Trends and Tactics in Customer Loyalty: Part One
In the first part of a two part series on
(RTP), associate editor Alicia Fiorletta details how retailers are differentiating and customizing their loyalty programs.
Customer loyalty programs are increasingly big business— according to loyalty marketing expert
, loyalty membership programs totaled nearly $2.65 billion in the United States in 2012, a 27% increase over the start of the decade. The average U.S. household now participates in 22 programs.
Fiorletta notes the retail segments where loyalty program sign-ups are on the significant rise: department stores (+70%), drug stores (+45%), specialty stores (+26%) and mass merchandisers (+8%).
According to the 2013 COLLOQUY Loyalty Census Report, the challenge for retailers is not only to make their loyalty programs grab the attention of their customers, but also that they are used consistently. As Fiorletta notes, “To compete in today’s tech-savvy marketplace, companies must find ways to differentiate and customize their loyalty programs.”
What factors influence customer loyalty?
The Wise Marketer calls out six of them:
- Core offering
The companies that boast the highest levels of fiercely loyal customers have built that loyalty not on marketing programs or gimmicks, but rather on a solid, dependable, core offering that appeals to their customers. These companies have focused intently on what they know engages the type of customers they want to attract, and have determinedly concentrated on delivering what is expected every time.
Satisfaction is important; indeed, it is essential. But, taken in isolation, the level of satisfaction is not a good measure of loyalty. Many auto manufacturers claim satisfaction levels higher than 90 percent, yet few have repurchase levels of even half that. The situation is stacked against the business: if customer satisfaction levels are low, there will be very little loyalty. However, customer satisfaction levels can be quite high without a corresponding level of loyalty. Customers have come to expect satisfaction as part and parcel of the general deal, and the fact that they are satisfied doesn't prevent them from defecting in droves to a competitor that offers something extra. So, while high levels of customer satisfaction are needed to develop loyal customers, the measure of customer satisfaction is not a good indicator of the level of loyalty. The two are not measuring the same thing.
- Level of elasticity
Elasticity expresses the importance and weight of a purchasing decision— effectively, the level of involvement or indifference. This applies to both the customer and the business. The customer's involvement in the category is imperative: the more important your product or service is to the customer, the more trouble they have probably taken in their decision to do business with you, and the more likely they are to stick with what they have decided.
- The marketplace
The marketplace is a key factor in the development of loyalty. The elements most closely involved are opportunity to switch and inertia loyalty. If the number of competing suppliers is high and little effort is required to change, switching is clearly more likely. Conversely, the more time and effort invested in the relationship, the more unlikely switching becomes. Inertia loyalty is the opposite of ease of switching.
According to research, more affluent and better-educated customers are less likely to be committed to a specific brand. They say that the commitment of less affluent consumers to the brands they use is often unusually strong, possibly because they cannot afford to take the risk of trying a brand that might not suit them as well. They also suggest that younger consumers are less committed to brands than older consumers.
- Share of wallet
As markets become saturated and customers have so much more to choose from, share of wallet becomes increasingly important. It is cheaper and more profitable to increase your share of what the customer spends in your sector than it is to acquire new customers.
With these in mind, retailers must understand that tech-savvy customers, most having come of age with the Internet, increasingly look for instant access to the loyalty programs in which they participate. But in addition to speed of access, personalized content is also a key.
In the RTP piece, Jason Copulsky, a principle at global consultant Deloitte, notes, “A key best practice for loyalty initiatives is customizing and creating a differentiated experience by taking customer data and making programs meaningful. The overall experience with a loyalty program is important— from the rewards to the recognition— but the stakes to be relevant are much higher.”
How are retailers going about achieving this?
Part two of this post will look at Omni channel retailing, and why this tactic is coming to the fore in securing customer loyalty.
Posted by Doug Smith, Senior Product Manager, Epicor