Customer loyalty goes far beyond mere discounts and requires a deep brand commitment to establish ongoing and fulfilling relationships.
During Tuesday’s Loyalty360 webinar, Analytics Differentiates Leading Customer Loyalty Programs, which was presented by SAS, John Balla, Principal Marketing Strategist, SAS outlined what he believes are the areas marketers need to focus on to gain true customer loyalty.
“Focus more on the customer experience and their perceived value of engagement, rather than the corporate view of retaining customers or up-selling customers,” Balla told attendees. “Engage with your customers on the channels they prefer, not just the ones you’re equipped to handle. And yes, they all matter to different people.”
Demographics matter (esp. gender, age), but so do many other factors, Balla added.
“Invest in understanding your customer base and what they value,” he explained. “Use the broad spectrum of data you have and bring analytics into your loyalty program.”
Recent estimates by Colloquy suggest there are over 2.6 billion loyalty program memberships in the U.S, with the latest estimates from the U.S, Census bureau showing about 242 million people over the age of 18. This translates to about 11 loyalty programs for each adult in the U.S.
The growth rate for loyalty program membership in the past two years was 26.7%. But research by Maritz shows that active membership grew at a slower rate and the percentage of active memberships declined from 46% to 44% over the same period.
“The bottom line is that we have loyalty programs acquiring new members,
but many are leaving a significant portion of them unengaged,” Balla said.
SAS sponsored two research projects to dive deeper regarding consumer attitudes toward loyalty programs. In both the qualitative interviews and the survey data, SAS found there were two predominant drivers in the loyalty equation: Discounted prices and convenient location.
Looking at the data by store type reveals differences that point to opportunities for organizations that might want to improve their loyalty offerings.
The four store types identified were:
General Merchandise Stores
“Some of the dynamics that jump out at you are how department store and specialty store shoppers care more about exclusive events and personalized communications than the other types of shoppers,” Balla explained. “Even location matters less to the department store shopper”.
Pamela K. Prentice, Chief Research Officer, SAS, said loyalty programs are quite rampant currently, but marketers are struggling with some key challenges.
“As customers are now showing signs of loyalty program saturation, coupled with waning levels of engagement in the programs they do belong to, firms are increasingly struggling to meet the retention and brand goals they have set for their programs,” Prentice said. “Simply having a loyalty program no longer separates a firm from its competition. Now, firms must continually innovate around program features, permissible communication channels,
and measurement to create programs that are differentiated in customers’ minds.”
Prentice discussed the top challenges for companies’ customer loyalty initiatives, as revealed by the surveys.
Challenge One: Offering rewards that are valued by customers:
“It appears that programs are failing to capture the hearts and minds of many customers, as evidenced by increasing proportions of inactive loyalty program members,” she said. “The more valued and relevant the reward is to the customer, the more likely the individual is to use it, and to engage in repeat purchases. To be successful in this pursuit, companies need to be skilled in collecting relevant customer information, analyzing it, and tailoring their offerings to fit the individual customer. Increasingly, customers are becoming saturated with loyalty program offerings. There is little to differentiate them. Providing the rewards that are valued by the customer is really an important fact.”
Challenge Two: Measuring program effectiveness:
45% of respondents cited measuring program effectiveness as a top challenge,
which leaves a lot of uncertainty around such an important issue.
And there isn’t a consensus on a top go-to metric–customer retention vs. customer satisfaction, and on down the line.
Also, measuring the financial impact of loyalty programs is not as easy as we might like. Only 54% of survey respondents indicated that they are able to determine the revenue impact of their programs.
The third challenge is program differentiation:
Companies are struggling to differentiate, with 42% citing this as one of their top three loyalty program challenges.
A key finding was that programs that stand out from the competition are more likely to focus on member points or rewards, while the top benefit among parity programs was exclusive sales or discounts.
And the fourth challenge? Operational & Data Siloes
Respondents cited coordination across all points of customer contact as a big issue. This is particularly important looking at the kinds of channels being used
and how many of them the average company is using:
Among respondents, the website is at near-parity with the physical store.
And not far behind we have call centers and direct salespeople.
