Lack of customer loyalty can be a roadblock to success

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In apparel magazine, Qubit's VP of product, Simon Jaffery-Reed discusses how customer retention is as important as acquisition, and how having a loyal customer base is the key to retail success.

The importance of customer loyalty

With so many choices for consumers today, it’s more important than ever for brands to give added attention to customer loyalty. The overriding goal of any customer loyalty program is to build a strong, lasting relationship with the individual to create lifetime value. The relationship can typically be measured through a repeat purchase rate but, as our internal data shows, just 16 percent of customers will come back again and buy something. The real kicker is that once you pay for customer acquisition costs, there’s a good chance that the shopper will only become profitable after the second purchase, presenting loyalty as a major opportunity to seize.

In fact, loyalty is evolving. Many brands are gamifying the loyalty experience by offering distinct benefits at each tier of their loyalty program, according to a recent Gartner L2 report on the topic. Fifty-five percent of the brands featured in the report adopted a tiered loyalty structure in 2018, compared with 48 percent in 2017, so the trend is becoming more widespread. One of these brands, Nordstrom, revamped its loyalty program last September to include several tiers and offer a range of benefits — from personal double points days to a personal in-home stylist. The strategy appears to be paying off for Nordstrom — active loyalty members spend four times more than customers that are not members.

The focus on customer loyalty seems to be catching on. Glossy’s recent report, “The New Retail Model,” finds that 50 percent of respondents don’t have a loyalty program but are considering it, 18.1 percent have had one for more than a year, and 14.5 percent have launched one within the past year.

There’s another great reason to invest in loyalty: acquiring new customers is costly. The goal should be to nurture the customers you have, moving them from the first purchase to the second, etc. Retention strategies to re-engage and inspire those you’ve worked so hard to acquire can be a huge opportunity for growth. The fact is, retailers that focus on loyalty engender trust with consumers and ensure that their brand stands out amongst their competitors

Loyalty viewed through two lenses: First, the customer’s view.

A customer wants to know that a brand is “listening” to their intent. In practice, this means picking up on the data they give you in real-time, in multiple visits or across different channels, to inform contextual experiences for every engagement. For example, if you know a customer always buys high-heels, why then would you recommend flat shoes on their next visit?

Additionally, segmentation strategies focused on tiering customers based on their loyalty can be an effective way of scaling personalization to different groups of valued customers. Whether you have a robust loyalty scheme or you use behavioral data to infer segments (i.e. has spent <$100, or has made >10 purchases, or has been consistently purchasing from you for >5 years), you can use that data to inform experiences. For VIPs, that could be first looks at new ranges or invites to exclusive events.

And it doesn’t end there; today’s customer expects ongoing “special” treatment. McKinsey wrote on a concept some years ago that still holds true today: there are two kinds of loyal customers, active and passive. Active customers are those that stick with the brand, love the brand and recommend the brand. Passive customers are those who stay with the brand without being committed to it. These visitors are open to messages from competitors who give them a reason to switch. In fact, our internal data shows that 81 percent of consumers would switch loyalty if another brand provided a more personalized service.

Second, the brand’s view.​​​​​​

Customer loyalty will, naturally, generate an increase in the frequency of engagement from an individual. A brand will become the consumer’s default choice in what McKinsey calls “the initial consideration set,” or the small number of brands regarded at the outset as potential purchasing options.

This article was originally posted on Apparel magazine. Click here to read the full article.

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