Loyalty still exists, but you can't measure it in points

Despite mutterings of its downfall, loyalty still plays a big part in the way consumers make decisions - but an effective loyalty scheme has to be much more than just an economic exchange, writes Will Collin, founder of Naked Communications.

Loyalty.  It’s not what it used to be. Certainly if you believe analysts at Forrester Research, who have gone so far as to claim that "customer loyalty is dead".

Certainly participation levels in brand loyalty programmes are showing signs of decline.  A recent WorldPay report indicates that 8 million UK shoppers are using their loyalty cards less than a year ago, while research also suggests that membership of loyalty schemes has fallen 15% since 2014.

Retail experts have pointed the finger at the proliferation of savvy shoppers powered by smartphones, driven by the desire to track down the very best deal they can find.  

But in our view this is part of the story but not the whole truth. 25% of UK shoppers use their phones to compare prices while in store – but that means 75% don’t.

To delve a little deeper into the world of loyalty we recently gathered a group of experts to share their experience at a breakfast workshop.  Drawn from the worlds of retail, hospitality and anthropology, they debunked a few loyalty myths while revealing some pointers for where the future of loyalty may lie.

Discount schemes by another name

The first point is that the decline of traditional points-based loyalty schemes is entirely understandable when you consider that the anthropological basis of loyalty is reciprocity: a mutual exchange that builds trust between giver and receiver, rooted in a moral obligation to return a favour.  

But this sense of a moral obligation is undermined when the exchange is seen as purely economic rather than social.

So loyalty programmes built around points alone will tend to be judged on purely economic terms, and consumers will make their decision about whether or not to repeat purchase from that brand based on the cold, hard cash value of the loyalty reward on offer.

Likewise, the value exchange is starting to feel increasingly one-sided as rewards shrink (e.g. Sainsbury’s halved the number of Nectar points it gives) while at the same time people are increasingly conscious of the value of the personal data they are handing over in return.

Worse still, once customers start judging loyalty programmes as discount schemes by another name, there can be unintended consequences that actually destroy value for the business rather than create it.  

For example, as Kester Dobson, head of technology at coffee shop chain Harris+Hoole revealed, the effect of offering an existing customer a free coffee can be counter-productive.  

Rather than treating themselves with the money they saved on the coffee to buy, say, a slice of cake to accompany their drink, customers are more likely not to buy anything whatsoever, because they came in for a free experience.

Similarly, Nish Kukadia, CEO of the flash sales website SecretSales.com, recalled how their first iteration of a loyalty scheme, which rewarded customers for buying more, simply resulted in a costly increase in returns: people would place large orders to secure the reward and then send back most of what they had bought.

Surprise and delight

The big lesson we learned during the workshop was the importance of giving a brand’s best customers a superior customer experience, not just a fistful (or an app-full) of points.  

Kester Dobson explained how the real benefit of Harris+Hoole’s loyalty app, which does use a points collection mechanic to reward loyal customers with every seventh drink free, was to improve the customer experience.  Removing pain points and anything that might cause disloyalty is an often overlooked part of loyalty.

The real work of creating loyalty happens once the brand delivers a superior experience to its repeat customers.  The data generated by the loyalty programme can help identify the pain points to eliminate and the passion points to amplify.

But of course driving loyalty doesn't necessarily mean using a loyalty programme.  A great customer experience alone can be reason enough to repeat purchase.  

It’s interesting that another coffee shop chain, Prêt A Manger, doesn’t offer loyalty rewards but follows a different approach: occasionally (and unexpectedly) offering customers free drinks or food, which is probably as clear an example of "surprise and delight" as any I’ve ever encountered.

So what’s the future of loyalty?  While traditional rewards programmes relied on points to pay customers to be loyal, new loyalty will be earned.  And that will be by creating a better customer experience for a brand’s best customers.

Will Collin is founder of Naked Communications.

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