Customer loyalty, like many aspects of commerce, has undergone a major transformation since 2020 — away from transactional benefits and toward enriched experiences. Before the onset of the pandemic, points redemption and “buy some get some” loyalty models were already losing out to value-focused loyalty offerings like subscriptions, design services, and member pricing that are designed to attract and retain consumers by elevating their experiences.
Now, nearly three-quarters of consumers say that their loyalty to brands is based on “feeling valued and understood.” Personalization is also evolving to complement and support the changing definition of customer loyalty. Effective personalization is no longer just about serving customers appropriate content; it’s also about understanding how customers want to engage.
These shifts mean that organizations that continue to view loyalty as transactional and fail to provide an overarching value-added experience will falter, and not just in terms of loyalty. Research cited in the Harvard Business Review shows that a 5 percent increase in customer retention can lead to 25 percent to 95 percent profit growth over time. Stronger loyalty can also help keep customer acquisition costs low and reduce churn. Brands that want to cultivate the kind of loyalty that drives retention now need to leverage digitization to provide elevated customer experiences.
Loyalty Experiences vs. Loyalty Programs
Enhanced experiences highlight a brand’s strengths, create stickiness, and offer additional value to customers. Elevated experiences can also create new value for the brands that provide them through the generation of new data. For example, in the CPG space, Heinz’s new Remix condiment dispenser allows QSR guests to customize sauces for their meals by blending a selection of Heinz products.
This kind of unique personalized experience drives engagement and experimentation with the brand’s products. At the same time, it can provide Heinz with data on popular combinations that might be worth developing into new flavor profiles, which could potentially reduce research and development costs and accelerate new product development.
Contrast this with a brand that offers a basic loyalty points program based solely on transactions. Not only does this kind of program not elevate the customer’s experience with the brand, but it also fails to provide the brand with data-driven insights that would be useful for identifying further marketing and engagement opportunities such as in-store activations and enhanced end cap styles in specific retail locations.
More engaging brand experiences don’t require new hardware, of course. For example, Pottery Barn offers free design consultations online, which give users a strong, direct connection to the brand and surface additional purchasing opportunities. Starbucks elevates its app users’ experiences by learning which stores they frequent and their typical orders to customize offers, rewards and new-product trials.
Mass-market retail subscription-based loyalty programs such as Amazon Prime and Walmart+, along with member pricing programs at higher end retailers like RH offer additional value through special pricing and delivery options. These programs satisfy the customer’s desire to save and trigger a sense of deeper connection to the brand through membership. The brand, meanwhile, benefits through more data on its most loyal customers, increased repeat purchases, and higher-volume orders. It’s also important to remember that as business decision makers increasingly expect consumer-like experiences in their work-related buying activities, the need for experience elevation applies to B2B brands as well as B2C.
Other potential pathways for elevating customer experience through loyalty include gamification of purchases and activities to unlock real-world or virtual rewards. For example, a multiplayer video game might give players digital in-game recognition and a T-shirt when they unlock a specific achievement. Event-based promotions such as early access to concert tickets or access to celebrity meet-and-greets are classic examples of lifestyle experiences as rewards that strengthen loyalty.
Planning Digitized Loyalty Experience Strategies
Creating a digitized loyalty experience program requires a major investment of time and money — as well as the long-term ownership and vision to develop the program incrementally by adding new content and partnerships for continuous engagement. Research and strategic planning are critical for defining the right kind of loyalty enhancements for your brand’s key customers, as well as implementing those enhancements. Consider the following steps:
- Assess your loyalty landscape. Start by gathering voice-of-customer (VoC) data to understand whether your brand’s customers would even engage with your loyalty program. In some verticals, customers may have stronger relationships with the retailers where brands appear than with the brands themselves. In those cases, it may make sense to leverage the retailers’ loyalty opportunities rather than building a standalone loyalty experience program.
- Benchmark your brand’s position on the loyalty spectrum. If your assessment shows that a loyalty program makes sense for your brand, use your VoC data and any existing loyalty program data to plot your location on a spectrum from transactional loyalty to emotional loyalty. Then, decide whether your current location is where your brand needs to be. If there’s a gap, the next step is identifying the steps you’ll need to take to close it and how to implement them.
- Focus on the elements that deliver return on investment and matter to your customers. Brands with baseline transactional loyalty programs in place that want to move to the emotional end of the loyalty spectrum will do best with a crawl-walk-run approach. This allows for better management of investment, talent allocation, and scaling based on the potential ROI at each stage. That ROI could relate to revenue, retention, share of wallet, research and development, or something else.
ROI also depends on customer adoption, so focus on experiences and other loyalty elements that your customers care about. Often, we see brands using out-of-the-box loyalty programs with everything turned on, which can confuse customers and cause meaningful loyalty experiences to get lost among irrelevant offers. Just as loyalty evolves to be personalized for the customer to drive emotional connection, your brand’s loyalty strategy needs to be personalized to your brand, goals, and audience expectations.
Moving Forward With More Meaningful Loyalty Strategies
As the most advanced brands head toward more personalized and even bespoke loyalty experiences, it’s important for other brands to keep moving forward with their loyalty development strategies. That includes tracking meaningful key performance indicators, making adjustments as needed based on analytics and customer feedback, and continuously looking for opportunities to enhance experiences, not just transactions, to keep customers coming back to shop with you.
As the senior vice president, customer experience at Rightpoint, Tom Quish is responsible for defining and driving our CX offerings go-to-market and thought leadership, as well as supporting our clients directly with their CX ambitions.
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