Retail Stars Blog Series - Loyalty

In today’s digital era, customers aren’t really brand loyal and will happily switch to a lower cost, especially with the level of promotional activity occurring within the retail sector. However, price alone is unlikely to drive brand loyalty as other brands will always look to undercut and thus drive consumers to buy from the brand with the cheapest price as opposed to the specific brand. So why do customers continue to shop at the likes of John Lewis when they could buy the same product online at a cheaper price?

In this blog, I will focus around two key themes; brand loyalty and loyalty schemes.

Brand Loyalty

Brand loyalty occurs when consumers “trust” the brand. Retailers are looking to promote customer lifetime value to drive a loyal breed of customers and provide a range that delivers year after year across the ages.

John Lewis is a great example of this, their original principles were  ‘Value, Assortment, Service and Honesty” and their current values are “Value, Integrity and Vision” which aligns to their motto, “never knowingly undersold”. When consumers shop at John Lewis, they expect high quality products and excellent customer service and this is exactly what they receive. So despite challenging times, with a reported 99% decrease in profits, John Lewis continue to stay true to their values, by investing in partner training in order to drive improved customer service. On top of this they throw in a free coffee and a newspaper for Waitrose and Partners members to encourage you to come in and while you’re there you’ll likely pick up your milk and orange juice at the same time. 

I think another great retail star for loyalty is Apple. I wonder how many of you who have an Apple device, would easily switch brands when it comes to phones, laptops and other electronics? Apple’s loyalty is driven from how it has created an emotive and personal message with its customers. Take the mission statement, “To bring the best user experience to its customers through its innovative hardware, software, and services” - which clearly puts the user experience first. In most cases, I don’t think that Apple has the best technology out there and other brands may even have the ability to create far more advanced devices and even just as easy to use. However, by putting the consumer first they’ve become known as the trusted brand for making complex technology easy to use for everyone. 

Loyalty Schemes

Loyalty schemes not only give the consumer a sense of belonging, they also can be used to gamify how consumers shop or drive a personalised experience to drive consumers to buy more. 

By providing a data source for the retailer through loyalty schemes, retailers can understand their consumers’ shopping behaviour, make ranging and pricing decisions but also support a more personalised experience. However, loyalty schemes are now changing and I believe that retailers who use the schemes purely for data with the odd discount (which everyone receives) are falling behind. The best are going beyond the points schemes and using loyalty as a differentiator -  focusing on the experience side of loyalty. A few great examples of this I want to talk about are Starbucks, Sephora and Amazon.

Let’s start with Starbucks, known for their ethical standards to drive consumer trust; promoted through their green colour scheme, the signs in store and even to the facts on their cups. With increased awareness on social responsibility, we are seeing more and more consumers spend more if they believe in the company values. On top of this, Starbucks drives an omnichannel experience from in store to the app, whereby consumers can bypass queuing and tills and pick up their order in-store. Now you might think… well I’ve actually seen that in quite a few coffee shops now - but Starbucks go one step further. They have started using social categorisation through their rewards scheme whereby when you receive a number of points, you can enter different levels of loyalty and more offers are provided to you. Through the collation of data and the use of machine learning and AI, they have also set the bar for personalisation, through understanding what the consumer drinks they can understand their flavour profile and then suggest new products they may like - sounds a little scary if you ask me! 

Did you know Sephora have 25 million loyal members which drive 80% of annual sales, a result many retailers can only dream of. How do they do this you may ask? Customers earn rewards for each purchase which they can then choose how they use, these might be gift cards or discounts. Sephora don’t drive sales by promoting discounts to gain new customers but by promoting loyalty which as a result may deliver a discount. Whilst Sephora’s initial price point may seem high, by using a loyalty scheme that results in reduced pricing they have made products accessible to more consumers, who may have ordinarily turned away, and without devaluing their products. On top of this, loyal members can also attend on-site events and classes and even get a free gift on their birthday! 

Did you know that ? of households in the UK have an Amazon Prime membership? Of which, a Prime customer will spend four times more than a non-prime customers on average and 37% of prime members use ‘Prime day’ - a 36 hour shopping holiday for prime users only. For ￡79 a year, you get free two day shipping, a prime streaming service, photo storage and prime day sales and a gut-wrenching feeling of the need to shop again and again to make it worth your while. 

So what can retailers learn from this?

A lot of retailers have used loyalty schemes as a one sided view to gain data on the customer in order to help then plan their range and pricing but with impersonal and limited promotions to encourage customers to shop with them. Consumers may sign up to the scheme, get a card and then realise that it doesn’t drive much value (with some points schemes giving no benefit) and leaving the card at home or in the bin. I believe that retailers need to step up their game and put the customers first, consumers don’t just buy products anymore, they buy service, experience and convenience, of which this means something different to every consumer. 

How can retailers put this into practice?

I think that retailers should start by putting the customer first and think about why the customer would shop with you and not with anyone else. Next, I think it’s important to then build a brand and/or loyalty scheme that builds upon what you offer over anyone else that has a two way benefit for you and the customer. By just being the cheapest, you’ll likely drive increased sales temporarily but it will land you in the realm of low margins and continuous cost cutting which is what we’re seeing in the market today.

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