Stick or Twist?
How consumer loyalty can seem a game of chance
While many companies reward consumer loyalty, in a host of consumer industries—from banking to broadband to insurance—customers who don’t regularly switch to new accounts, tariffs, options or policies end up worse off. Regulators argue that switching is the answer to improving competition, but there is a growing backlash against a system which rewards a few, motivated customers. This can be seen as a market failure similar to the 'free-rider problem' in economics.
In essence, the cheaper deals available to some are paid for by the majority of loyal customers who are penalized for not being willing or able to switch. When we consider that shoppers loyal to a big brand supermarket, coffee shop, restaurant, clothing outlet or even fast food chain often receive special offers, perks or discounts, the essential service markets seem to be missing a trick.
With this, according to research by Forrester, new customers can cost five times more to convert than existing customers… and isn’t competing on price just a race to the bottom, anyway? It simply means companies with little customer loyalty are forced into a game of deeper and deeper discounts to attract new customers into their pool.
And when the pool runs dry, the debt collectors dive in.
Consumer loyalty: Deal or no deal!?
In fact, according to Citizens Advice (which provides free, confidential and independent advice across 316 charities in the UK) consumers in Great Britain potentially face an average “loyalty penalty” of up to £987 a year across essential service industries, like energy and financial services.
The Consumer Holds all the Aces
The impact of disruption on consumer loyalty
As discussed in the first post of the series, regarding brand awareness, brand-flirting and consumer temptation, ignoring the shopper is a dangerous move. The modern, empowered customer, enabled by disruptive technologies, has sent brands scattering to find new strategies and business models to tighten consumer value and extend loyalty.
Consumers hold the winning hand, and they’ve been able to cash in the value chain to their benefit, with demands and expectations far exceeding any other point in history. Digitalization is the catalyst for new levels of evaluation, discovery, purchase, and use of products and services. And consumers are now innovators, marketers, and even employees—with turbocharged expectations and ever-increasing control.
The impact of disruptive change is rocking business scenarios
Meanwhile, disruptive technologies (like robotics, Robotic Process Automation (RPA), and artificial intelligence) are breaking the norm across business performance, enabling companies to offer once impossible services, such as 24-hour warehousing and futuristic drone delivery services.
Together, these tech forces have sparked an explosion of customer-centric start-ups, whose new business models, such as on-demand, subscription, and sharing, are redefining the nature of consumption and consumer loyalty through positive and encouraging solutions.
The Millennial Poker Face
Staying ahead with modern consumer loyalty strategies
Thriving in this new environment will require companies to take strategic decisions based upon business and operating models. To create value they will also need to outline and target customers and markets, products and services, revenue models, and channels, in a new way.
Virtually no function within consumer industries will remain untouched as the empowered customer continues to transform the nature of brand loyalty. Employees and leaders alike will need to operate very differently through the integration of roles, processes, and technology. It will take ever increasing effort to maintain and grow the customer base.
Consumer experiences will not only bring together traditional value-chain partners, but create alliances with entities from outside the industry and with consumers themselves; a trend we examine in more detail in our recent blog post Children of the Revolution: Supply Chain Ecosystems.
The King of Diamonds
Consumer loyalty programs: Bye-bye local stores and hello the internet
85% of shoppers now start their search on Google, instead of at physical locations. Simplicity is the new selling, but with this focus on immediate gratification comes the need to exceed customer expectation. You can flaunt all the diamonds you want—best deals, biggest range, and cheapest financing—but without the ‘heart card’ up your sleeve—consumer support, empathy, and empowerment—customers will leave the game.
Customer loyalty programs are proven methods for growing and sustaining market share, even as many retailers now find themselves in a low-growth spiral. Indeed, consumers who are already enthusiastic about a brand are more likely to continue buying and form a prime market for that brand’s new products. Loyal customers are big game for marketing strategies over the long-term.
But investments in loyalty programs are not cheap and can reach as much as five per cent of sales. So to be worth the money, the programs need to connect with the right customers and be built with the proper discipline around a robust financial process and model.
Process management and customer loyalty programs
As discussed in part one of this series, the world’s most advanced companies like Amazon and Apple integrate and align process technology within their operational structure. In several cases, they created the internal technology and business strategies themselves.
With this, successful companies today are embracing a new way of thinking about business process management (BPM)—one that combines the necessary business processes to drive successful campaigns while also focusing on true customer engagement. This new vision and definition of BPM puts customers first, communicating with them when, where, and how they specify. The result? Raising the bar in customer satisfaction, customer retention, and the customer experience.
An active, more personalized process management initiative, coupled with tight customer journey mapping, helps us to:
- Stand out from the crowd: A good loyalty program can benefit from customer journey mapping to look beyond traditional process methodology and case models.
- Take the right approach to process mining: Companies can dissect and leverage their own data to introduce new benefits that excite customers, at a reasonable cost.
- Create flexible process models: Models which can be edited and adapted quickly allow for more creativity in coming up with funding and loyalty benefits.
The Queen of Hearts
The importance of maintaining and rewarding consumer loyalty
Being a consumer is not a job, and shouldn’t require a research doctorate. But the best deals are hard to find, and customer choice can be inhibited by pricing structures which are opaque and complicated. Even within established competitive markets, like banking and mortgages, firms sometimes lack the incentive to develop innovative new products and improve customer service.
After all, the British are more likely to get divorced than to change bank account—so is it all that astonishing that companies work blind loyalty into their pricing models?
In contrast, a well-functioning market empowers choice and participation, which drives down prices and fuels innovation and efficiency. This means both consumers and the broader economy benefit from the lockstep of innovation and profits.
To earn this informed consumer loyalty, dedication, and even affection, organizations must continuously work on the relationship. A patronizing, “Yes, dear” is unlikely to succeed, so we must find a better way to deliver our message. Being customer-centric is one tactic; empowering growth is another. Nobody wants to be in a relationship where we are taken for granted.
Organizations of all shapes and sizes must listen, learn, and develop. Only then can you lay down the winning ‘consumer royal flush’: Being loyal to them.