Is a customer who buys from you every day loyal, or are they buying from habit or convenience? What would make a customer go out of their way to buy from you, rather than from a competitor?
Loyalty combines functional and emotional connections with the brand. It comes from a lasting relationship based on trust, value, convenience and satisfaction.
What we value varies from person to person. For some, it’s all about the label and how buying it makes them look and feel. Others place more worth on getting a good deal. Comarch’s research on The Future of Retail examined the opinions of 3,000 consumers around the world and confirmed that, when it comes to loyalty, it’s not always the obvious solutions that work.
Our motivations are varied and complex. Loyalty programmes must acknowledge and address this if they are to prove successful in the long-term. Our research shows that if you sell household equipment, people want accurate, individualised promotions and offers.
Electronics retailers should focus more on great service in-store. If you sell clothes or home furnishings, people want to touch and try the products, so your reward programme might focus on driving them into stores. The trick is to know what will trigger your customers into buying from you with their hearts and their heads.
The concept of loyalty is very emotive. We usually discuss it in terms of relationships with people, not corporations. As such, what individual customers see as loyalty, and what retailers consider loyalty, can be two different things.
If I do my weekly shop on the same supermarket website every week, but I visit their main competitor’s physical store everyday, which one am I loyal to? Does the retailer think I can be loyal to both, or would I need to shop exclusively with them? Or is loyalty tied to the amount I spend with each one?
Ask the customer, and they may say that they feel an affinity with a particular supermarket, but they shop at the other one more often because it’s near to their workplace.
If a retailer can’t define what it considers true loyalty to be, it can’t assess the success of loyalty programmes.
Mistaking habitual behaviour for loyalty
Habitual behaviour isn’t, in itself, a sign of genuine loyalty. Sales data may reveal the frequency of a customer’s purchases, but it doesn’t explain why they made them.
I might always visit a major coffee chain on my way to work, but a new job and a new route to work might lead to me frequenting their rivals. It’s not the brand I’m loyal to, but the convenience. FMCG brands face the same issue when supermarkets rearrange their store layout and shelving. Will people still hunt for their ‘favourite’ brand, or will they grab the first thing that does the job for a decent price?
Loyal customers will make the extra effort to stick to the brand or business they love.
Why we stay loyal
Deloitte University’s study on consumer loyalty looked at the reasons why people stayed in business relationships. It’s interesting to note that we often keep doing business with an organisation, even though we’re dissatisfied – which is further evidence of the complexity of loyalty.
We stay loyal because we’re satisfied
In the Deliotte survey, 86% of respondents stayed in a business relationship because they were satisfied (even though 55% reported that they had a bad relationship with the business).
‘Satisfied’ doesn’t sound like a ringing endorsement, but it means different things to each of us. It could also mean that, while we’re having some issues with a product, the customer support is brilliant and brings our opinion of the retailer up a notch.
We stay loyal due to our investment in the relationship
The longer we’re in a business relationship, the more likely we are to stay.
Out of the Deloitte respondents, 79% said that they stayed due to the time they’d been a customer. Over half (59%) of those who had a negative relationship stayed loyal.
Known as the ‘sunk cost effect’, it means that we’re wired to value the time, money and energy we’ve already invested in a relationship. It makes us more reluctant to walk away.
We stay loyal because it’s easier than change
people generally find it very hard to change when there’s no pressing need to do so.
The Deloitte study found that 57% of people stayed in business relationships because it was easier than switching to a competitor.
This is why it’s essential for businesses to keep their existing customers engaged and rewarded for their custom. A customer may seem loyal if they’ve been with you for 20 years, but they could easily be dissatisfied, and simply waiting for something to motivate them to make a change.
We stay loyal because we’re rewarded
Rewards work wonders when people love a brand. Deloitte found that 67% of people with a positive business relationship stayed loyal due to the rewards and benefits they received. But those with a negative relationship with the business needed more than rewards to win them over – just 25% saying that rewards made them more loyal
Customers are savvy. They know a genuine, thoughtful reward from a generic code or discount given to all customers. Our research found that 45% of UK consumers were interested in receiving personalised offers in exchange for retailers accessing their data.
By getting to know what individual customers spend their money on, and are saving towards, businesses can create unique rewards, gifts and experiences that surprise and delight their customers. They can encourage genuine loyalty.
We stay loyal due to peer pressure
Deloitte found that 46% of respondents stayed loyal to a business due to social obligations. (If your mobile operator lets your mum call you for free, and you switch to a different network, how much trouble will you be in?)
Nielsen found that 84% of people view recommendations from friends and family as the most credible form of advertising. Most of us research customer reviews before we commit to buying an expensive item online, but when we accept a recommendation from a loved one we’re creating a social obligation. If I don’t like this, will they be offended? Will it negatively impact them if I switch brands? Sometimes it’s easier to just stick it out.
But this isn’t loyalty to a business – it’s loyalty to our friends and family.
Loyalty is far from simple. None of us exist in states of ‘loyal’ and ‘disloyal’. We shop around for the best deal and keep shopping with retailers that have done us wrong in the past.
It may be hard to distinguish genuine loyalty sometimes, but it’s simpler to create it. Businesses that focus on getting to know their customers, and understanding what they want, can create loyalty programmes that offer unique rewards and help to create a genuine connection to the brand. It’s when existing customers are ignored, that the business risks losing their true loyalty.