The Brand Loyalty Matrix Framework
Customer retention is core to every brand, no matter what shape or size, but that doesn’t necessarily mean that customer retention strategies are one-size fits all. Successful strategies differ by characteristics of the brand and its product offerings.
A brand’s ideal loyalty strategy has a lot to do with where its product offerings fall on the purchase frequency and product price matrix.
In this article, we will explore all four quadrants of this matrix. But it’s important to mention that the variables of price and frequency tend to be inversely correlated: low price products tend to have higher purchase frequency and vice versa. This means that the majority of brands will fall into one of these diagonal quadrants, while fewer brands fall in the (high, high) and (low, low) quadrants.
It’s obvious that the same loyalty strategies probably won’t work for these businesses. Customers have specific needs and sensitivities, so individualized engagement and loyalty strategies are required.
Let’s start in the bottom right-hand corner of our matrix.
Everyday Brands
Overview and Challenges
High frequency, low price brands are what you may consider everyday brands. These are the businesses that become ingrained in a consumer’s day-to-day habits. Examples are coffee shops for a morning latte, fast-casual restaurants for lunch at work, and grocery stores for household needs. Customers tend to have consistent purchasing behavior at these types of businesses — they’ll spend the same amount of money, the same number of times per week.
High purchase frequency, low price businesses tend to be extremely competitive. They typically exist in commoditized industries where customers are highly sensitive to price. This means that it can be hard to incentivize customers to choose one brand over competitors that provide similar services. Without solid customer retention strategies, customer loyalty for everyday brands can be an uphill battle. Customers may feel little allegiance to one brand over another serving them similar products.
Another challenge is that since customer purchasing is more likely to be habit-based, it can be difficult to increase average order value. Customers tend to continue to purchase the things that they were planning to purchase anyway, without going out of their way to spend more. They may have little tolerance for adding more to their budget.
Loyalty Strategies
The good news is that well designed loyalty programs have proven to be highly effective in high purchase frequency, low price businesses.
Everyday Brands should aim to maximize the number of customers who join the program. A loyalty program for your brand should appeal to all customers of your product. While this may seem like an overarching truth for loyalty, it’s particularly important. A loyalty program is the connector between brand and customer — it’s what makes one brand stand out against its competitors. In commoditized and competitive environments, this connector can be the difference between thriving and failing.
Customers of everyday brands care about convenience and value.
Action-oriented, not status-oriented
Incentivize customers with points and redeemable rewards. Rather than focusing heavily on tiers and status, focus on incremental value and benefits. Customers of this type of business respond well to actionable benefits that impact their day-to-day purchases — this means enabling customers to accrue points and rewards from making purchases at the store.
Optimize your loyalty program such that customers can earn smaller rewards frequently, instead of larger rewards infrequently. Small favors go a long way for everyday brands. In a competitive market, rewards like discounts, gifts, and merchandise can be the reason that a customer chooses your business over a competitor. Furthermore, giving smaller rewards more often can incentivize customers to shop and make purchases more frequently. Since their actions have a tangible impact on their future rewards, this type of program can convert a customer who is on the fence of purchasing that day.
Provide options for unbeatable value
Subscription membership programs are a great way to provide customers with the best value while also locking in recurring revenue for your business. Programs like Panera Bread Unlimited Sip Club and Costco are prime examples of the power of the subscription membership model. Done well, they’re a win-win for brands and customers. They allow customers to lock-in an unbeatable deal like $11.99/month for unlimited drinks or $60/year for access to the cheapest groceries in town and for brands to lock-in a consistent stream of revenue.
The beauty of a subscription program is that the true value of the program for the brand doesn’t come from the subscription, but from the additional purchases that a customer will make & the allegiance they feel because of it. Customers have created an internal commitment to the business within a subscription timeframe — in other words, they’ve chosen your brand exclusively over competitors, making them more likely to come in more often, refer friends, and purchase extra items.
Moving diagonally, let’s head up to the top left corner of the matrix.
Luxury Brands
Overview and Challenges
Low frequency, high price items can be categorized as special purchases, or “luxury brands”. These are typically highly considered purchases. Examples include designer clothing, handbags, furniture, and even vehicles.
