Customer loyalty in retail has changed a lot in recent years. People are familiar with the rewards and benefits they receive in exchange for their business with brands. Discounts, free gift cards and e-vouchers, earn and burn points and that gold level tier that’s just out of reach are the norm.
But does anyone else feel like retailers are stumbling when it comes to customer loyalty? That their efforts are running dry of the creative juices which fuel a truly fantastic customer experience? By no means are we knocking the retail industry. You guys do great work and much of the time a thankless job.
Here's the thing; everyone who works in retail, regardless in what capacity, is also a retail customer. Which gives them a chance to draw insights from their own experiences at the user end perspective. Naturally, this can inform loyalty building strategies.
With that in mind, let’s take a look at the current challenges the retail industry faces. We’ll explore some strategies that you can use to start boosting loyalty and retention today, as well as some examples of customer loyalty done right in retail sub-sectors.
Contents:
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Current State and Challenges Facing the Retail Industry
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5-Step Process for Building Customer Loyalty in the Retail Industry
Current State and Challenges Facing the Retail Industry
Customer loyalty strategies in the retail industry should focus on better retention. Why? Because consumers have never had more options than they do today. The next time they need a new item of clothing or fancy grabbing a quick bite for lunch, you want your business to be their top of mind choice. The only way to do that is to keep them coming back for more.
As the well known saying goes, customers speak with their wallets. So it’s up to you to keep the conversation going. Do it by giving customers something to talk about, through use of savvy retention strategies. But before we get into the “how” of ways to increase customer retention, we need to look at the “why” behind the current state of retail and its challenges.
Challenge #1: Customer Loyalty has changed
A lot has changed in the past couple of years. The pandemic has had a knock on effect on customer loyalty. Over half of US Gen-Zers are less loyal to brands now than before Covid. In addition, recent research shows 75% of people would switch to a business with a better loyalty scheme. What’s more, from the same source, a shocking 96% believe loyalty programmes could be improved. No wonder 61% of retail companies say retention is their biggest challenge!
This tells us that the loyalty initiatives currently in place just aren’t enough. In fact, there’s a drastic need for more than point rewards and tiered programmes. Of course that’s not to say these loyalty programmes should never be used. They’re perfect as a groundwork from which you can build out great rewards.
Like your products though, loyalty building strategies need a shake up once in a while. After all, consumer expectations shift quicker than seasonal fashion trends or the latest coffee concoction. Therefore, we need to consider the most important factors that appeal most to consumers’ affinity with retail brands.
For example, 80% of customers feel the experience a company provides is just as important as the product.
Challenge #2: Lack of emotional connection
There’s also a huge need for emotional connections between retail brands and consumers. That’s because customer loyalty strategies in the retail industry are for the large part tailored towards transactional incentives. But as we’ve already discussed, the way customers are expressing loyalty is changing. Particularly after the pandemic.
Now with a cost of living crisis, inflation is also forcing people to abandon brands they’re normally loyal to. With 37% of people now prioritising the price of products over their brand loyalty
By deepening the customer relationship by using strategies that nurture an emotional connection, brands insulate themselves more effectively against external macro factors like high inflation. Therefore, you should aim to acknowledge hard times, and share what you’re doing to help consumers out.
As many struggle during a period where they need to budget, shopping for clothes for example, only as and when they need to, it rubs the majority of people the wrong way when retail businesses try to gloss over difficult times with tone deaf adverts.
Yet, we also understand why so many retail businesses try to distance themselves from negativity. It’s a fine balancing act at the end of the day. One that must also cater to customers of higher lifetime value who might not be as financially affected by current circumstances.
Challenge #3: Priorities, ethics, values and COO effect
Then there’s the issue of customers not really considering their loyalty as an important factor. Or at least, as important a factor as, say value for money and product quality. A survey by KPMG ranked what consumers said keeps them loyal to retail brands:
1. Product quality
2. Value for money
3. Product consistency
4. Customer service
5. Easy shopping experience
6. Selection/product assortment
7. Pricing
Keep in mind that this survey is from 2019, before the pandemic and current cost of living crisis hit. Therefore, we suspect that pricing would now rank higher in the list. And we’ve already shared evidence that customers value their shopping experiences just as much as product quality. Which we’d also argue is going to come out on top of customer expectations.
