What Drives Customer Loyalty? Look Beyond Traditional Programs
What are the drivers of customer loyalty? One of the major challenges brands face today is to create meaningful, satisfying experiences for their customers. Experiences they will love so much that they will come back again and again.
The spread of disruptive technologies undermines the ability to conquer and retain customer’s heart using traditional loyalty programs. When technology changes, so do the drivers of trust and engagement. Are you willing to look beyond the usual way of doing things?
In the last few months, we have witnessed a wave of new, interesting researches on the issue of loyalty and its impact on what we call “the relevance of a brand”. Creating and retaining a customer base that is faithful to the company is the top priority. There is a direct link, in fact, between loyal customers and their profitability.
Back in 2015, we wrote a piece about customer retention, and how to improve the way you plan and execute your strategy. A few statistics, taken from that article, still give us valuable hints:
- The probability of selling to an existing client is between 60 and 70%;
- The probability of selling to a new customer is just 5-20%;
- It costs six times more to attract a new client than to retain an existing one;
- A 2% increase in customer retention has the same effect as decreasing costs by 10%;
- A 10% increase in customer retention result in a 30% increase in the value of a brand.
It is easy to see why investments in loyalty are booming. According to a recent report by Accenture Strategy, not coincidentally titled ‘Seeing Beyond The Loyalty Illusion’, “more than 90 percent of companies currently employ some form of customer engagement or loyalty program. In the United States, alone, loyalty program memberships grew at a rate of 26.7 percent from 2012 to 2014.”
While the investments are growing, however, customer satisfaction remains an overlooked and underestimated field of study. This casual approach leads to an inevitable conclusion: the costs are increasing, and yet most loyalty programs fail to deliver valuable engagement or actual business results.
If something is not working, you put it down, right? Not this time. Traditional programs do not work, but they are still there; because sometimes it is easier – in terms of money and time – to keep them than shut them down. It is hard to admit a failure. So, billions are spent each year in traditional incentives, collections of points and non-cash rewards.
What is the result of this effort? Back to Accenture Strategy:
- 71 percent of customers claim loyalty programs do not engender loyalty;
- 77 percent of customers retract loyalty more quickly than they did three years ago;
- 23 percent of customers show negative or non-existent reaction to companies’ loyalty efforts.
All in all, the propensity to switch from one brand/product to another “is six percentage points higher among customers for whom traditional programs have a negative or negligible effect.”
This gap is destined to increase now that millennials – the first true digital native generation – are showing their full potential, becoming critical to driving revenue growth. The digital customers:
- Take faster purchase decisions – The attention span lowers to 8 seconds.
- Live online and offline at the same time – The customer journey gets disrupted.
- Reward the most innovative brands – ‘Mobile-first’ becomes ‘Mobile-only’.
- Show different purchase patterns – The 4 Ps of marketing change forever.
- Choose experiences over products – The customer experience becomes the key.
Of course, retention is a long-term run, not a short term activity. However, given the premises, how can you react if loyalty programs cost significantly more, and deliver significantly less? How should you adapt to avoid that the value of loyal customers slips through your fingers?
You have to look beyond usual, and you can do it starting with your customers. ‘Engage’ and ‘Convert’ still are two critical keywords in the age of digital transformation, but they are now complemented by a third – and increasingly important – element: ‘Understand’.
To keep it simple, you will never engage and monetize your customers if you do not know them in the first place. Knowledge is the foundation of today’s marketing. You must know who your customers are (Demographics) but also what moves and motivates them, what are their main psychological traits. Why they do what they do (Psychographics).
Loyalty is more than merely collecting points for every purchase. Loyalty involves an emotional investment, a personalized relationship, a relevant connection.
Even when you employ new technologies in your programs, you must remember that technology is the means by which you create value for customers, not the ultimate goal of the entire strategy.
“We get tons of information from customer service, but it Is really important to know how to use that information and not just take it at face value. It Is necessary to interpret customers, not just take them word for word.” (Maryam Mohit, Vice President of Amazon)
In recent times, customer research and analysis have gained brand-new momentum. The most innovative companies have realized that the in-depth knowledge of clients is mandatory, in order to exceed their needs and provide the best customer experience.
All the data in this world, though, will not help if you keep focusing on the most obvious findings. Today more than ever, you have to understand and drive the important clusters of emotions that either destroy or drive added value and create loyal customers.
A wrong approach to customer research translates into wasted opportunities (and budgets). The investments grow but not the understanding of how customers behave, and why. Loyalty still matters but you need to move beyond the old rules, and rethink the way you build and deliver engagement through your entire brand essence.
In other words, you need to find the new drivers of customer loyalty, those that fits perfectly with your customer’s profile, habits, and behaviors.
According to the American Marketing Association, “there are five variables that have been uncovered to be potential drivers of brand loyalty; several have multiple indicators that are combined.” These variables are:
Dependable – When your brand can exceed expectations and create consistent experiences across all touch points of the customer journey.
Better – When you establish your brand as the best solution to fulfill customers’ needs, when and where it matters most.
Social media – When your brand is able to speak your customer’s language and connect with them delivering engaging, personalized contents.
Light emotional connection (LEC) – When your brand can close the link to your customers as human beings, not just mere consumers.
Heavy emotional connection (HEC): When your brand can tap into your customer’s heart and mind, leveraging inspiration and emotional advocacy.
Study, analyze, act: this is the proper sequence. Today, loyalty is not just a program; it is a full-time commitment at all levels of your organization. If you make the necessary adjustments, you will unlock the power of technology, to create business value, sustain growth and gain competitive advantage.
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