Loyalty marketing to date has been largely built on rationality; tiers, points, transactions, hard-nosed economics. Indeed, these have been the foundations of many a successful loyalty programme. But is this the case anymore? Are traditional, rational loyalty programmes still delivering for brands?
Let’s look at some of the evidence for a second.
According to the Bond Brand Loyalty report, on average people are enrolled in just over 14 loyalty programmes; Deloitte reports that fewer than half are redeeming all their points and take advantage of the offers they receive; Mintel research demonstrates consumers are showing a lack of commitment and loyalty to one programme – 30% of customers say they use multiple loyalty schemes to get the best deals. The data shows there is a perceived lack of value that is holding back usage.
No one cares
All of this highlights the problem with a lot of traditional loyalty programmes; no one really cares. But is this really a surprise when most loyalty programmes are conceived to increase frequency of purchase rather than cultivating deeper emotive or psychological loyalty? As an industry sometimes we confuse the two; customers may use a business for many years simply for convenience or out of habit without feeling psychologically bonded to that business or brand.
That strategy may have been enough in previous years. But now the world of business is an increasingly cutthroat place. Customers are savvier than ever. They care less. Which means loyalty programmes are struggling to matter to them.
A change of approach
To make loyalty matter once more, we need to go beyond the rational to the psychological. We start by revisiting the definition. Brand loyalty is typically defined as ‘a consumer's preference for a particular brand and a commitment to repeatedly purchase that brand in the face of other choices’. I think we need to add a line to the end of that definition "…when it makes no rational sense".
Moving beyond the rational
As customers, we’ve all experienced those moments of seemingly irrational choice – moments when we keep choosing a brand because of how they made us feel in spite of more rational reasons that might point us elsewhere. Pret A Manger does this brilliantly with its random acts of kindness approach, awarding free coffee and food to its favourite customers.
And it’s been borne out by research by Gallup, which shows that customers who like their sales representative and feel a personal connection to them are 12-times more likely to purchase. Is likeability a goal of your loyalty programme?
Forrester research also proves that emotion is a key driver of customer loyalty - more so than ease or effectiveness. Using data from more than 45,000 US consumers they found that emotion contributed most to customer loyalty in 17 of the 18 industries that were studied. So emotion matters. Psychology matters.
The new ingredients of loyalty
With all this in mind, I believe a modern loyalty programme needs a mix of new ingredients - Empathy, Emotion, Experience, Experimentation, Effectiveness and Enablement.
Advances in machine learning means we are now starting to be able to analyse large data sets and use artificial intelligence to automate marketing. But what if we could do this to understand and be empathetic, rather than just be coldly efficient in our targeting? By connecting unknown and known data points we can use data signals to be empathetic to an individual but also at scale.
Being empathetic is one thing; acting on that empathy is another. Given technological advances we now have the ingredients to scale different types of experiences eliciting a different emotional reaction, personalised to a customer’s individual context. What if we created variable, personalised currencies that elicit different types of psychological bond? What if we anchored the experience not on price, but on other more emotive or psychological factors? Recognition is a key emotional driver – it isn’t just a question of "Do I like brand X" but "Does Brand X like me?"
Forrester has proven that in retail and banking, customer experience is a more powerful customer loyalty driver than more rational elements such as price/value perception. Now we can analyse data sets to identify an individual’s emotional motivators across the customer journey. This is where experience mapping becomes infinitely powerful as we can use the ingredients of empathy, emotional intelligence and expectation management to create experiences with a human touch at scale.
Modern loyalty marketing needs to be much more experimental. We need to adopt a behavioural science mindset; understanding the psychology of our customers, identifying potential experiments to prove hypotheses which we then test in the real world or online (I like to think of social channels as a huge laboratory).
For instance, Sky is experimenting with a new rewards scheme called SKY VIP that rewards customer based on their tenure, not spend. It’s a change of approach, which should be applauded (lots of customers equate loyalty to tenure not spend). We need more experimentation in the industry not less.
Underpinning all of this is the need to measure and test and learn. We need to measure what matters. We need to focus on emotional bonding, not just efficiency measures such as numbers of people in the programme or their transactional spend. Brands need a modern loyalty framework and the relevant technology underpinning it so that marketers can act on the data. And that’s where enablement comes in.
Enablement is vital in providing brands with the means to deliver effective loyalty experiences to customers. As Peter Drucker said, "Strategy is a commodity, execution is an art." As such any loyalty programme needs to invest in people, process, culture and technology. Known and unknown data needs to be collated and synthesised. Personalisation technology needs to be in place. People need new skills. The culture needs to embrace experimentation and new ways of doing things.
Making the psychological shift
Customers are increasingly unpredictable and irrational. So being rational no longer works. To make loyalty marketing matter once again to people, we must make the psychological shift.
Matt Holt is head of experience planning at OgilvyOne