All that investment in loyalty programs (and in the technology underpinning it) may just have been a very bad idea, according to new research by McKinsey and Company.
According to the management consultants, digital technologies have transformed the customer journey so radically that you are probably more likely to get that sale by chasing the consumer who is shopping around than by trying to win their loyalty.
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In a new paper called “The new battleground for marketing-led growth”, the authors, David Court, Dave Elzinga, Bo Finneman, and Jesko Perrey, argued that while chasing loyal buyers might seem like a dependable, low-risk, and potentially quick way to boost sales, the rules of the game may have shifted underfoot.
Instead they said, “Evidence has begun emerging, however, that consumer bonds with many brands are simultaneously slipping, with active engagement in those same loyalty programs falling by two percentage points and 58 per cent of loyalty members not using the programs for which they are signed up.”
This, they said, is a clear signal that consumers thinking and acting differently across their consumer journeys.
Digital technologies are driving the change.
According to the authors, “An explosion of mobile shopping apps that showcase options, simplify pricing, compare product specifications, and facilitate peer reviews is making it possible to size up brands effortlessly.”
In addition, they said, social media lets consumers know exactly what their friends are buying and what they like and don’t like about those purchases. This encourages even the best consumers to shop around and changes paradigms that marketers have counted on for years.
To find the evidence to backs its assertions, McKinsey tapped its own CDJ database, which includes data from more than 125,000 consumers and covers purchases of over 350 brands.
“The numbers tell a startling story. Of the 30 categories we researched, only three were loyalty driven, with consumers predominantly making the same brand choices from one purchase to the next rather than shopping around.”
“What surprised us was not only how ephemeral loyalty is, but also how often consumers switched brands once they decided to shop. In the categories where we examined purchase behaviour, only 13 per cent of consumers were loyalists,” according to the authors.
Or thought of another way, almost 90 per cent of consumers are shopping around.