Brands do not (and should not) improve customer experience (CX) simply because it feels right to have happier customers. The reason to invest in CX is to deliver more loyal customers—customers who spend more, churn less, are less costly to serve, inclined to recommend or refer others, and more likely to consider and purchase a broader selection of your products. Strong CX delivers more customer satisfaction, and that results in greater customer loyalty, drives up the lifetime value of your customers, and makes your bosses and shareholders happy.
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Brands that struggle to meaningfully differentiate their CX often turn to other tactics to produce something akin to loyalty. So-called loyalty programs compensate repeat customers with points, rewards or discounts—and they’ve gotten very popular (at least among marketers). Today, the US’s 300 million consumers represent 3.8 billion loyalty program memberships, and more than half are inactive.
The problem with many loyalty programs is that they don’t actually deliver loyalty. They deliver repeat purchases, and repeat purchases may look a lot like loyalty, but you cannot know what is driving preference and purchases unless you listen to and understand customer perception. A good loyalty program can produce ROI by delivering incremental revenue in excess of program costs, but brands must never mistake loyalty to their points and incentives with genuine loyalty to their brand.
A truly loyal customer is willing to pay more for your brand, while a points-loyal customer needs an inducement to purchase. A brand-loyal customer is less interested in competitive products, while a points-loyal customer is willing to make a switch for the right mix of price, discounts, and rewards. And an authentic brand loyalist will seek your brand out, engage more, and tell others, while a points loyal customer is more interested in the value they can extract than in having a relationship with your brand.
In short, points loyalty is transactional while true loyalty is emotional. Your airline has a loyalty program, and chances are you feel so little loyalty to that brand that if it was gone tomorrow and replaced with another carrier flying your favorite routes, you might not care if it weren’t for lost points and status. Meanwhile, Apple doesn’t have a rewards program, and it engenders some of the greatest loyalty of any brand in the world. As a result, Apple generates enormous margins—in one recent quarter, Apple captured 87 per cent of smartphone industry profits despite accounting for only about 18 per cent of the total units sold in the period.
In fact, check out the list of customer loyalty brand leaders. How many of the brands at the top of the list need loyalty program awards to earn their spot? I’ll leave it to Trader Joe’s (in the top 15 brands for loyalty) to shed light on what they do to earn their position on this list. The grocer’s 2017 radio ad told customers:
“We know that loyalty doesn’t come from a special card or a so-called ‘reward’ you receive when you spend your hard-earned dollars in a store. At Trader Joe’s, we would never test your loyalty by printing out a three-foot-long scroll of coupons for money off things the next time you shop in our stores… At Trader Joe’s, we believe loyalty is something we have to earn, every day, with every customer. So we focus on offering the best values on terrific foods and beverages, every day, in every corner of every one of our stores. The ‘reward’? You spend less money on the things you need and want, every day.”
Do you offer a customer experience that earns the sort of loyalty where customers seek out your brand and are willing to pay more, or are your customers only loyal enough to open your email, click on a discount offer, and earn a reward in return for their purchase?
Being brand-loyal and points-loyal are not mutually exclusive–as Starbucks (#17 on the Brand Keys Customer Loyalty Leaders List) proves–but brands that must rely only on points and rewards to drive “loyalty” (or repeat purchases) put themselves at risk. This is why smart brands are beginning to find ways to convert loyalty program participants from points-based loyalty to sincere brand loyalty via experiences. As noted in Gartner’s recently published “Market Guide for Loyalty Management,” marketers are using their loyalty-program data to improve experiences. They are merging loyalty data with other data across their marketing stack to better know customers, enhance one-to-one marketing, and personalise experiences—not just offers.
Brands cannot rely on points programs alone—at least not for very long. Marketers must understand customer motivations and perceptions to learn what can convert customers from being loyal to points to being loyal to the brand. As you make this shift, you not only produce stronger, more resilient customer relationships but evolve from transactional relationships driven by incentives to emotional relationships that build brand health and improve the bottom line.
*This article is reprinted from the Gartner Blog Network with permission.