Redefining Customer Loyalty: Beyond Benefits, Points and Promotions

6th July 2021

 

The changing face of loyalty

COVID-19 has changed consumer behavior in a number of ways. One example of such behavioural change is the reduction in habitual loyalty; consumers are trying brands they have never tried before. (1)(2)  Consumers have given a number of reasons for this ‘loyalty mix up’, with in-store and online availability, convenience and value (better prices/promotions, shipping/delivery costs and larger package sizes) being the strongest stated drivers of new brand purchases. (2)

In line with these practical explanations for brand switching, many marketeers will typically offer transactional and pragmatic advice for improving customer loyalty. For instance, closely monitoring when consumers are migrating brands or retailers, ensuring product or service availability, investing in personalisation, improving customer service and conveying value for money by offering benefits and promotions. Whilst many consumers will undoubtedly be seeking value for money given unemployment levels and the wider economic situation in the short-term, brands and retailers looking at the longer-term picture need to understand that COVID-19 has threatened to reduce the effectiveness of traditional loyalty schemes based on points and coupons.

The dwindling effectiveness of traditional loyalty schemes is shown by the increasing uptake in subscription services since COVID-19 started. A global study by tech company Bazaarvoice found that ⅕  of respondents had signed up to a subscription service during lockdown, with 83% of them keeping the subscription once lockdown had ended. Take Pret a Manger for example, whose business model was previously reliant on habitual loyalty by encouraging individual baristas to give a free coffee to a customer who makes them smile. Yet, with the acknowledgment that they can no longer rely on habitual loyalty to keep customers returning, Pret has just launched its first subscription model.

The psychology behind customer loyalty

Simply asking a customer ‘why do you prefer Asda to Sainsburys?’ will not yield a useful answer. A customer will likely respond ‘because Asda is cheaper.’ Whilst they aren’t intentionally lying; rather, they are unaware of the non-conscious associations that genuinely drive their loyalty to Asda. Because most traditional market research is based on self-report, brands and retailers don’t pay enough attention to the non-conscious underpinnings of loyalty. 

To create loyal customers it is essential to understand consumers’ psychological needs. Successful brands do not sell a product, they sell a goal. If consumers feel that this goal is being met by the product or service, they are more likely to demonstrate commitment to continued purchasing and shop with that retailer in the future, ultimately increasing customer retention rates and reducing churn rates. For some consumers that may be the need to belong, for others it may be control whilst some consumers will have the psychological need to experience novelty.

How can we help?

At InnovationBubble, we help brands to uncover the motivational forces and non-conscious associations that drive consumer behaviour. For instance, we helped a multinational investment bank who believed that customers do not inherently trust financial institutions and that they needed to gain the trust of their customers. We revealed that, whilst people consciously stated that they didn’t trust their bank, they actually unconsciously didn’t trust their own financial knowledge and had the psychological need to be reassured. Through training both customer facing and digital staff to support customers rather than demonstrating superiority of leadership, their market share grew by 17% and their customer churn was halved over 6 months. 

We also worked with a cruise line brand who wanted to understand customers’ drivers for repeat bookings. By segmenting customers on their fundamental human needs, there was a 12% increase in repeat bookings and an 8% uplift in first time cabin sales in the first 6 months. We also helped an airline brand who told us that their consumers wanted ‘entertainment’ on board. Yet, we found that this was a stated response learned from airline adverts which promoted excitement. In reality, consumers wanted to get to their destination with as little anxiety as possible, and actually looked to entertainment to distract them from this stress and anxiety. We found that repeat purchases are driven by the airline enabling the customer to fly without anxiety and stress and resolving their customers’ hassles along the way. In finding this, we helped them to achieve their most impactful advertising campaign in the brand’s history.

This demonstrates that loyalty, specifically customer retention and churn reduction, is driven more by a consumer’s feeling that their psychological needs are being met than pragmatics. Ultimately, brands and retailers need to understand what customers genuinely value beyond price and promotions as they adapt to a post COVID world. If you want help understanding what your customers genuinely value to increase customer retention and create loyal customers, then do reach out to me at [email protected]

References:

  1. Kohli, S., Timelin, B., Fabius, V., & Veranen, S. M. (2020). How COVID-19 is changing consumer behavior–now and forever.
  2. Charm, T., Coggins, B., Robinson, K., & Wilkie, J. (2020). The great consumer shift: Ten charts that show how US shopping behavior is changing. McKinsey & Company. August, 4.
Author: Innovationbubble