It’s time for marketers to rethink their approach to ‘loyalty’

Lee Naylor

  • Managing partner, The Leading Edge
Lee has spent the past eight years with The Leading Edge, the last five-and-a-half as a managing partner. The role is to manage and grow the team of people in Australia as well as direct the market research consultancy globally, which works in 20 countries helping clients work out what to do and how to make what they do better using research and insight capabilities. Lee has more than 25 years’ experience in the research profession, having worked in the UK, US and Australia across a variety of different client challenges. He’s conducted research in over 100 countries and worked with clients across FMCG/CPG, services, IT, government and retail. He’s also an active member of industry bodies and also a regular speaker at events.

According to a recent Mastercard survey, Australia is one of the more mature markets in the loyalty space, with nine out of 10 consumers carrying a loyalty card in their wallet. In fact, the average Australian consumer belongs to six loyalty programs at any given time.

But how loyal are consumers really? And do these cards, points and programs directly influence purchasing behaviours?

I would argue savvy consumers are instead prioritising personalised in-store experiences and convenience over outdated loyalty schemes. Businesses can engender customer loyalty without a rewards points system or a card. Just look at companies such as Apple, Aldi and Amazon: All have built great businesses without a loyalty rewards program sitting at the heart of their offer.

So, how can marketers reconsider their approach to loyalty to attract and retain the right customers? Our research shows the answer lies in understanding the difference between attitudinal versus behavioural loyalty.

Attitudinal versus behavioural loyalty

A person who regularly shops at the same store is considered behaviourally loyal, whereas a person who has developed a positive emotional connection with a brand and who is willing to tell others how great a particular brand is, is considered attitudinally loyal. These two behaviours aren’t mutually exclusive and, in many cases, a person will display both.

Coffee cards, for instance, are typically considered successful loyalty schemes because they encourage customers to return to the same café to redeem a reward. However, most people would continue visiting their favourite local café without a card, for the purposes of convenience and quality – so, the coffee loyalty card offers the customer very little in terms of value.

This is backed up by research from tcc global, which found only 5 per cent of shoppers will leave a store if it stopped offering a loyalty card. We have seen many clients offer promotional discounts under the guise of loyalty programs. In many cases, they will actually be signing the customer up at point-of-sale and delivering the discount immediately. This is a customer who was already buying, but we are hoping to attract that customer again in the future, with little evidence their behaviour was influenced - just the company bottom line.

Real behavioural loyalty is critical to a business as it means more consistent revenue. Depending on the industry, acquiring a new customer can cost five times more than retaining a current one. With this in mind, it makes sense to focus marketing efforts and resources on nurturing existing customer relationships, by rewarding customers who choose to spend their money on the same goods over and over again. Although marketing strategies must also focus on reaching new customers, care must be taken to keep the ones you already have happy. This is where attitudinal loyalty plays a major role.

Unhappy customers are more receptive to competitor promotions and may seek out alternative brands if they feel they are no longer getting the same value they once were. Attitudinally loyal customers are hugely important because their word-of-mouth endorsements can help to attract and retain new customers. Social media influencers are a great example of this.

But if the attitudinally loyal customer isn’t also behaviourally loyal – that is, they don’t put their money where their mouth is – then this customer does not directly contribute to sales or revenue, despite having promotional value. 

How to use data to maximise loyalty

Brands are increasingly encouraging people to join their loyalty programs so they can gather more data, create comprehensive customer profiles, and ultimately, sell more through targeted advertising. This is all under the guise of ‘if we can get more of your data, we can understand what it is that you want and make you more loyal to our company’. But this isn’t necessarily the reality.

Let’s look at two example scenarios: Retailer #1 knows all about customer X’s transactions with its company, but has no insight into X’s transactions with its competitor, Retailer #2. Retailer #1 thinks customer X is extremely loyal because each week he buys the same products for $20.

However, for every $20 customer X spends at Retailer #1, he is spending $80 with Retailer #2. Similarly, Retailer #2 thinks customer X is loyal to its brand, not knowing there is the potential to sell $20 more to him each week.

It’s about using the right data and analysing a business’ own internal marketing strategies and loyalty databases to understand its customers more deeply. The real trick is determining the levers that can affect actual changes in customer behaviour, which requires more than demographic variables on a loyalty database.

This requires us to really understand the customer and the ‘why’ behind their purchasing decisions. Only then can we create true loyalty and effective loyalty programs.

Tags: customer loyalty programs, retail strategy

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