Introduction
Loyalty marketing strategy is intriguing and has captivated the interest of researchers and marketers for multiple decades, evidenced by the slew of articles. Marketing professionals generally agree on the long-term benefits of loyalty marketing: sustainable growth, healthy profit margins, and positive community impact are among the benefits.
Unfortunately, not every company that designs and implements this strategy reaps the expected rewards. The limitations range from the necessity to overhaul organizational structures to subpar strategic insights. In spite of that, a thoughtful and well-crafted loyalty marketing strategy remains vital to making competition irrelevant. More so because social media platforms have empowered consumers to share their experiences with similar and potential consumers. In this article, I will explore the fundamental challenges that impede loyalty marketing and suggest some measures to enable its effectiveness.
The Essentials
One of the critical pillars of loyalty marketing is customer-centricity, which has its challenges. A Comarch research study describes loyalty marketing as a company's overarching strategy to foster deep connections with its existing customers. For these connections to blossom, a company must align its products and services with the needs and wants of its customers. Brands, especially ambitious ones, are mindful that the products and services they produce are to meet the demands of their customers. These brands often promise and strive to meet the demands before customers express them. Amazon, for instance, wants to be Earth's most customer-centric company and
has crafted four guiding principles, including customer obsession rather than competitor focus. The customer-first mindset has yielded substantial benefits to Amazon. Mike Grigsby (a marketing analytics professional) emphasized that loyalty should be approached primarily from the customers' point of view, obsessing over their experiences, wants, needs, and what's valuable to them. In so doing, a brand ignites the spark of emotional connections between customers and the brand. Loyalty marketing then plays the role of nurturing and strengthening the bonds. The stronger the bond, the stronger the relationship, and the more committed the consumers are to the brand. Hence, customer-centricity sets the stage for creating loyal customers and establishes the foundation for firms to grow and expand profit margins. It is a win-win. Customers get the products and services they want at a price that gives them value, and companies are rewarded with increased revenue and long-term growth.
Roadblocks
What then hinders companies from becoming customer-centric? According to Peter Fader (co-director of the Wharton Customer Analytics Initiative), customer-centricity requires a significant shift in organizational design. It also calls for major structural, strategic, and cultural changes. These are adjustments that only a few firms can embark on, despite the benefits. The double whammy of overhauling organizational structures and the inconsistent description of customer-centricity has pushed its adoption out of reach, even to firms willing to undertake the journey Marketers agree that the focus should be on the customer. Yet only a few have clearly defined customer-centricity and provided an implementation framework. For example, Peter Fader describes customer-centricity as "a strategy that aligns a company's development and delivery of its products and services with the current and future needs of a select set of customers in order to maximize their long-term financial value to the firm." Customer centricity is "the ability of people in an organization to understand customers' situations, perceptions, and expectations" (Gartner). The first definition emphasizes a select set of customers, in order words, the right customers. Dedicating disproportionate resources to understanding the right customers sounds logical but opens the door to varied interpretations. Savvy firms have no issues identifying the customers that matter to them and do it unbiasedly without excluding viable customers However, many companies gravitate marketing spending toward what they perceive as high-end users, high-value customers, or high-value purchasers, and to a lesser extent, on depreciating customers with the hope of maximizing long-term financial value As Mike Grigsby noted, this approach tends to reward the same behavior, thus having limited effects on growth, overall customer experience, and revenue expansion The second definition underlines the degree to which an organization can understand the nature, perceptions, and expectations of its customers. This is less elaborate than the first, which again creates room for multiple disparate interpretations. The point is that loyalty marketing depends on customer-centricity, which has inherent obstacles.
Despite the inherent roadblocks, customer-centricity remains a crucial differentiation strategy. It acknowledges the competitive landscape but focuses on customers, not competitors. It is especially relevant as the global expansion of digital life continues and the distance between brands and people continues to shrink. John Wittenbraker, Helen Zeitoun, and Susan Fournier explain that we are transitioning from an "experience economy" where brands succeed based on product features and the experiences they create, to a "relationship economy" where the emotional forces between brands and consumers are essential to long-term growth—further heightening the need for customer-centricity.
Clear Path with Positive Customer Behaviors
Perhaps not every company requires the same degree of adjustments to transition into a customer-first culture. Suppose a company desires to provide excellent customer experiences. In that case, it can start by listening to its customer and leveraging marketing analytics to glean transformative insights about consumer behavior and marketing efforts. Use the insights to inform marketing strategies, including loyalty marketing. The company must craft its definition of customer-centricity to align strategy and analytics. I believe the best option is to adopt Peter Fader's definition, then fine-tune the interpretation of the "right customers." In my opinion, the "right customers" are those who have experienced the products and services of a brand and exhibit positive behaviors toward the brand. This tweak is encompassing and cuts across all income levels and cultural groups. It allows firms to seek a broad spectrum of behaviors and incentivize customers not primarily based on how much they spend. Moreover, consumer behavior literature presents evidence of the relationship between positive customer experience and key brand health measures such as perception, familiarity, satisfaction, trust, and loyalty The following are a few supporting findings from research articles: (1) strong positive attitudes cause customers to resist competitive offers (2) A high-quality experience builds a positive brand image. (3) Loyal customers tend to stay loyal if their attitude toward a brand is positive. (4) Brands that make customers experience positive emotions will likely create long-term positive customer-brand relationships. These findings suggest that the "right customers" reciprocate their favorable experiences with positive behaviors toward preferred brands. In essence, these behaviors are customers' manifestations of loyalty and, in some instances, vary by industry. Some are trackable and measurable, while others are difficult to track and link the behaviors to the customers who exhibited them. Regardless, anchoring on positive customer behaviors and amplifying them creates a ripple effect. Let's move on as we are all aligned on the "right customers."
