Rethink your pyramid - and win the loyalty game

There is a lot of noise around the importance of “customer loyalty.” But the concept is highly context dependent and means different things to different people. For many, it means trying to engage  customers in a retail loyalty programme. If you asked those people what that looks like, they’d probably draw something like this:

You have a base layer customer experience for your product or service with a loyalty programme sitting on top of it. Not all your customers will join, but the ones who do will spend more. In fact, figures from Loyalty Lion, the ecommerce customer loyalty and engagement platform, show members of loyalty programmes spend up to 40% more than non-members each year.

We think about loyalty programmes a bit differently, so that they look something like this:

Know your value

If you want to generate customer loyalty, you have to get your value exchange right. What are you offering to your customers and what do they have to do and/or pay in exchange for access? This needs to be based on customer intents, goals and needs – typically identified by customer research and feedback. 

Value exchange tops our inverted pyramid because it’s the first thing a potential customer reacts to. Consumers are savvy and size up a pitch quickly. According to Missouri University of Science and Technology, they spend an average of just 5.59 seconds reading webpage content 

You can’t get repeat customers if they don’t choose to engage with you in the first place.

Give a great experience

The next layer is your end-to-end customer experience. This is made up of a number of touch points, including your marketing, customer relations marketing communications, content, browsing, buying, use and service experience.

As user experience experts Don Norman and Jakob Nielsen put it: “User experience encompasses all aspects of the end-user's interaction with the company, its services, and its products.” 

Customers will evaluate your brand on the sum of all their interactions. Was it easy? Was it effective? Was it enjoyable? If you get this right you’ll earn repeat business. There are some brands that don’t have a loyalty programme per se, but can boast very high rates of retention and advocacy based on customer experience alone. 

Patagonia is a notable example of building loyalty through purpose. The brand has a passionate and loyal customer base who buy into the company’s environmental mission. This includes encouraging customers not to buy clothes they don’t need, as well as touring its Worn Wear Wagon around the U.S.

Build a special relationship

Now let’s look at loyalty programmes where customers opt-in to a special degree of relationship with your brand. They are an excellent way to increase customer spending and strengthen relationships with your best customers. 

The starting point for any loyalty programme is to understand your customers’ loyalty drivers; what quality of experience will they actively maintain despite alternative options? They could be driven by a sense of community, by shared beliefs and values, or an expected level of service. 

A McKinsey study found 61% of customers across all generations want brands to take action on societal issues, increasing to 76% for millennials and Gen Z customers. Define programmes around these drivers and you’ll typically see an increase in transaction frequency and value.

Loyalty programmes open a direct channel with your customers, enabling you to learn more about them and understand their hopes and dreams for your product or service. Customers are fiercely protective of their data: as the Pew Research Center notes, 93% of Americans consider it important to have control over who can access their personal information. 

So brands need to be transparent about what data they ask for, why they want it, and how they’ll use it. A loyalty programme is an excellent space to provide tangible value for the data that customers share with you.

None of this is one-way

Looking at all three layers of loyalty, the hierarchy we like to use is this, below - and we arrange it in this order (and shape) because each layer should be a refinement of the preceding one. A loyalty programme should enhance the customer experience of your brand, distilling the key aspects of both the value exchange and experience. But the impact is not unidirectional. 

So then, a loyalty programme can be an excellent source of both first- and zero-party data post-app tracking transparency (ATT) and other data privacy regulations. That data is a rich source of insight into what your customers value and want from your brand. Loyalty programmes are perfectly placed to facilitate pilots of new service offerings and ways of engagement with your customers. 

Successful pilots can then expand and scale into the customer experience layer, and, in some cases, expand the nature of your value exchange, the launch of a new product line, or adjacent service model. 

Ultimately, it is the consideration of loyalty across all layers, and taking a customer-centric, data-informed approach that will deliver for both brands and their customers.

Samantha Mansfield, Head of Strategy Experience & Commerce, Merkle