Using Unbiased Metrics to Measure Loyalty

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The Holy Grail for any brand or retailer is customer loyalty. In the Arthurian legend, search for the mythical grail promises its finder divinity – even immortality. Customer loyalty as retail grail is magic for a company. It extends the lifetime value of the customer, builds a steady stream of repeat purchases and can turn the customer into a brand evangelist who spreads the word. But just like the mythical grail, loyalty is hard to find – it exists in the hearts and minds of its beholders.

Identifying the Ephemeral

Because loyalty is so powerful yet so enigmatic, executives turn to all kinds of utilitarian metrics to ensure that they have found it. For some companies, it is the number of members in its brand’s loyalty program. For others, it is tracking social engagement or return/repeat customers. Every company measures it differently and with bias. Not unexpectedly, the chosen metric shines the best light on the company’s or, more accurately, the executive-in-charge’s performance. But the real issue here is the need to understand the behavior before you can measure it.

[callout]Customer loyalty is a miracle maker for a company. It extends the lifetime value of the customer, builds a steady stream of repeat purchases and can turn the customer into a brand evangelist who spreads the word.[/callout]

Emarsys, an SAP company that specializes in personalized consumer communications across digital and physical channels, set out to study customer loyalty from the consumers’ perspective, rather than the company’s to better align corporate loyalty objectives, strategies and tactics. Based on a survey among 7,000 consumers across the U.S., U.K., France, Germany and Australia, the Customer Loyalty Index identified five distinct types of loyalty customers feel for brands.

Change the Lens

A single customer may exhibit different levels of loyalty to different brands. Likewise, they may exhibit different types of loyalty at different times to a specific brand. But the goal of any brand loyalty program is to move them along stepwise from being less loyal to exhibit true customer loyalty.

“There is a certain progressive, phased approach that brands can build into their loyalty systems,” says Payal Hindocha, Emersys’ director of customer engagement solutions. “It should take customers through various stages of loyalty to build up that lifetime value of the customer, from being a first-time buyer, a repeat customer to become truly loyal. Success is all about delivering value to the customer at each engagement. Otherwise, the customer can drop out.”

Hindocha argues that brands are too focused on new customer acquisition and pay too scant attention to loyalty’s more profitable back end. “It’s not about only rewarding a customer for one transaction or every time they make a transaction. It’s about how you close the gap in between transactions and give that customer an experience every time that ultimately creates loyalty,” she continues.

Customer Loyalty: Five Mindsets

Over two-thirds of the consumers surveyed consider themselves loyal to one or more brands. Here are the five different types of customer loyalty uncovered in the research:

  1. Incentivized Loyalty
    This is the most ubiquitous type of loyalty and least impactful from the brand’s point of view. It is based upon giving customers discounts, incentives and rewards for each transaction. Customers often join a loyalty program in order to gain access to those rewards, but those perks may not generate repeat purchases.

And even more problematic, the type of customer who is motivated primarily by discounts and incentives is not necessarily the best prospect for long-term loyalty. They are often quick to switch up if a cheaper option is available from a competing brand, with 58 percent of customers saying they’ve done it. And 45 percent admit they only remain loyal to such incentivized loyalty programs for the regular discounts, points, prices or rewards offered.

Brands have tried to elevate incentivized loyalty programs with special VIP levels based upon the number of transactions, like the Sephora and or Nordstrom Nordy programs. However, the Emarsys survey found 53 percent of customers will shop indiscriminately depending upon their circumstances. So while Sephora hopes their VIB ($350 annual spend) or Rouge ($1,000 annual spend) customers will come back to them first, that may not be the case if Ulta, Amazon or the sought-after brand itself makes a better offer.

Likewise, some brands are following Amazon’s lead to a paid loyalty program. Amazon Prime now boasts 150 million members. Walmart just got on the paid loyalty bandwagon with its Walmart+ program and joins retailers like CVS, GameStop, Wayfair, Barnes & Noble, Restoration Hardware, and Lululemon taking this approach. But Walmart+ has signed up fewer than 10 million customers at $98 per year in the year since it started.

