With the introduction of the Retail Distribution Review (RDR), there has been a lot of focus on costs within the insurance industry and the pricing of advice and services.
Insurers are also under pressure to reassess their distribution models to come up with innovative ways to include lower income earners into the financial services industry. This has put a significant focus on the cost of products.
Recent research conducted in Australia shows that price is a major determinant when it comes to brand loyalty. I recently read an interesting article that discusses this in extensive detail.
Research disconnect
The article points out that new research reveals a disconnect between what marketers are doing to encourage brand loyalty and what consumers find important.
Comparing consumers’ shopping habits with the perceptions and practices of marketers, the second annual Salmat Marketing Report found that customer loyalty continues to be a challenge for marketers in Australia.
The article adds that in a 2017 survey of more than 500 marketing decision-makers and more than 500 Australian consumers, 40% of consumer respondents said they do not consider brands while shopping and that price is the main factor in driving brand loyalty.
Nearly one in five consumer respondents said they are loyal to only one or two specific brands. Further, two in five said they buy the products they need without taking much notice of the brand.
Missing the memo
The article points out that marketers seem to have missed the memo on price.
Nearly half of marketer respondents to the survey said they are focusing on creating loyalty through quality customer service, 45% said they are doing so by offering trust, respect and promise, and 40% said they are doing so by developing quality products.
But, according to the research, 85% of consumer respondents look for good value for money and competitive pricing before anything else.
The article adds that price sensitivity varies across categories. For pharmacy and healthcare, groceries, and banking and finance, consumers are less likely to switch products if the price increases.
However, in furniture and homewares, toys, hobbies, outdoors and travel categories, consumers are more likely to switch products if the price increases.
Attributes of success
The article points out that following competitive pricing, consumers said quality of the products (80%) and customer service (76%) are the most important brand attributes to maintain loyalty.
The article adds that positive online reviews (61%) and free trials, samples and discounts (48%) were also rated as important factors for maintaining brand loyalty.
Technology challenges
The article pointed out that marketers also noted that while technological advancements are helping them collect better customer insights and customer analytics, more than two-thirds found it challenging to use technology to help create lasting one-on-one relationships with customers.
On the other hand, consumers expect marketers to use the information they have on them to offer a more personalised and one-to-one experience.
The article added that half of respondents stated that they believe the number one reason brands are collecting their personal information is to deliver relevant offers. However, marketers are struggling to deliver on this promise and develop long-term relationships with consumers.
A fresh approach
As brands overhaul the established model of discount-based loyalty schemes, is rewarding longevity now the answer to incentivising profitable customer relationships? I recently read an article on marketingweek.com that provided some fascinating insights.
The article points out that many businesses have been forced to scale back their rewards by reducing their value or increasing the spend required to earn each loyalty point, earning ire from consumers in the process.
Judging by the upheaval in the UK loyalty market in recent months, it has now reached a critical inflection point. Sainsbury’s and Tesco have both indicated there could be radical changes to the Nectar and Clubcard schemes, respectively, confirming a wider trend of encouraging long-term usage and deeper engagement, rather than short-term sales and deal-hunting.
The article adds that consumers still show a propensity to favour simple money-off rewards, rather than complex mechanisms for ‘unlocking’ different levels of incentive, with Marks & Spencer’s huge investment in its Sparks scheme, which opts for the latter approach, so far failing to arrest the slide in clothing or food sales.
Marketers, it appears, have a challenge on their hands to change perceptions of what loyalty schemes are for. This is especially evident in the retail space, where competition is fierce and consumers are tightening their purse strings as they hunt for the best deals.
The article pointed out that earlier this year Sainsbury’s shelled out £60m to take full ownership of the Nectar reward scheme. Shortly after, it announced it would be undergoing a complete overhaul to “genuinely reward loyalty” and is currently testing a new model that will see customers receive points based not just on how much they spend, but also how frequently they shop and how long they have been a customer. In a nutshell, the more loyal someone is to Sainsbury’s in the long-run, the more they will be rewarded.
People can also choose their own offers online or via the app from a curated list based on the products they buy the most. Waitrose had been offering something similar via its myWaitrose scheme with ‘Pick Your Own Offers’ but it was scrapped earlier this year after customers complained it was too confusing – further proof people don’t want to have to work too hard for discounts and freebies. Thankfully for Waitrose, free coffee, newspapers and vouchers now seem to be working out just fine.
The article added that one thing is clear, consumers do want to be rewarded for their loyalty. According to a recent study by Mando-Connect and YouGov, more than three-quarters (77%) of Brits are subscribed to at least one loyalty programme, while 59% believe all brands should offer one.
Unsurprisingly, the main reason people sign up is to benefit from in-store/online discounts and offers (87%), followed by getting discounts and rewards from other retailers or brands (55%) and free products, services and experiences (52%). Less than a quarter of people show an interest in either exclusive access or premium service rewards.
Tenure-based rewards
The article pointed out that the questions around loyalty don’t just dog the retail sector. Like Sainsbury’s, Sky is looking to reward customers based on how long they have been with the brand rather than how much they spend. It launched the Sky VIP loyalty programme last year, in an effort to reduce churn amid growing competition from the likes of BT and Netflix, and appease miffed long-standing customers who felt new customers were getting better deals.
Since it launched 10 months ago, 1,8 million people have signed up to Sky VIP, 70% of which have received a reward of some kind – be it a free film, queue jump or experience. Sky is expecting subscriber numbers to reach 4,5 million within the next 12 months.
Sky’s head of loyalty, Rob Chandler, told marketingweek.com that what started as a programme to reward customer loyalty is now more about Sky being loyal to its customers.
“It’s about us looking after them, not demanding their loyalty. The tenure framework really gives us permission to do that because it’s all about how long we’ve been together,” he explained, “We made a very deliberate decision not to use the loyalty programme to entice people to change their behaviour. Right now we don’t need those mechanics where ; we don’t need any of that bribery action of traditional loyalty programmes. For us, it’s recognising the value of customers, their importance to us and making customers feel more valued – that emotional connection.”
By rewarding people based on tenure, brands do risk losing some incredibly valuable customers, though. The Sainsbury’s trial, for example, doesn’t account for people who spend big with the retailer on an occasional basis, meaning they have no incentive to keep shopping at the supermarket and will therefore be up for grabs for competitors that can offer something better.
Creating a community
It is also about creating a community. The marketingweek.com article pointed out that women’s fashion retailer Simply Be is another brand experimenting with rewarding engagement. In May, it rolled out Perks, which gives customers personalised rewards in return for engagement, after its research revealed shoppers feel they have to work too hard for rewards that come from point-collecting schemes.
“We wanted to create a relationship with our customers based on more than just the transaction, and also to deliver an engaging experience they can relate to,” Ann Steer, Chief Customer Officer at parent company N Brown Group told marketingweek.com.
“In such a competitive market, we want our customers to feel like they’re part of something more personal and really interact with the brand. We have seen great results with Perks so far, which demonstrates that being part of something exclusive really resonates with our customers and in turn, increases loyalty.”
The article added that since the Perks scheme launched this year, the retailer says it has seen double digit growth in both website visits and average order frequency from its members – 25% of which are new customers who have been shopping with the brand for less than a year.
Customer loyalty is vital to ensure the longevity of a business. Are you getting it right?