As the impacts of the pandemic, the cost-of-living surge, and the war in Ukraine continue, consumers worldwide are under pressure to become more cautious about their spending, causing a loyalty gold rush in the world of retail.
Faced with a new era of conscious consumption, retailers are shifting the focus from customer acquisition to retention, and putting sophisticated, personalized loyalty programs at the heart of their customer journey.
But many are realizing that true loyalty doesn’t just stem from programmatic rewards; it requires effortless and consistent customer experience (CX), true personalization, creative subscription models, and the effective utilization of first-party data to better understand and meet customer needs. Plus, by engaging customers during their non-purchasing periods, retailers can remain top-of-mind, ready to meet their needs when they’re ready to buy again.
There is no one-size-fits-all solution, as different sub sectors within retail have unique challenges in fostering loyalty. Still, several key factors play a critical role in reshaping the customer loyalty landscape for retailers and providing fertile ground for innovation.
In this artice of our ‘Reshaping Retail’ series, we examine some of these solutions and discuss how retailers can close the customer journey execution gap between what customers expect versus what brands deliver by building and maintaining loyal customer relationships.
The Imperative For Effortless Customer Journeys
While the concept of an effortless customer journey isn’t new, it’s more crucial than ever in driving customer loyalty.
Having experienced services like Amazon that deliver instant gratification, customers expect swift, seamless online and in-store interactions from all businesses, making them a fundamental requirement for every retailer.
The need for convenience is understandable, given our fast-paced lifestyles. Customers no longer have the patience or the time to navigate complicated returns procedures or endure lengthy wait times looking for support. Businesses that eliminate these types of hurdles from the customer journey can drive loyalty to new heights.
To accomplish this, retailers should focus on weeding out friction at every stage of the customer journey, from browsing products to checkout and delivery to after-sales service. The sum of transforming and improving these parts is one way to determine whether a customer chooses to stay loyal to your brand or seek out your competition.
Redefining Loyalty Schemes: From Transactional to Personal
Traditional loyalty schemes, characterized by minimal cost savings or points accumulation, have lost their sheen in customers’ eyes, who now seek innovative, personalized programs that offer substantial value.
Let’s consider an example from the fashion sector. Several of these retailers sell similar products at the same prices and offer the same delivery timelines and return processes, yet can lack any substantial loyalty schemes. As a result, consumers drift from one retailer to another, with no brand allegiance or reason to stick around.
What if we changed this narrative? Suppose a retailer recognizes that a customer consistently chooses a particular brand. A truly innovative and personalized loyalty scheme would involve giving that customer early access to new products from their favorite brand or significant discounts if their spending reaches a certain threshold. This degree of personalization is an example of what customers seek in their loyalty programs, as it recognizes their individual preferences and rewards them accordingly.
However, transitioning from generic to personalized loyalty programs is no easy task. It requires substantial technology investment and business risk. Many retailers know what they need to do but grapple with finding the funds (or projecting the future value) to implement these changes, even though the future of loyalty schemes undoubtedly leans towards this personalized approach.
Retailers must confront this reality and adapt their loyalty schemes to foster long-term customer loyalty.
Building Relationships With True Personalization
The buzzword ‘personalization’ has long echoed through the retail industry but is often misunderstood. True personalization doesn’t merely involve using algorithms to track a customer’s purchase habits—that’s sales-focused marketing, not personalization.
From a loyalty perspective, let’s delve into what true personalization could look like. Consider the scenario where a customer hasn’t bought a particular brand for a few months, but their purchase history indicates a preference for that brand. A savvy retailer can harness this data to curate personalized communications, fostering a relationship that might eventually entice the customer back.
It’s all about timing and content. Personalized communications should be appropriately timed, educational, and engaging, not overt sales campaigns. For instance, keeping the customer informed about the brand’s latest updates or industry trends, rather than bombarding them with sales pitches, can cultivate a positive, lasting relationship. Remember that each customer is unique; brands should tailor this approach accordingly.
When it comes to personalization, the risk is high. Companies need to ensure that the significant costs associated with personalization lead to a tangible uplift in sales and profit. Without this, personalization becomes a costly branding effort rather than a profitable strategy.
The million-dollar question is, “What minimum level of personalization can retailers afford, and how can they measure its value over time?” Unfortunately, there’s no simple answer. Retailers must grapple with the spectrum of personalization, from high-cost but potentially high-reward strategies to cost-effective but less impactful methods.
Moving past sales-focused algorithms and embracing true personalization will involve understanding the individual customer, their preferences, and their behaviors, then building a relationship based on that understanding. It’s neither easy nor cheap, but the payback from increased customer loyalty and brand differentiation will be worth it.
Sustainable Returns: The New Retail Battleground
Returns have always been a necessary but cumbersome aspect of running a retail business, but they’re now also a significant factor in fostering repeat business.
Still, the solution to the returns problem isn’t simple. Should the company charge for returns? How can we design an uncomplicated returns journey for the customer? Are our current returns processes sustainable and transparent? The answers to these questions can make or break a consumer’s decision to stick with your brand, so the stakes are high.
Sustainability, in particular, is of pressing concern. While offering free and straightforward returns may increase customer satisfaction, the potential for waste or system exploitation looms large. And, in a world increasingly defined by environmental, social, and governance (ESG) concerns, striking a balance is critical. For the conscious consumer who prioritizes sustainability, the various steps in the return journey might be more important than the price point or ease of the transaction. However, the standard consumer, perhaps less engaged in ESG activism, may prioritize convenience and cost.
This puzzle presents an opportunity for retailers to consider a multi-faceted approach, combining elements like pre-paid delivery labels with eco-friendly packaging, educating customers on the environmental impact of returns, using technology for accurate sizing, and maintaining clear, transparent return policies. Strategies like these can collectively address customer satisfaction, cost-effectiveness, and sustainability, creating a winning formula for everyone.
Final Thoughts: Long Live Customer Loyalty
Contrary to some industry beliefs, loyalty in retail isn’t dead. It’s just become harder to cultivate.
But for those brands that can ignite customer loyalty, they will have a distinct advantage over their competitors. The key lies in balancing the cost and complexity of personalization, loyalty schemes, and returns policies against their potential to drive loyalty and profit.
As the retail landscape becomes increasingly competitive and the digital retail sector continues to grow, the challenge of fostering customer loyalty will only amplify as time goes on. Only the brands that can deliver excellent customer service, competitive pricing, and a seamless journey while making the customer feel valued and unique will come out on top.
Look out for next week’s topic where we will dig a bit more into sustainable returns and how its a double-edged sword for retailers balancing expectations vs. responsibility.