While paid programs can be effective – McKinsey reports 60 percent of paid members are likely to spend more on the brand after subscribing, while free loyalty programs only increase that likelihood by 30 percent – the brand has to justify its value on a yearly basis to keep members in. Further, customers have to be assured they will get full recovery plus more for their annual loyalty fee.

Amazon Prime packs a wallop in its program, not the least of which is entertainment, whereas these other paid programs offer, in essence, what they should be giving to their other loyal customers, quick service and if not free shipping, then reasonable delivery charges and various discounts.

  1. Inherited Loyalty
    This is loyalty borrowed from one brand and conferred on another. So, for example, a customer will shop at a department or specialty store specifically because it sells the brands they want. Over one-fourth of customers consider themselves more loyal to specific brands than the retailers that carry them. The goal, of course, is to achieve brand loyalty for both brands, but that is often not the case.

Inherited brand loyalty is what so many companies are chasing through brand collaborations (Louis Vuitton x Supreme, Target and Lily Pulitzer) and its latest iteration, retailer and retailer partnerships. Macy’s and Toys R Us, Target with Disney, Ulta and Apple shops-in-shop, Sephora in Kohl’s and DSW in Hy-Vee are some recent examples.

In such brand collaborations and partnerships, it is hard to discern which brand is attracting the customer. That is where data insights are so critical. Each partnering company needs to understand where customers’ loyalty lies and personalize content and marketing communications to help transfer the customer loyalty from one brand to the other.

Only 23 percent of customers say they are loyal to a particular retailer because of their long-standing and trusted heritage. So just bringing in Toys R Us to a Macy’s or Disney into Target isn’t necessarily going to move the needle to build greater loyalty to Macy’s or Target.

  1. Silent Loyalty
    This is customer loyalty where the customer demonstrates some measure of loyalty to a brand but isn’t willing to talk about it. Their reticence is often because they feel little excitement for the brand or even worse, they feel embarrassment or shame about patronizing the brand.

Some 24 percent of customers say they would never share that they purchase a specific brand or patronize a specifc business. For example, a customer might shop at a grocery store because it is close, offers reasonable prices and they know where the products they want are located, but they are not likely to recommend that store to a new neighbor moving in next door. What a difference compared to Wegman shoppers who shout loudly about their love of the brand.

Even more troubling, some 15 percent report they buy from a brand or business that they are actually ashamed of. Starbucks might be such a brand since it goes against the “shop local” movement.

And with the growing call to boycott various brands, who wants to admit to being a “scab” that crosses the strike line? As the culture turns more contentious, we have witnessed numerous brands called out for standing on one side or the other of the cultural divide. A brand needs to be very careful about putting themselves in the political crosshairs with the result they may alienate one-half of their customer base. They should steer a more neutral path rather than taking sides on politically charged issues.

What’s most interesting is that younger consumers were found to exhibit more silent loyalty than older customers, something one wouldn’t expect given younger consumers’ propensity for social media engagement.

The question for brands is whether it is important to get customers to endorse the brand. Most would say it is pretty important since customers make the best, most authentic influencers, the $14 billion paid influencer market notwithstanding. In the Emarsys survey, recommendations from friends and good customer reviews are ranked number two (29 percent) and number three (27 percent) after frequent offers (30 percent) in inspiring customer loyalty. Celebrity endorsements, by contrast, are the least impactful at 6 percent.

Turning a silent loyal customer into a vocal one hinges on nurturing more positive emotional engagement with customers by consistently doing something remarkable for them.

  1. Ethical Loyalty
    The new darling in corporate circles to drive customer loyalty is to stand for ethical, social responsibility (ESR) and other brand purpose goals. This may serve a feel-good purpose for companies, but it doesn’t necessarily drive loyalty, according to the Emarsys survey.

