How can Retailers engender loyalty from their customers in a digital world ?
In todays digitally driven economy, retailers can no longer expect loyalty from their customers unless they proactively encourage it in ways that excite and engage like never before. Retailers need to adapt their marketing and loyalty incentives to match the increasing demand for personalised offers and services and extend them in to all the digital channels utilised by their customers.
In this document we will examine what influences loyalty and how it has changed with the growth of digital and what actions are needed as a result. How the different retail sub-sectors are addressing the need for loyalty and what may be preventing it.
We will examine how current loyalty schemes fail to drive incremental revenue and what needs to done to ensure they deliver the desired brand loyalty.
Retail organisations live and die as a result of their customers propensity to repeatedly shop with them. Whatever the reason, a shoppers’ decision to return to a particular brand to purchase their desired items can determine if an organisation, be that a retailer or a manufacturer, continues to exist.
For most retail sub-sectors, a business strategy based solely on attaining new customers simply does not work so the retailer has to provide something that encourages the shopper to return again and again to make their purchases.
What are the influences that will encourage loyalty?
The human psyche can be influenced by a range of external factors and retailers have for many years encouraged customers to react to a number of these stimuli. Most common is the belief by the shopper that they are receiving a ‘good deal’. Whether this is a perceived low price for an item, such a the item being ‘on Sale’ or a promotional offer such as ‘Buy One get One Free’, the perception that they are getting ‘something for nothing’ is a driver for making a purchasing decision.
In certain retail sub-sectors, most famously the furniture sector, customers have been ‘trained’ to expect substantial discounts from the base price and as such furniture retailers have had to develop their marketing to fulfil this need even though the ‘discounts’ are recognised by all but the less seasoned shopper as an empty promise and as such the furniture retailers have to promote themselves in other unique ways.
Although perceived value is a strong driver to encourage shoppers to return for future products, it has been shown by many retailers to not be the only driver and influences based around customer service, product range, stock availability and the shopping environment also have a key role in the shoppers decision to return.
Is Customer Loyalty the same in all retail sectors?
No matter how we measure Loyalty it is always based on a human need, whether that be food, clothes, electronics or any other commodity. As a result a shopper, once they have identified their need will then make a series of decisions about how they will fulfil that need and as a preference, by whom.
Prior to the proliferation of the Internet and all the information it can provide, shoppers still carried out research before purchasing ‘high cost’ items, usually through dedicated publications, word of mouth or consumer advice material such as Which!. In the Digital Age it is common for shoppers to research all sorts of products that fulfil their need prior to making any purchase and the method they chose to carry out the research can have a big influence on who they eventually select to provide the required product or service. The ability to search for the ‘best deal’ has had a destructive impact on many well known retail brands and they have had to consider new techniques to retain their customers.
As the business objective of Loyalty is being shifted by the strengthening digital sales channels, Retailers are recognising that points based systems alone no longer meet the need of the shopper.
As mentioned earlier, the original concept of Retail Loyalty schemes was to retain existing customers and attract new customers by rewards based on the value of their spend in stores. Around mid-2012 Loyalty 2.0 was launched as a methodology that encompassed the shopping carried out in the emerging web channel but it was still based around a points based reward.
As the so called ‘savvy shopper’ now wanders through the many stages of the shopping journey, encountering differing experiences, rewarding customers purely on spend is no longer what they want. The desire to share and the need to belong are now stronger that ever in the digital social world we inhabit. This is borne out by places like Trip Advisor where no monetary reward is offered but you can achieve a ‘status level’ by repeatedly contributing. Millions contribute around the world and ‘purchase’ decisions are made or stopped as a result of the scores achieved.
In response to this need, Loyalty 3.0 is about both the need to share, with the ability to gain status; plus the desire to obtain “a great deal” by receiving ‘personalised’ offers that have context based on three measurements:
- What they have purchased in the past
- What they are doing now
- What are they likely do in the future
The digital age is upon us and is changing both customer behaviour and their levels of expectation. Customers are becoming more and more demanding of their chosen retailers and price is not the biggest influencer to drive this choice.
Retailers in all sub-sectors need to respond to the increasing need for an open way of providing 2 way conversations with their customers and they need to be able to do this in real time.
Retail CRM based on out-of-date technology and customer segmentation based on basic knowledge do not allow the retailer to have the visibility of what the customer is doing at this very moment. Nor will so called Business Intelligence solutions that rely on ‘indexed’ and ‘aggregated’ data stores, located in different silos across the retail landscape, needing IT departments to spend time and effort to produce reports that are needed that instant not tomorrow, next week or 3 months from now! In the digital world, data is the fuel that is driving innovation and being able to understand that data in depth and in real time is the key to success.
As new business models are established and new players use digital as a weapon to cut into existing market sectors, in new and innovative ways that appeal to the connected generation, your business might see dwindling revenues. Make sure your business is equipped to fight the battles ahead.
In this new world if you do not evolve you will fade into obscurity. Do not let this happen to your business!