Granted, expectations surrounding product quality is only a challenge for retailers that sell poorly manufactured goods. But people are more thrifty and want their money to go further. Due in part to limited budgets. It goes without saying then that customers expect nothing short of fantastic quality products, to justify spending when many have less expendable incomes.
Yet there’s more to this than meets the eye. The majority of spending power is predominately coming from Millennials and Gen Zers. These younger generations are digital nomads and natives, the product of the information age, with a strong interest in social worthy causes.
Resulting in them being more conscious of environmental and ethical issues. Being so devoted to their beliefs that they blacklist any brand which fails to demonstrate subscription to the same values.
Even the country a brand originated from has an effect on customer loyalty. This is known as the country-of-origin effect. Which feeds into consumers’ perception of a brand. Consumers might refuse to shop with brands who manufacture their goods in countries with poor human rights records. Or who source their products from unsustainable sources. Even the foreign policies of nations affect consumer purchases decisions.
Challenge #4: Lack of personalised experiences
According to one study, 80% of consumers want personalised experiences from retail vendors. The demand is more severe for retailers because many of the products are mass produced. Meaning the products themselves lack any personalisation. Unless of course one buys from a personalised retailer. Also, many retailers boast wide product ranges that can be difficult for customers to find something that they’ll like.
Hence the importance as to why a personalised customer journey is necessary. The customer relationship rarely transcends purchase transactions. Customer loyalty strategies in the retail industry must therefore, aim to add customer-centric engagement strategies.
Retailers who are attempting to personalise shopping experiences with them however, are meeting resistance from consumers. Personalised experiences require behaviour tracking. A notion that concerns the great majority of consumers in the UK and US. This is mainly due to low trust towards brands. People are deterred from sharing their data, even if it means they miss out on a personalised customer experience.
Challenge #5: Finding the right technology
On top of all this, the retail industry notoriously struggles to find the ideal technology to overcome its challenges. Data silos are rife, there’s serious misalignment between sales and marketing teams, and often-opted tech solutions such as CRMs and CMSs fall short of any real benefit for retail businesses.
Aside from loyalty programmes to nurture customer loyalty and improve retention, there’s so much more the retail industry could do. Getting on board with the digital revolution and adopting a do-or-die mentality towards growth is needed in an industry that’s stuck in its old ways.
5-Step Process for Building Customer Loyalty in the Retail Industry
Okay, enough of the doom and gloom! Let’s get stuck into some strategies that you can start to implement today. We can almost guarantee that these will set you on the road towards better retention and thereby customer loyalty.
Begin your plan with a focus on the three A’s. These stand for acknowledgement, acceptance and action. Increasing customer loyalty is next to impossible without these three elements. Especially for an industry like retail.
Acknowledgement means you’re aware of the problems. This takes a substantial amount of research, surveys, feedback and day to day experiences interacting with existing customers. We’ve already kind of done this when we looked at some of the main challenges that the sector is currently facing.
Acceptance is pretty much self-explanatory. It’s owning up to your brand’s shortcomings and accepting that there’s areas which need improvement. Or accepting external factors such as consumers’ expectations are evolving.
Action is what we’re going to do to tackle the challenge. By way of example, we’re going to do just that with the aforementioned challenges.
Step #2: Create engaging branding across multiple channels
In response to a lack of emotional connection, we’d create engaging, on brand messaging across multiple channels. This way, we’re interacting with customers at every stage of the customer journey. Making sure to re-engage lapsed customers and interacting in ways that are hyper-relevant to specific actions, e.g. First time buy, repeat purchases and referrals.
Emails, text messages, chatbots, telephone calls and direct mail are just some channel options to encourage consistent engagement. And we’d do this by sequencing omnichannel conversations so that they remain consistent, relevant and deliver a seamless, stress-free customer service across the board.
Step #3: Be transparent
In a study by NielsenIQ transparency was considered important for 94% of respondents. Consumers want to engage with brands that are honest and truthful. Therefore, for our second strategy, we’d share the priorities, ethics, values and product sources with customers.
Environmental, Social and Governance (ESG) is extremely important across all sectors. It’s particularly vital for the retail sector as it contains industries like fashion, which has a major impact on the environment. Consumers are more socially conscious and ethical in their shopping options. Always be transparent and adopt a human-centric approach in business.