And more than four-fifths (84%) sell through 3 or more channels.
In addition to multiple sales channels, 70% of the companies surveyed have a corporate presence on social media, with 58% actively monitoring social media posts about their organizations.
This challenge points to common operational problems−data and information siloes.
Coordinating a loyalty program across all points of customer contact requires communication across functional departments, often in real or near-real time.
Meanwhile, Balla discussed a key research objective focused on identifying shopper segments to provide additional insight into building and refining loyalty programs.
Based on the survey responses, three factors were identified that led to three distinct customer segments: The Necessity Shopper, The Practical Shopper, and The Pleasure Shopper
Necessity Shoppers represent two-thirds (66%) of the survey respondents.
“They don’t particularly enjoy the shopping experience and are focused on getting
what they want (but at a good price) and exiting the shopping experience as quickly as possible,” Balla said. “These shoppers tend to be somewhat older than shoppers in other segments. Men are more likely than women to be necessity shoppers, which correlates with the findings from the qualitative research that men value convenience and fast service over other benefits.”
Discounting isn’t a differentiator, Balla said.
“Consumers have been conditioned to expect that,” he said. “Necessity Shoppers are less likely to shop multiple stores and are also less likely than other shoppers to be loyalty members in stores they frequent. They also give their most frequented stores lower ratings on loyalty benefits compared to other shoppers, suggesting that they are either harder to please or because they are loyalty program members, they are not getting the same perks.”
Practical Shoppers account for one in five (19% of the survey respondents.
“These customers are frequent shoppers, enjoy the shopping activity and
are generally satisfied with their shopping experiences,” Balla said. “Practical Shoppers focus on getting good deals as a priority. They are likely to be members of the loyalty programs in stores where they shop most frequently. Practical Shoppers are typically younger than Necessity Shoppers and more often women than men.”
Pleasure Shoppers are the smallest segment identified in the research (15% of respondents).
“Pleasure Shoppers enjoy the overall shopping experience and don’t mind visiting multiple retailers during shopping excursions,” he explained. “This group is more likely to shop at department and specialty stores than are the other shoppers,
with less focus on the practical aspects of grocery and general merchandise shopping. Pleasure Shoppers tend to consist of younger shoppers who are women. The vast majority of these customers have loyalty cards to stores they frequent, but this doesn’t necessarily translate into loyalty because of their affinity for shopping. They value a good deal, but are also shopping for the fun of it.”
Only one in five (19%) of the survey respondents indicated that they interact with retailers via social media.
“While not statistically significant, shoppers who do interact with social media
are more likely to do so with department stores vs. other types of stores,” Balla explained. “Facebook is the dominant social media platform for all retail stores.”
One research question posed was: “What one store does a better job than others at earning your loyalty?”
Walmart was the clear winner, with twice as many unaided mentions as the next closest retailer. By offering both low prices and convenient locations across the country, Walmart plays well to the top benefits that shoppers value.
A poll question during the webinar asked: “What is the top challenge you face with your loyalty program?
Measuring effectiveness (43%), offering valued rewards (18%), and differentiating vs. competitors (16%) were the top three responses.
Another webinar poll question asked: “What factor do you think is the biggest driver of loyalty?
Customer experience (29%), rewards (25%), and discounts (21%) were the top three responses.
Leading companies’ top two priorities are creating strong brand affinity and
improving customer satisfaction.
Balla and Prentice offered the following recommendations for marketers based on their research:
Address the overall customer experience before turning to a loyalty program to retain customers.
A good loyalty program will not make up for below average customer service or poor product quality or selection.
Consider gender, as well as other demographics, in building loyalty programs.
Men and women shop differently, as do shoppers segmented by age groups.
Invest in understanding your customer base and what they value.
Successful loyalty programs appeal to the specific needs of shoppers,
and this is where analytics can be very effective.
Engage with your audience in the channels they prefer. Social media is
growing in importance, but don’t abandon traditional channels for social just yet.
Don’t go head-to-head with the biggest discount chains. Instead, center loyalty efforts on the overall customer experience and the development of relationships
with customers to help accurately target offerings to specific needs.