At this point, marketing analytics can get to work, but first, the company must identify the positive behaviors that matter and can be tracked, monitored, and encouraged. I will start with the obvious. (1) Purchase behaviors – include repeated purchases, purchase frequency, and purchase sequence. These are widely tracked, measured, and considered an element of loyalty. They form the fundamental building blocks of many loyalty programs (a tactical tool to support loyalty marketing), particularly point-based systems. They have the potential to improve short-term financial performance. Several important marketing metrics like retention, churn, RFM, and customer lifetime value are derived from purchase behaviors. These metrics might have sufficed in the past to power marketing incentives and rewards, but not in today's digitally connected world.
The concern is that many companies only incentivize purchase behaviors, which according to M. Grigsby, reward the same behavior. On top of that, continuously re-engaging consumers with the same type of incentive tends to diminish purchase behaviors. As Conor Henderson, J. Beck, and R. Palmatier noted, loyalty programs that purely rely on purchase behaviors do not account for the psychological processes intertwined with customer actions. Thus, ignoring that repetitive purchases also arise from situational constraints like a lack of alternatives. In addition, loyalty programs favorably reward mid to higher-income consumers. They pay little attention to lower-income consumers who could be more emotionally connected to the brand and invest more time recommending the brand to friends and family than their higher-income counterparts. Anyone involved in audience management and marketing performance evaluation would agree that top decile customers (from marketing models), in terms of purchases, early technology adoption, etc., are usually mid to higher-income groups, with the highest earners at the very top. It appears one could eliminate many models that generate customer lists and simply sort customers by income. Of course, I am not advocating for the elimination of the models. I am advocating that brands should incorporate other positive behaviors to avoid these programs being bound to have short-lived effects and the need to invest continuously in revamping them.
This brings me to a subset of purchase behaviors, often overlooked but essential for brands to track, recognize, and appreciate. These are (2) incremental or new behaviors, including cross-buying, upgrading to premium products, and subscription renewals.
Many firms understand the value of cross-selling and deliberately try to identify and market to customers who are more likely to shop multiple product categories. When consumers find a brand that works for them, they stick with it and naturally buy across categories. Cross-buying improves revenue per customer, reduces churn, and decreases the need for variety-shopping across brands. Similarly, a customer who effortlessly
upgrades to premium products or continuously renews a monthly/annual subscription tends to have a stronger affinity toward the brand. The incremental purchase behaviors that occur without any marketing interventions should be recognized and appreciated.
One of the behaviors that telecommunications companies like Verizon, AT&T, and T-Mobile judiciously monitor is (3) on-time bill payments. When customers fall behind on bills, these companies eventually write it off as bad debt – receivables the company would not be able to collect (WSJ). This reduces cash flow and pushes operating costs higher. A system that rewards customers who routinely pay their bills on time over a defined period could motivate consumers to remain loyal. Some auto insurance companies, for example, reward drivers with minor comprehensive claims, no at-fault accidents, and no violations within the last 3 to 5 years. Health insurance companies reward preventive care measures, regular workouts, and healthy eating. Therefore, it is not out of place to appreciate on-time bill payments.
Many companies invest enormously to solicit customer feedback to improve their offerings and understand customers' pain points. Feedback is precious as it captures customers' perceptions and gauges how a company's products and services impact individuals and their communities. There are customers that (4) willingly offer their input in the form of reviews, recommendations, and complaints. These customers are present on social media platforms, freely and excitingly showcasing the pleasures they receive from their favorite brands. Some of the customers, over time, build enough followers, become influencers, and act similarly to affiliate partners. The difference is they do not charge commission fees. In other situations, customers show emotions toward their preferred brands through well-founded complaints.
Managers use customer complaints as a source of insights for product enhancement initiatives, but the usage could be extended to inform customer-brand relationship-building strategies. E-commerce product managers would attest that site visitors who initiate online surveys (not popups) to submit their complaints are usually customers with longer tenures; and who shop frequently and across categories. Also, they are often frustrated because of recent unpleasurable experiences and are okay to end their relationship with the brand. These consumers are worth saving. In a nutshell, companies should figure out ways to appreciate customers who take the time to share their experiences with them and the world.
Wrap Up
The way consumers manifest positive behaviors varies by industry and company. So, each company needs to develop the prowess of asking the right questions to tease out the behaviors that strongly affect their financial performances and are worth encouraging. This is where marketing strategists must leverage marketing analytics to uncover what drives consumer behavior and refine their decisions. I understand that marketing leaders often receive information purported as insights that are not material enough to inform strategic decisions, thus, leaving the leaders to rely on intuition. This should not be the case. Insights that address the "and so what" question multiple times tend to be transformative. Good insights drive decisions. Marketing analytics professionals must keep that in mind.
As we transition from the experience economy to the relationship economy, superior customer experiences and stronger brand-customer connections are essential to sustainable and profitable growth. Therefore, I encourage companies to double down on loyalty marketing, leveraging marketing analytics to pave the way for customer-centricity and to guide strategic business decisions. Brands should elevate customers who exhibit positive behaviors as a way of saying
"
!"