Some 27 percent of customers say they regularly buy from companies where they disagree with the brand’s ethics. For example, a strong advocate of the “shop local, buy local” movement may get their coffee from Starbucks if it is more convenient or they just like Starbucks’ coffee better. Or a person who opposes the traditional values of a Chick Fil A may still be loyal to its chicken sandwiches.

On the other hand, only 23 percent are loyal to brands for ethical, values-driven reasons. The research did uncover one category where values have a greater impact on loyalty: beauty and cosmetics. Other than that, ethical positioning plays a very limited role in building customer loyalty at scale.

For some individual brands, ethics and purpose may be an all-in proposition. Patagonia, for instance, has fostered fierce consumer loyalty due to its ethics stance. On the other hand, people aren’t going to necessarily buy a Canada Goose jacket because they no longer use animal fur. Such a stance might put CG into a certain individual’s consideration set, but it isn’t going to be the primary reason why they would buy.

While taking a stand on values can have a positive impact on attracting the attention of new customers or activating older ones, it still doesn’t outweigh the more practical considerations that result in customer loyalty. Ethics have an important role to play today but they often play a supporting, rather than a leading role in brand loyalty.

For brands that already have a built-in following based upon ethical considerations, Emarsys recommends offering a monthly subscription package of hand-selected products that align with those customers’ values. Such a subscription model can build greater loyalty and repeat purchases for their values-led consumers.

  1. True Loyalty
    True loyalty is the gold standard – the Holy Grail – when it comes to customer brand loyalty. Some two-thirds of customers surveyed report having a brand that they truly love and trust. But those brands are few and far between.

Brands that aim to instill true loyalty have to keep vigilant to build customers’ trust and never waiver from that goal. One bad experience may not erode true loyalty, but even when true loyalty is earned, continued loyalty is not guaranteed. For example, only 20 percent of the truly loyal customers say they would not switch, no matter what. But that leaves four out of five customers willing to trade out for another brand.

This is where understanding why customers love your brand is critical. Is it the quality of products, consistency of service, values the brand stands for or is it as simple as rewards from accumulated points? The brands that build true customer loyalty are those that truly know each customer, consistently serve them as they would like to be served and that are always there for them.

“Personalization is the thread which covers every type of loyalty,” Hindocha says, but it is even more important for keeping and nurturing true brand loyalty. “The deeper the customer relationship – the more insight you have – the better chance your company has of driving true customer loyalty.”

Time to Reboot Loyalty Programs

The pandemic disrupted the traditional relationship customers has had with brands. With stores closed, products in short supply and many new customers forced to the unfamiliar territory of internet shopping, one in five customers say that Covid made them less selective when it comes to brands. This has given brands pause to consider the structure of their brand loyalty programs and think about how to build it in the post-pandemic shopping world.

“Whether shopping online, in-store, via a mobile app or calling a service center, consumers need to feel that they are valued beyond their transactions,” Hindocha stresses. “Rewarding customers means keeping them engaged between purchases by knowing who they are, understanding their attributes and ensuring that the channels brands use to connect with customers are consistent and personalized.”

The Grail?

Just like finding the mythical Holy Grail involves a quest where the knight undergoes tests to prove he is worthy, brands must quest to achieve the “holy grail” of true customer brands loyalty. A brand can’t incentivize loyalty program members enough to achieve it. Nor can they turn silently loyal customers vocal advocates without brands doing more to activate true loyalty.

Brands need to understand each customer and what has brought her or him to the door and return individually. Then build into their loyalty programs strategies to move them up the loyalty value chain from a lower level of loyalty to the highest of true loyalty.

True customer loyalty is found on a customer-by-customer basis. “By treating each customer differently, you can provide them with the emotional element of being valued as an individual,”Hindocha concludes. “It takes more, much more, than simply having a loyalty program to drive true customer loyalty. Loyalty is everything you do to, for and with your customer. Brands that understand this build lifetime value of a customer beyond just rewarding them for their last transaction.”



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