In the humble beginnings of loyalty in the late 18th century customers earned copper coins with purchases which could then be exchanged for products in the future. The intervening years replaced copper coins with stamps, but the purpose was simple, and remains to this day: customer retention.
Fast forward 200 years and you find that loyalty programmes are not only focused on retention but also on acting as a mechanism to increase customer spend and capture the new oil…data. To enable this, organisations have provided customers with cards to allow for identification in order to build up an understanding of shoppers. Companies like American Airlines, Tesco and Nando’s have been using their loyalty programmes successfully for a long time to capture and analyse customer data to provide insights on how to improve the customer offer – from product range to promotions.
We are now seeing the role of loyalty is taking another step in its evolution. Capgemini Consulting’s recent paper Fixing the Cracks outlines that to reinvent loyalty programmes for the digital age there is a need to focus on customer engagement.
There is, however, an important difference between engagement and loyalty:
- Customer Engagement is the sum total of specific, actual behaviours that can be measured in the immediate term
- Customer Loyalty is an outcome and measured by the quantum of repurchase over the longer term
Engagement manifests itself in many different behaviours, including: social media mentions and shares, referrals, feedback, event attendance and email open and click-through rates. Engagement’s importance has already been recognised, as shown in a study by Creative Virtual, where a large number of respondents from the US (52%) and EMEA (35%) identified Engagement as a key customer experience challenge.
There are numerous benefits for engaging with customers, but I see the top ones as:
- Improve Financial Performance: PeopleMetrics found that companies who focus on customer engagement realise a 13% revenue reward and a 8% higher return on investment as compared to the industry benchmark. Capgemini’s research also found that ‘fully engaged’ customers deliver a 23% premium over the average customer in share of wallet, profitability and revenue
- Understand Customer Needs and Wants: The explosion of social media has resulted in a mindset shift, with customers no longer passive buyers of products and services, but demanding their voice is heard by the brands they interact with. Customers want to engage with brands. Research has found that customers are using social media to provide both positive (39%) and negative (12%) feedback to brands
- Brand Affinity and Advocacy: Customers who are more engaged with a brand through social media sharing and attending events become more emotionally attached. This brand affinity increases retention and can be leveraged to create advocacy which can drive to increased number of referrals and eventually new customers
- Measurement of Loyalty: Engagement is an observable and measurable behaviour, which is a leading indicator for customer loyalty and financial performance. By tracking customer engagement you can better understand how loyal your customers really are
Best in Class
With only 25% of loyalty programmes rewarding customers for some form of engagement, there is definitely an opportunity for businesses to build a reward mechanism which drives desired engagement behaviours.
Members-only online shop Gilt reward customers for both transactions and interactions. Members score Insider Points when transacting, referring friends, or just visiting a sale on Gilt.com. Earning points advances you to higher tiers and unlocks added perks like waitlist priority and a dedicated customer service line. Insider Points can be redeemed on accessing sales of their favourite brands early, free shipping or to attend exclusive events.
With research finding that 77% of loyalty programmes which only focus on rewarding transactions fail within 2 years, there is a need for loyalty to evolve. As Darwin says “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change”.