messages to smaller cohorts of high value customers.

“Focus on that 20 per cent that generates most of the revenue,” Barnard advises. “This is a hibernation exercise, so we need to make sure that when we come out of this winter, we are ready to give them a reason to come into store, and they are going to choose us over the competition. Because I would want them to come back as soon as I can start trading again.

“Our advice has been to choose who you talk to and how you talk to them. And if you don’t have things that are relevant, don’t have to talk to customers all the time.”

Up next: What you could do to reimagine the customer loyalty program

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Reimagining loyalty

Brands thinking about the rebound do, however, need to consider the world they emerge into might be quite different from how it looked in February, with the chances of a deep recession being likely. Parsons says this outcome also needs to be factored into the rebound strategy and the loyalty program that supports it, including concessions such as lowering the price points on rewards and redemptions.

“We also expect to see programs start awarding points for positive engagement, not just sales, posting reviews, blog posts, entering contests with the brand,” Parsons says.

So while many brands are currently in crisis mode, there is potential to start reimaging what their loyalty program might look like. Parsons says it is important when anticipating this new post-pandemic world to consider how the shaping forces will have changed, especially in terms of new customer learnings, attitudes, habits and needs. This might see more emphasis on card linking, partnering, greater personalisation and greater use of subscription programs.

Despite talk of recession, Parsons says there is scope for brands with strong loyalty to rebound from the crisis more positively than competitors. He likens a recession to a curve on a racetrack.

“It is the best place to pass competitors, but it requires the most skill,” he says. “The companies that will prosper are those that will think about innovation and transformation in their loyalty programs during this really challenging period. And that is not going to be possible for everybody.”

Hence those brands that have invested in a robust loyalty program are likely to also be the ones that emerge strongest.

“The general level of emotional loyalty will be lower,” Parsons says. “What that means is you have to work a bit hard to get your customer back in, but you have more of an opportunity to get a customer to switch to you. So as difficult as it is given the uncertainty everyone is facing into today, now is the time to really be putting some time into the reimagination phase.

“Because while it is important to react and rebound, long-term competitive advantage will come out of those bigger and harder changes that ultimately are going to resonate stronger with the customer.”

Hence in the same way that elections are won on election day, Shelper says the same is true for loyalty programs.

“Every eight to 12 yearsm there is a major economic shock that hits, and so that period between is when you should be preparing for that to come,” he says. “And a great way to do that is to have a good quality, well-resourced, well-designed loyalty program that drives deeper engagement with members. So when the economic shock inevitably does come the company has a good relationship with members and they can use that to effectively communicate with them.”

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