Loyalty isn’t dead
A renewed focus on co-creation makes loyalty more opportunistic than ever.
By Dawn Scata, Allison Widmark, Alexis Williams, and Tiffany Fitzgerald
You’ve seen the headlines, “Loyalty is dead,” in reference to customer loyalty, employee loyalty, post-pandemic relationships, brand loyalty, and so on. Loyalty program engagement also continues to decline with consumers being active in less than half of the loyalty programs they join. As of 2022, the rate of active program participation was down 4 percentage points from 2016. This decline is also potentially underreported, as not all consumers remember all the programs and memberships they sign up to.
The culprit? Old, stale, irrelevant loyalty programs, where the value exchange between brands and consumers has remained mostly the same — practical and uninspiring, with reasons to engage betraying expectations. On top of that, every brand in one’s consumption circuit seems to have the same program. It’s tiring and boring to swim in a sea of points, frequency, and birthday-based programs, especially when the products and services alone might not be differentiated enough.
Today, consumers expect mutual loyalty. They want brands to know them, anticipate their needs, and consistently engage in ways that meet or surpass expectations. They expect their go-to brands to serve a purpose that aligns with their personal values.
To answer the call, many companies are stepping up to redefine what loyalty success looks like. Eighty-two percent of companies with a loyalty program plan to increase their investment in loyalty over the next three years. Undoubtedly, customer-centric brands that closely follow, anticipate, and align with evolving consumer needs and expectations will not only inspire deeper and more passionate consumer connections but also create codependencies with their customers that generate lasting loyalty.
Redefining what loyalty looks like
Slalom’s definition of customer loyalty is an outcome through action — not a mechanism, technology, or program. Actions coming out of deeper, more passionate, and codependent relationships often show the following characteristics.
Permanence
The idea that a brand can be short-listed in consumers’ minds for the product or service category the brand occupies. While nothing can stay permanent against continuously evolving consumer behaviors and attitudes, there is pressure for brands to earn and maintain this mind space.
Forgiveness
A higher level of existing trust or appreciation that creates a buffer between loyalty and attrition when a brand makes mistakes or does not meet consumer expectations.
Championship
This goes beyond social sharing or advocacy. Championship is recommending a brand to one’s closest and most important relationships. The consumers’ relationships and reputations are on the line.
Loyalty model options to consider (and outcomes to anticipate)
There are four baseline loyalty models companies tend to invest in. Some companies stick with one model. Some find value by bordering two. Others are still exploring their evolution strategy, traveling through the models as stages in their loyalty maturity.
The perfect or the one standard model of a successful loyalty program does not exist, but the baseline models provide a starting point. Every program should be thoughtfully built onto a baseline model with inputs from segmentation, the end-to-end customer experience journey, digital capability and maturity, competitive and industry landscape, and the organization’s data transformation efforts. Another consideration will be the monetization strategy — should there be a set of premium or “white glove” experiences and rewards that customers need to pay for?
The four baseline models are transactional, experiential, experience-led, and perpetual. Transactional is the oldest and often the foundational base that remains through program updates. Perpetual is the most futuristic model that aims to prioritize customer experience and leverage customer data to achieve a sense of ongoing co-creation between customers and brands.
Transactional loyalty
Transactional loyalty programs are the most common programs — think earning points per purchase at the grocery store, coffee shop, or your go-to big-box store. The more a customer spends with an organization, the more rewards they earn.
Transactional loyalty programs require data technology infrastructure, cohesive marketing and communications strategy, and often dedicated loyalty team members. Once set up, they can be easier to maintain, particularly when there are strong brand partnerships in place, or your organization has the freedom to offer customers their favorite rewards.
Outcomes to expect:
- An increase in customer lifetime value (CLV)
- An increase in frequency of purchases per customer
- A shorter consideration-to-conversion window
- Brand preference when comparing different options
Experiential loyalty
Often an extension of transactional loyalty, experiential loyalty aims to enhance the emotional value via customizable and exclusive experiences. Experiential extensions are often considered in retail and arts and entertainment industries, where building memorable, nostalgic, or emotional connections with customers and patrons can amplify awareness, as well as program acquisition and retention.
Experiential loyalty perks may look like meeting a celebrity in person or virtually, a bespoke photo book, personal consultations, digitally enhanced experiences while waiting in line, or AI-generated personalized augmented experiences.
Outcomes to expect:
- Increased spending from surprise and delight factors
- Maturing loyalty financial management
- Increased ROI from earned media
Experience-led loyalty
If transactional and experiential models are exchange-driven, experience-led program models begin to break binaries by anticipating needs and wants and offering meaningful interactions throughout the end-to-end customer experience journey. Often through mapping the current customer experience and understanding opportunities for enhancement, these models offer customers a divergent customer experience path unique to loyalty members.
Outcomes to expect:
- Discipline of using more sophisticated and actionable analytics
- Efficiency and scalability through broader organization alignment, cohesive partnership, and sponsorship efforts
Perpetual loyalty
Perhaps the rarest loyalty program in market, due to the operational and technological complexity needed to execute well, perpetual loyalty builds a seamless daily experience and fully acknowledges the partnership between customers and brands as one of co-patronage. These programs include customers in the program, allow for personalization in rewards and exchanges, and build relationships with different customer segments through targeted and refined model design.
Outcomes to expect:
- Perception of brand purpose aligning to persona values (resulting in 9.9x spending and 3.4x brand recommendation)
- Seamless brand existence in the day-to-day
- Patronage (beyond advocacy)
Overcoming common loyalty operational and investment challenges
Whichever model your brand moves forward with, you’ll need alignment of vision and investment, and right-sized operations to support your loyalty initiatives.
Operational needs span across experience, data, technology, organization, process, and monetization. Each requires careful and specific planning, regardless of the model. Due to the sophistication of drivers of holistic customer experience, such as data management, partner/sponsor negotiations, accounting practices, and technology ecosystem, experience-led and perpetual models are often more complex to operationalize.
As you embark on your loyalty journey, below are six ways to avoid the pitfalls and maximize your investment.
1. Lead with customers:
Building with what the business wants will not guarantee customers will sign up but, more importantly, continue to engage.
2. Avoid jumping to a platform as the solution:
Platforms don’t create loyalty. Brand, experience, relevance, and consistency drive loyalty.
3. Set realistic expectations:
It can take over 24 months for a program to become a revenue center. Operations, data architecture, branding, communications, payoff management, and change management all require time and planning.
4. Future-proof your program:
Time, competitive pressures, and emerging technologies will all influence consumer behaviors and sentiments. Data, analytics, and continued optimization need to fuel a program.
5. Consider the entire journey:
Loyalty strategy is an end-to-end customer experience strategy. We need to think about attitude changes at multiple points on the customer experience journey.
6. Validate your strategy:
There is little room to fail with loyalty. Validation with customers/end users is critical before a full launch.
Building a loyalty strategy for today’s consumer
Loyalty strategy is multifaceted, and there are several key components to consider. For a winning strategy, it’s important to foster mutual loyalty with customers through the alignment of values supported by speedy operationalization.
True loyalty goes beyond a program or platform and inspires lasting actions, such as commitment, forgiveness, and advocacy for a brand. Explore multiple models to reach that co-creation stage in your loyalty journey that customers are hungry for and ensure your brand’s adaptability to evolving preferences and market dynamics.
Slalom is a next-generation professional services company creating value at the intersection of business, technology, and humanity. Learn more and reach out today.
