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November 30, 2022

The changing face of retail loyalty

We explain how to forge an emotional connection through a personalized experience, a commitment to sustainability and shared values.

Covid-19 prompted consumers to fundamentally change their shopping habits. But while many shifted channels and explored new brands out of necessity, their preferences and behaviors continue to evolve today by choice. As a result, loyalty is up for grabs—and the traditional, points-based, transactional programs of the past are no longer resonating with the modern consumer.

This leaves retailers with a fundamental question: Do they need to rebuild their loyalty program to meet the needs of this new landscape—or create an experience that builds loyalty organically?

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3 ways the retail loyalty model is changing

1.    Shoppers are loyal to the experience.

For many shoppers—especially younger consumers—experience matters as much as or more than the product itself. This shift is raising the stakes for retailers and brands since they must now compete and win on two fronts: product and experience.

For example, the grocery sector is a segment where loyalty traditionally has been defined by convenience. People base their decision to visit a store in large part on their proximity to the location. However, what happens when consumers have an experience that stands out—through helpful staff, a unique product selection, and a commitment to the community? Most Trader Joe’s shoppers will tell you: They go the extra mile to support that brand – literally.

For many consumers, especially younger shoppers, the shopping experience is becoming as important as the product itself.

As loyalty becomes more experience-based, retailers need to rethink how they create a personalized, engaging and relevant shopping journey for individual consumers. This means reinventing many tried-and-true tactics, such as updating the traditional discount and offer model to make it more relevant and timelier for each person. It could also mean expanding the core business to include new value-added services that add simplicity or increase convenience.

For example, in the apparel segment, footwear retailer DSW successfully increased footfall by incorporating relevant services, such as a nail bar and shoe repair, in their stores. The brand also has a robust data strategy to determine which products should be stocked in physical locations in each market.

Because customer expectations are constantly evolving and increasing, brands and retailers need to continually level-up their experience and provide higher and higher levels of personalization, based not on the needs of a segment but those of the individual. For example, some athletic and outdoor retailers are incorporating sensor-based treadmills that perform gait analysis for runners and walkers. By measuring the impact of the person’s stride, the retailer creates a highly personalized shopping experience through a value-added service.

The days of building on or winning back a once-loyal consumer through a generic discount code may be a thing of the past. However, many shoppers still value coupons, offers and rebates—especially if they’ve been a long-time feature of the loyalty program.

The key to an effective offer strategy today is to ensure that the discount is meaningful. Retailers can leverage data to determine what type of coupons the shopper would value and the manner in which they should be delivered.

2.    Sustainability needs to be easy.

One recent study found that 9 in 10 consumers say they want “more commitment” to ethical and sustainable behavior from brands and retailers. Meanwhile 50% of consumers globally are choosing to buy from brands with a clear commitment to sustainability.

Retailers that make sustainability easy are on their way to driving loyalty with 90% of today’s consumers.

Many consumers will be loyal to brands that make it easier to fulfill their desire to be more sustainable. That means retailers’ sustainability efforts—whether through business practices, product selection or social responsibility programs—must be transparent, simple, seamless and accessible.

For example, beauty retailer Ulta offers a “Conscious Beauty” product category that allows shoppers to easily identify products that are cruelty-free or vegan, as well as brands that use sustainable packaging and clean ingredients.

To make sustainability easier for consumers, brands need to reconsider how the company:

  • Categorizes and merchandises products in-store and online

  • Incorporates new services to reduce waste and help customers shrink their carbon footprint

  • Determines which products to stock

  • Influences suppliers to become more sustainable

  • Trains employees

  • Builds out the customer experience to include ways to share information like the traceability of products with the end consumer
3.    Consumers become brand advocates through shared purpose and values.

Retailers that forge an emotional connection with shoppers don’t just create loyal customers; they generate brand advocates.

For example, when Apple launched its “Shot on iPhone” ad campaign featuring jaw-dropping imagery captured via phones, the brand didn’t just promote the quality of their built-in camera—it spurred everyday users to make their device choice public.

For many brands, this is what modern loyalty looks like: consumers sharing and promoting the brand because they love the product, agree with the company’s values, and see themselves reflected in the corporate mission. Driving this emotional connection is based on two related elements: Feeling seen and understood by the brand and understanding and supporting the brand’s purpose.

The importance of values and mission is new for many retailers. In the past, consumers rarely thought about the core purpose of the brand. However, as newcomers made brand story a core part of their offering, that began to change. TOMS, which donates a pair of shoes for every pair that is bought, has pushed the fashion industry to rethink what it can deliver beyond the product itself.

No matter how well-intentioned a retailer can be in their purpose, it needs to be accessible for the consumer in order to drive impact and differentiate the brand.

Purpose-based loyalty is not exclusive to niche brands or new entrants. Major retailers like Walmart are making it easier for shoppers to support causes that are important to them through a wider product selection. For example, the company’s e-commerce site features a “Communities to Support” section featuring products from black-owned brands, halal beauty brands, LGBTQ+ brands, and more.

Building an engaging, personalized loyalty program

Here are key best practices for building an experience that drives loyalty.

1.    Identify the optimal metrics.

As the loyalty model changes, so should the metrics used to measure success. Once aligned solely to sales-related indicators such as conversion rates and store revenue, the modern program places equal emphasis on customer satisfaction and engagement, as measured through such key performance indicators (KPIs) as net promoter score, customer satisfaction score and customer health score. Another metric that is increasing in importance is the customer effort score, which measures how effective the retailer is across all aspects of the experience, from product placement to education of staff, to purchasing and delivery.

2.    Embed metrics within store and staff performance evaluations.

With the right metrics in place, retailers then need to adapt how these KPIs are embedded within the sales teams across all channels. Loyalty is no longer solely sales-focused; retailers must communicate this change to staff and evolve how employees work with customers to drive the metrics that are important. These changes should be part of how staff is measured and evaluated on an individual basis, helping brands reinforce the new model of loyalty and how it is calculated.

3.    Prioritize data security, privacy and transparency.

For many consumers, data security and privacy are real concerns. When they sign up for a loyalty program, they want to understand how their data will be used, who will have access to it, and how it will be protected. Brands need to build and maintain robust security and privacy controls and actively communicate any potential issues to the customer.

4.    Follow through with a hyper-personalized experience.

As brands and retailers redefine the terms of their loyalty program and collect more data, the value should become apparent to customers over time. This value can take many forms: personalized offers and communications; value-added services in stores; new or refined products to meet buying patterns; and exclusive events or special access. The common thread here is personalization. Brands and retailers should leverage customer-centric data to better understand who their target customer is and drive repeat purchases through both the rational and emotional elements of loyalty.

As retailers face new levels of volatility and disruption in a post-pandemic world, loyalty becomes even more important to ensuring the company’s long-term viability and market position. For many, the success of the modern loyalty program hinges not just on the products and services they offer, but the experience they deliver. 

With that in mind, as companies reconsider how they engage and serve the modern customer, the question to consider is not how to reinvent the loyalty program, but how to create an experience that builds loyalty naturally.

To learn more, visit the Retail section of our website or contact us.

This article was written by Scott Headington, VP, Industry Solutions Group, and Robert Johns, Senior Director of Merchandising, Planning and Store Towers, Industry Solutions Group in Cognizant’s Retail, Consumer Goods, Travel & Hospitality practice.

Cognizant Insights Team

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