The Future of Loyalty Programs

December 26, 2020 by Lubna N.

Customer Loyalty Trends for 2021 & Beyond

 
Today’s retail, travel and luxury world is becoming increasingly saturated with loyalty programs, brands, offers, promotions, apps, and channels – all competing for the customer’s attention. While this gives people more options that suit their preferences, as well as better deals as a result of fierce competition, it is also creating a seismic shift in the customer experience and sentiment.

What does this mean for loyalty? It means that the concept of being loyal to a program doesn’t quite mean the same any more.

New findings show that only 8% of global consumers consider themselves to be firmly committed loyalists. A massive 42% of consumers say they love trying new things, and a further half (49%) say they can be moved to experiment new brands. With the overwhelming majority of consumers actively or passively open to unfaithful actions, the risks for brand owners have never been greater.

Why are consumers less strongly bound to familiar brands? Why are the trust ties loosening?

Here’s what’s happening:

Consumers are becoming more complex:

Consumers today expect more than just a transaction. They expect seamless, contextual, value-driven experiences that align with their personal values. Let’s dissect that for a minute…

“Seamless” means that the experience fits so effortlessly into the customer’s life that they entirely forget about the transaction itself. Membership forms, online accounts, physical and digital membership cards and reward apps are all soon to become instruments of the past. Customers today, especially Gen Y and Z, don’t have the time or patience for reward applications. They expect brands to grant them discounts and rewards automatically without soliciting any information from them. Though this may seem far-fetched, it is already starting to happen, thanks to Big Data and AI technologies. Customer databases are becoming ever more elaborate and integrated, giving retailers and businesses the power to tap into vast pools of customer data and insights, and allowing them to offer more proactive and predictive loyalty programs with minimal customer input.

“Contextual” means that the experience is relevant and customized to each person’s preferences, which is already becoming the norm in loyalty programs. Brands that want to go above and beyond personalization are now integrating the online and offline experience (creating omnichannel services) to offer more empowerment for customers.  Few companies have harnessed the contextual experience better than Sephora. It’s new beauty app blends the physical and the digital with advanced technology. The app’s augmented reality capabilities and Sephora’s in-store beacons allow users to track and explore new products on their phones while browsing in-store, and allows them to read reviews online before buying any product.

Image by Casimiro PT via Shutterstock

“Value-driven” means that redemption programs offer wider and more integrated reward opportunities. Today’s consumers are the ultimate surfers, hopping between channels, devices, and sites as they shop. Loyalty programs are static by comparison, relying on increasingly outdated rewards and the redemption strategies of the past. Programs should now move towards creating an ecosystem of partner brands that offer customers many options for redemption, be it in discounts, cashbacks, Amazon purchases, airline miles, travel perks or other. Card-linked offers, and other methods of matching credit/debit card numbers in payment networks are also driving up value for customers. The more interfaces and partnerships brands create, the more opportunities they offer for customers to earn and burn.

Aligns with personal values” means that reward programs go beyond dollars-and-points notions to identify and celebrate shared values as a way of building connections and fostering a brand community. Consumers are more careful about those they are associated with and ready to walk away from brands that do not resonate with their lives and ideals. They want companies to integrate environmental, social, ethical and charitable activities within their brand offering. This means that conventional product or service innovation is no longer about being first to market, delivering the next best attribute or even greater value, but extends to identifying a brand’s larger purpose, for connecting with more discerning and fickle consumers. One brand which does really well in this aspect is Toms’, a company that has turned social responsibility into its primary business strategy. The shoe company, whose slogan is “We’re in business to improve lives”, promises customers to deliver a free pair of shoes to a child in need for every sale of their retail product. When touching and engaging with customers, the shoe brand makes sure that it’s not just about selling a product, but about becoming part of the movement. By building this emotional connection with a passionate base of customers, the company was very successful in creating lifelong relationships with them.

Image via Shutterstock

  1. Fierce competition and strained finances mean “no second chances”

These days, customers have access to any product from any place around the world, making them not only brand-savvy shoppers, but more disloyal than ever.

A study in the UK has revealed that one in three consumers would ditch a company for good after just one below-par experience. The study showed that companies were given on average “one chance” to make amends for a disappointing experience, but for 30% of consumers, there were “no second chances” when a company fell short the first time around.  These findings show how demanding consumers are today. Global cyclical recessions, and the recent COVID pandemic, have squeezed personal finances, making consumers ever more selective with their purchases, as well as wiser and less forgiving.

  1. E-commerce is changing the architecture of loyalty

The emergence of direct-to-consumer (D-to-C) brands and the ever-lingering dominance of Amazon and other e-commerce giants have not only added a new layer of product competition, but have also changed the architecture of customer decision making. A recent study showed that 71% of consumers say loyalty incentive programs don’t really make them stick to a brand anymore. Instead, the digital world is forcing them to seek brands that are more relevant and more tailored to their preferences. On top of that, online shopping offers more convenience and less stress than the in-store retail experience. For high-end or specialty brands that don’t want to sell on Amazon (for fear of diluting their brand image and quality), they must work hard to outshine their e-commerce rivals through superb online / digital experiences, fast delivery services, and product offerings that are designed to reduce decision fatigue in consumer’s lives.

These are the main trends impacting loyalty today.  What is fundamentally evident is that consumers are less strongly bound to familiar brands. Fast and fickle consumers—those whose curiosity and changing interests are driving their buying habits—are fanning the flames of “brand disloyalty” around the globe. This trend will only accelerate with time, which means brand halo effects will risk losing even more in the future. Brands who want to survive the next era of loyalty programs have to drastically shift their strategies to appeal to the growing traits of disloyalty, instead of the declining rates of loyalty.

 

 

Main Image provided by Shutterstock

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