Priorities
Break this down into the four categories we’ve already discussed under challenges. Firstly, priorities. In business it’s not ‘what’ but ‘who’ you prioritise. Loyal customers should always feel valued but what about employees?
Over half of consumers want to shop with brands who treat and pay their staff well. At the very least, dedicate a page to your employees. Whether it be an open newsletter that celebrates their wins, acknowledges how long they’ve worked for you, or even congratulates them on personal milestones like the birth of a new child or wedding.
Ethics & Values
Ethics should focus on how your brand behaves and conducts its business. Do you source textiles from sustainable manufacturers? Ensure that your products are ethically sourced? If you do, share the difference you're making on your social channels. Ethical business practices increase customer retention because they become committed to brands making positive changes.
Values are synonymous with ethics and should be used to inform who you prioritise.
Country-of-origin effect
Aside from its impact on brand equity and perceived value of products, COO is firmly rooted in how much a consumer trusts you. At one time the main focus of this trust was solely on product quality. Now though, as customer loyalty strategies in the retail industry should focus on retention, be transparent about where your products are manufactured, especially when they align with consumers’ ethics and values.
Step #4: Reward user-generated content & incentivise customer input
Transparency and trust is essential if you want to retain customers. There’s nothing more authentic than user generated content (UGC). It goes way beyond the friends and family confines of traditional referrals (although brand advocacy is the ultimate expression of loyalty).
However, when it comes to UGC, 60% of consumers believe it’s the most authentic marketing content. Similarly, 75% of marketers believe user-generated content feels more authentic as opposed to other forms of advertising.
Social media is also a powerful, effective tool for retailers, as evidenced by 14% of consumers bought from retailers directly on social media. The same report also states that 31% want rewards when shopping on social media. This tells us that there’s a massive opportunity waiting for retail businesses.
Further, allowing customers to make suggestions about future products is a personalisation wonder tool. Not only do they feel a degree of ownership over something they’ve had a hand in making. It also says a lot to potential leads out there. About how your brand is human-centric, is fully transparent and willing to share customer feedback and suggestions, and you truly care about the view and values of your customers.
There’s a great opportunity to reward customers who’ve made suggestions to access early access to the products they helped create. Imagine the buzz around that on your socials…
Step #5: Build a rewards programme
Everything we’ve discussed can be made possible with a customised loyalty programme! Of course, creating a rewards programme from scratch isn’t some trivial task. Many businesses stall when producing one and often give up when they hit brick walls. But for those retail businesses that persevere or consult the expertise of a loyalty platform provider,the results are transformative.
Just a few areas you should focus on when setting up a loyalty programme:
Make it easy to use
The registration process should be seamless and stress free. Last thing you want so close to a happy customer demonstrating their loyalty to you is a lapsed potential, frustrated that it was so hard to do so!
It’s also worth mentioning the technical burden of delivering a fully operating loyalty programme. Users enjoy quick, slick and instant programmes. Even the design and name of your membership levels in a tiered loyalty programme can deter customers from joining. Complex T&Cs are also a huge turnoff, considering that consumer trust levels are low, they may feel there’s a catch somewhere.
Remind customers why loyalty pays
So many customers out there forget they’re subscribed to a loyalty programme. That’s not on them. It’s on the brands they’ve signed up with! If your programme is forgettable, the rewards are not good enough and communications definitely needs a re-work.
Always keep customers engaged. Remind them to aim for that next tier level or that they’ve got plenty of points saved up to spend. Even better, you’ve got the perfect gift just in mind for them to spend their points on. This type of personalised content (possible through accurate data gathering and segmentation) is guaranteed to keep your loyalty programme front of mind.
Acknowledge and accept the elephant in the room
The majority of consumers not subscribed to loyalty programmes are wary to join due to privacy and data concerns. Others aren’t aware. The rest simply do not “believe in them”.
From our experience, we’ve found partner loyalty programmes are great for improving brand awareness and expanding reach to new target audiences. Also, to counter concerns over privacy and data, customers need reassurance from businesses that the platform they host loyalty programmes on are secure.
At Propello for example, our platform uses the same security model as the Ministry of Defence. That way we can guarantee clients all of their customer data is safeguarded. As for consumers who simply have no interest in loyalty programmes? First, they’re in the minority and are usually down to a lack of understanding the value of rewards. Or, they’ve been let down by loyalty schemes in the past.