Common challenges for “luxury brands” are that there can be high churn rates, it’s hard to predict LTV, and it can be difficult to motivate an everyday consumer to purchase more frequently. As these are low frequency purchases, businesses can’t rely on the same customer base from the previous year to account for a significant portion of their sales for the following year. This means that these types of businesses are constantly having to acquire and re-acquire customers, and at high price points.
It can be difficult to motivate an everyday customer, who may be highly budget sensitive, to make luxury purchases more frequently, even if that means just one more time a year. Additionally, luxury-type brands are often cautious to dole out benefits, in a controlled effort to not dilute the value of the brand.
Loyalty Strategies
Building a customer retention strategy and loyalty program for this type of business looks entirely different from building one for high purchase frequency, low price brands. While this may seem counterintuitive, the goal of this type of program should not be to onboard every customer. Every one-time customer of a luxury brand is not a candidate for a loyalty program. Loyalty programs for luxury brands should be used to further engage top percentile customers and keep the brand top-of-mind. This type of brand has the unique advantage of brand power. A loyalty program can be used as a clever tool to further build mystery, allure, and desirability around the brand.
Loyal customers of luxury brands care about exclusivity and status.
VIP status
Status is an important mechanism for luxury loyalty programs. Activating top percentile customers means appealing to their current purchasing habits and incentivizing them with more. Create a hierarchy of tiers based on spend with the brand. Keep the tiers small and exclusive — make them difficult to reach, but meaningful once achieved, to create deep allure around them.
Customers don’t need incentives like spendable points or quick rewards in this type of business to be motivated to engage. Loyalty to a luxury brand is definitionally on a long time scale. Hard-to-reach tiers celebrate customers’ long term commitment to your brand and reward them accordingly.
Loyal customers should feel like VIPs at your brand. It’s critical to hyper-personalize their experiences. Use a loyalty program to understand their preferences, send them personal notes, and to give the customer back an experience that they crave more of.
Experiential Rewards
Discounts and free gifts won’t do the trick for luxury brands. Customers are looking for exclusive benefits that go beyond the realm of promo codes. Rewards are an opportunity to express the power and voice of your brand.
Create interactive & experiential rewards that join customers with your brand in ways that they didn’t expect. Invite status-holding members of your loyalty program to exclusive brand events, like parties, lecture series, or concerts. Even through low frequency of purchases, experiential rewards keep your brand top-of-mind with customers. In this type of business, not everything in the brand-customer relationship should be directly related to products. The goal is to further increase the likelihood that when a customer goes to make a high value purchase, it will be from your brand. Experiential rewards create memorable moments of reciprocity that strengthen the customer-brand relationship.
Now, let’s move to our less common brand types.
Quality Brands
Overview and Challenges
High purchase frequency, high price products are typically products that customers justify being worth a higher price tag based on the quality of the product. These are the types of products that customers will build into their budget because their perceived need for the product is high. Examples of these types of products are boutique workout classes and gym memberships, specialty food & grocery items, or nice local restaurants.
Challenges with high purchase frequency, high price products are that they don’t necessarily appeal to all customers, and during times of budgeting, they can be the first things to go. Price point can be a limiting factor to how broad of a customer base they will be able to reach, even for a first purchase. Brands of this nature may also be more heavily impacted during times of financial uncertainty than everyday brands, as customers may see their spending at these brands as discretionary. What is promising for quality brands is that, like luxury brands, top customers are highly loyal and connected to the brand. While there may be some competition, quality brands aren’t competing on price point but on the quality and delivery of a service. This means that there is less likelihood that customers have mixed feelings towards your brand versus its competitors — they prefer your business based on qualitative measures, rather than quantitative.
Loyalty Strategies
Quality brands are ripe for loyalty. Customer groups that are willing to pay high prices already self-select around these types of brands because of how they feel about the product or service that the brand offers, meaning that they are likely to opt into a loyalty program. Like everyday brands, loyalty programs for quality brands should appeal to all of a brand’s customers. The goal should be to maximize the number of customers who choose to join and participate.
