Customer loyalty schemes – a life raft in a sea of retail uncertainty

Customer Loyalty Schemes

After the first decline in retail sales figures in more than a decade, 2021 has seen the UK retail sector in recovery mode. By November, the British Retail Consortium was reporting that things were largely back to normal, while overall Black Friday sales were up more than one-fifth compared to 2020. 

However, with supply chain challenges continuing to disrupt retailers’ plans, and a new Covid variant set to wreak havoc on the British economy once again, the New Year is unlikely to bring an end to the uncertainty that has plagued the retail sector over the past two years. It’s hard for retailers to know what day-to-day spending habits will look like, let alone form long-term customer acquisition strategies.

Against this backdrop, retaining the attention and loyalty of existing customers has become a massive priority for every retailer, particularly given the continued rapid growth of ecommerce and the additional competition it creates.

Keeping customers loyal even when they aren’t spending

We recently published a new report, the Global Customer Loyalty Report 2022, which found that three in five retailers have upweighted their loyalty strategies during the pandemic, with 62% reporting that their loyalty programmes have been instrumental in keeping customers engaged during the crisis.

People pull together for the common cause during times of crisis, and customers expect their favourite brands to act accordingly. Therefore, many brands have taken this type of customer-centric approach within their loyalty programmes to maintain engagement and an emotional connection, with customers made to feel valued rather than exploited for sales. They appreciate meaningful help during difficult times, and acts of kindness on the part of retailers are often rewarded by promotion on social media.

One major reason why loyalty programmes have been effective for retailers since the onset of Covid is because so many of their customers have had lower disposal income. Around 26% of the UK workforce has been furloughed at some point during the pandemic, and customers with less money to spare are more likely to shop around for the most competitive prices, displaying less loyalty to a particular brand or retailer. 

With employment levels still not returned to pre-Covid levels, some retailers – for example those in fashion and fuel – will need to keep playing the long game, maintaining engagement levels through loyalty programmes in the knowledge that spending levels will rise once the crisis finally abates.

Engagement, tiers and new technologies

Traditionally, customer loyalty schemes have rewarded purchases by giving discounts on future transactions, or providing some other benefit, such as free delivery.

Over time, however, schemes have evolved to place greater emphasis on customer engagement. According to our research published in the Global Customer Loyalty Report 2022, engagement was ranked as the most common reason for offering a loyalty programme, as well as the top priority for retailers planning to create new loyalty programmes in the next two years.

Interestingly, throughout the pandemic, we’ve found that tiered loyalty programmes have proved particularly effective in keeping customers engaged, with customers on higher tier levels engaging with retailers almost 30% more than other customers and spending twice as much with them, on average.

Alongside this, growing numbers of retailers have seen success when aligning their engagement efforts with ongoing, tech-driven service innovation. Developing loyalty programmes in parallel with advancing technology contributes to an omnichannel experience, for example, incentivising customers to engage with new technologies such as virtual dressing rooms and NFC payment. 

Moving beyond transaction-based rewards

As the pace of digital change continues to accelerate, retailers have more channels than ever before through which to engage with customers. Consequently, we’re already starting to see the development of loyalty programmes that are less transactional and focus on customer engagement beyond the traditional purchase cycle. Gamification, for example, is becoming a common feature for retailers looking to provide a more exciting experience to both transactional and non-transactional interactions.

Alongside this, personalisation is becoming a central focus for companies revamping their existing loyalty programmes. Savvy retailers are using data collected from their loyalty schemes to inform personalised marketing strategies and target customers with bespoke offers. Going forwards, rewards will no longer be chosen from a static list; customers will be able to select from a dynamic choice of rewards generated by machine learning and analysis of previous purchases. This type of personalised approach, in conjunction with experiential rewards, will help nurture emotional loyalty, leading to higher engagement rates and an increase in customer lifetime value.

Downtime between purchases can also be filled by rewarding other behaviours to ensure customers remain loyal in these periods. Our report found that more than three-quarters of retailers plan to increase non-transactional behaviour rewards in the next three years, incentivising customers to refer their friends, write product reviews and engage on social media. And with customers increasingly selecting retailers according to their environmental and sustainability credentials, we’re also likely to see a rise in rewards for customer engagement with company values, for example, recycling clothes or using sports trackers to reach fitness milestones.

Retaining customers as the volatility continues

Unfortunately, the uncertainty, disruption and unpredictable customer behaviours we’ve seen over the past two years look set to continue for some time yet. In such a volatile retail climate, customer loyalty assumes greater significance than ever. Loyalty programmes have been vital in keeping customers engaged through these tough times, and in 2022 we can expect to see a further wave of innovation as retailers vie for attention and look to show their customers just how much they matter.