A referral loyalty programme is ideal in this instance as word-of-mouth accolades are the most trusted form of advertising. New customers are sometimes out of reach for businesses but with a little incentive, family and friends who just so happen to be your happy customers, are more than willing to do the legwork in swaying their otherwise sceptical loved ones to give your brand a chance.
Remind customers why loyalty pays
Appeal to consumers’ empathy and emotional engagement by offering them a chance to donate to a worthy cause. All loyalty programmes have the ability to introduce rewards that benefit others. As we’ve explained already, social worthy causes are a great way of connecting with audiences. But to prove how well it serves customer loyalty and your retention rates…
Examples of Reward Programmes in Retail Sub-sectors
Let’s take a look at some examples of loyalty building rewards programmes and retention strategies.
Nordy Club by Nordstrom
Nordstrom is an American luxury department store chain. It offers a fantastic tiered rewards scheme, enriched with exciting benefits for loyalty programme members. Some of these benefits include:
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Free alterations
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First to Shop Clear the Rack
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First to Shop Select Brands
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Lifestyle Workshop
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Personal Double Points Day
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Invite-Only Events
The Nordy Club also includes a points based rewards system. Simple to follow and easy for users to digest. The available benefits save customers money, gives them early access to clearances and popular brands, even includes workshop seminars (again promoting personalisation through interests) and adds a social status dynamic with invite-only events.
Nordstrom is definitely doing something right. Over 10 million loyal customers are in its ranks and there’s a 20% year on year growth in programme subscriptions. Also, their retained, loyal customers spend three times as much as non-members.
HelloFresh Always On Rewards & Partnership Programme
Here is another great example from one of Northern Ireland’s premier electricity suppliers. Their exclusive Clickbacks scheme helps members save money on their favourite brands at supermarkets and hotels in Northern Ireland and the UK.
At Propello, we’re super proud of our work alongside HelloFresh. They’ve pursued a highly successful retention strategy, significantly increasing customer loyalty by doing so. HelloFresh opted in for our Always On and Partnership Rewards Programme. This allows them to give customers and new subscribers instant access to a whole range of rewards, just as irresistible as their recipes!
These include:
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Discounts on meals for up to 3 months
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Gifts cards
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Offering generous referral rewards
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Reward Achievement which offer personalised discounts and freebies
HelloFresh also promotes their eco-friendly practices and is proudly the first global carbon-neutral recipe box company. You can read more here. By shortening supply chains, ensuring the welfare of workers, and implementing an Ethical Works Policy, HelloFresh has firmly established itself as a socially conscious brand. This demonstration and celebration of the brand’s values and ethics promotes an emotional connection with customers.
In addition to this, their use of Propello’s partnership barter exchange programme has enhanced personalised unique offers with their customers.
All of which has been hugely beneficial. HelloFresh has expanded their brand reach by over 500%. The bottom line? The loyalty programme has been a huge success.
One for One Model by TOMS
TOMS are the pioneers of the buy one give one model. This sees TOMS give a free pair of shoes away for every pair bought by a customer. The free pair goes to people in need, sometimes in countries abroad. The One for One initiative has sent millions of free pairs of TOMS to over 10 countries worldwide.
One for One is a great way of building brand loyalty because an increasing number of consumers are more socially conscious. It feels good to be a small part of a greater good. The One for One initiative also runs alongside TOMS Rewards programme.
Benefits include:
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Points for certain activities e.g. clicking on email, following TOMS on social media and shopping etc. upon sign-up
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Instant access to coupons, sweepstakes and early access to new products
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There’s also a tiered element to the loyalty programme: Good, Gooder & Goodest
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Members enjoy hyper-personalised goodies on birthdays
TOMS has along with its customers changed over 100 million lives worldwide. Simply put, it’s a worthy endeavour and it just goes to show that retail can truly change the world for the better. With highly personalised interactions and omnichannel support, it comes as no surprise TOMS enjoy higher than average NPS.
Need help with retention and customer loyalty
You’ve come to the right place! Just give us a call or drop us a line and we’ll get back to you to discuss customer loyalty strategies in the retail industry. We’re always happy to propel your brand to the next stage of customer loyalty.
Until next time!
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