Community-centered brand
Customers choose to spend at a high purchase frequency, high price brand for a reason — whether that be product quality or other motives. Build customer loyalty through a community, where like-minded people who have chosen to engage in your brand can meet, bond, and grow together. This way, their reasons for participating in and spending at your brand continue to be justified and reinforced through the community.
Create competitions for customers to see how they stack up against one another, and gamify how they participate with each other and the business. Give the community ownership over brand decisions by doing votes and surveys. Customers of quality brands are likely to respond positively to a loyalty program that brings them into a community that they may have not otherwise been able to find. Community can be used as a tool to further prove the quality of your product and brand — making it beneficial for everyone. For more on community, check out our article on non-transactional rewards.
Give meaningful value back to customers
Trust is a core tenant of the interaction between a customer and a quality brand. A customer will pay a relatively high price in order to have a novel experience. Loyalty strategies should aim to provide significant value back to customers for their loyalty. The lifetime value of a loyal customer for a quality brand is quite high, so it is worth it for the brand to give customers valuable rewards.
Rewards like store credit and free products are great ways to give value back to the customer, because the intrinsic value of the reward is plain and clear. A customer knows that a $100 of store credit or a $75 product is worth $100 or $75, as the value is completely unobscured. There should be no question in the customer’s mind that their loyalty is being rewarded generously. Not only do these rewards incentivize existing customers of the loyalty program well, but they are also great motivators for new customers to sign up.
Finally, we’ll look at the last remaining quadrant — utility brands.
Utility Brands
Overview and Challenges
Low purchase frequency, low price products may be considered utility products that customers can afford, but don’t need to purchase very often. This doesn’t mean that they aren’t necessary pieces of consumer lives, but they just may not need to restock frequently. Examples of low frequency, low price products are things like toothpaste, medicine, or shampoo & conditioner.
A challenge for low frequency, low price businesses is that it can be hard to stay top-of-mind. By nature, customers might only think about these types of products rarely, when they need them. This means that it can be hard to nurture the relationship between customers and brand during the off-period when the product is not top-of-mind. Additionally, utility-type products lend themselves to high competition and pricing sensitivity. Uncontrolled, these brands can end up engaging in a race to the bottom for these types of products by continuing to cut their margins. This is not a sustainable way to grow the business & customer base.
Loyalty Strategies
Utility brands may not be the best candidate for a traditional loyalty program. This doesn’t mean that customer retention strategies won’t be successful, but that the resources needed to run a full-fledged loyalty program would be better spent on other brand activations. Marketing & retention strategies will pay off more broadly.
Creative partnerships
Brands of this type should construct strong partnerships with a variety of other brands. Utility brands don’t have the advantages that brands in other quadrants might have to stay top of mind for customers. They can utilize partnerships with other brands to improve their reach across industries. It’s likely that the products of these types of brands aren’t competitive with brands with higher purchase frequency. This can be used as an advantage to secure powerful allies with low friction.
De facto brand
A superpower for these types of brands is that the barrier for entry for customers to try the product for the first time is low, since the price is low. Low purchase frequency, low price brands need to get their foot in the door with customers and become the de facto brand in their mind for that type of product. Customers may not take the time to consider alternatives when purchasing this type of product, so brand-name power is critical to stay afloat.
As opposed to luxury purchases, customers may not see a need to analyze their decision of which brand to purchase from, as the stakes are comparatively low. Brands of this type should spend their retention budget in marketing across all platforms, so that when a customer thinks of this product, they think of the brand instinctually. Great examples of brands who have done this well are Band-Aid for bandages and Burt’s Bees for lip balm. Ideally, the product becomes synonymous with the brand.
Of course, not everything is black and white. Not every brand falls exactly into one of these buckets as described. There are also dynamics inside of each of the quadrants — price sensitivity, quality, and other variables. But this framework should be a helpful starting point. Build your customer retention and loyalty strategy around your customers’ stated needs and historical purchasing behavior.
Hang’s expert loyalty team can help your brand get off the ground with your loyalty program. We’re building a next-gen customer engagement platform for your brand to create valuable, long-lasting relationships with your customers.
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