Loyalty beyond reason


The new rules for customer loyalty and retention

What does customer loyalty mean to you? Perhaps it’s that customer who returns to your business again and again – because it’s convenient, easy and familiar to do so.

But in 2016, there’s much more to loyalty than behaviour. Convenience, ease and familiarity will get you some traction, but if you want to hold onto your best clients and convert more prospects into valuable long-term business, you’ll need something more.

Adam Posner, CEO of strategic loyalty and retention marketing consultancy Directivity, has spent the past four years researching and analysing Australians’ loyalty habits and motivations, and has developed proven loyalty and retention program methodologies.

“Behaviour is one thing, but the other dimension of customer loyalty is belief in your brand,” says Posner. “Behaviour is transactional, but the type of loyalty you really want is emotional – that’s what leads to advocacy, recommendations and referrals.”

Shifting patterns in behaviour

“Customers are less loyal to brands these days,” comments Sam Pfafflin of Raine and Horne Forestville in Sydney. “It’s definitely harder to be sure of their commitment, and I think social media and technology, including third party referral sites, encourage people to shop more on price.”

Posner explains this has a lot to do with our changing expectations in an ‘always-on’ environment, and brands that rely solely on transactional loyalty can no longer count on that customer base.

“Customers are wired 24/7 and now expect the same from businesses. We’re becoming less patient, for example. And not only are we less willing to wait when interacting with a brand, but we also expect an element of pleasure in any interaction.”

You could call this the Uber effect: when we interact with another category or product – whether it’s banking, telecommunications or insurance – we wonder why aren’t they as responsive.

“This issue of simplicity and immediacy comes up a lot,” says Posner. “Make it simple, make it quick, and make sure I enjoy it.”

When customers share their experiences through social media, it can lead to valuable referral leads. According to Deloitte’s latest media consumption survey, reviews from people within our social media circles have overtaken TV advertising for the first time as the most influential channel for purchase decisions. And this has important implications for loyalty rewards.

“While you’d probably tell everyone if you were given a hot air balloon ride or tickets to Derby Day,” Posner explains, “you’re less likely to tell them about the 10% off voucher you got because you spent $200 with that brand.”

To build your own loyalty, referral or retention program, take a look at Posner’s nine-step framework and get your strategy off the ground for all the right reasons.

According to his latest research, For Love or Money 2016, millennials in particular seek more experiential rewards, as well as points not only for transacting but interacting with a brand. North Face’s VIPeak Program is one example: it provides points to customers who attend ski film festivals or running events, because it sees its brand as selling ‘the experience of being outdoors.’

Posner says brands now need to move from transaction to interaction when it comes to rewarding behaviour.

What really motivates your clients?

Convenience loyalty, transactional loyalty and emotional loyalty – these are the three motivations for customer loyalty that Posner has identified in his research.

Earning credit card points, for instance, is a transactional motivation for loyalty to your bank. But Posner cites AAMI’s cleverly named (and very on-brand) Lucky Club as an example of a program that plays primarily to emotions. With exclusive VIP access to events from music festivals to gallery exhibitions available to purchase through AAMI, the Lucky Club is all about experiences.

“It’s a brilliant example of a brand understanding its promise, building a program that resonates and meets the needs of its customers,” Posner explains.

Making services more ‘sticky’

Because service businesses are relationship based, the belief side of loyalty that’s based on emotional connections is more important than ever.

“Moments of surprise are very powerful in service industries. To build emotional loyalty and belief, you need to proactively provide relevant surprise moments through gifts, rewards and experiences. I call them random acts of generosity.”

With emotional connections like these, businesses can look past transactional, points-for-purchase loyalty programs and instead build relationship-first strategies that have recommendation and referral as their goal.

To get those referrals from the clients you value most, the three ‘Rs’ are the qualities you need to build: relationships, reputation and relevance.

“It starts with warm customer relationships,” explains Posner. “Then you can strengthen your reputation with success stories, expertise and social responsibility. Finally, relevance comes through educational or inspirational content.”

“For us, referrals are the most important thing,” comments Pfafflin. “We certainly look after the people who refer us, and that starts with working out exactly where a lead comes from. It could be lots of little things rather than major material rewards.”

He says they make their service experience very visible, and it’s seen as a team effort in his office. “We work almost exclusively on auction, so we invite prospective clients who haven't listed yet to experience one of our auctions first. We also find a lot of our tenants will end up buying through us.”

Plan ahead for your exit

A tangible rewards program is a commitment. In For Love or Money 2016, Posner investigated the business impact of closing a program, and his findings are revealing.

Over a third of people were indifferent to the idea of a program they belonged to closing. “That says to me the program is not giving those customers any benefit and they don’t care,” he comments.

Another 20 per cent said they would stop buying from the business, and a large proportion said they wouldn’t go as often – both clear impacts on revenue. Other responses pointed to advocacy impacts, with respondents claiming they wouldn’t recommend the company to others.

It’s an important step in any loyalty or retention strategy process: don’t start without considering what might happen to your brand and business if you want to get out.

Pay attention to the smallest details

Whether your primary objective is to reward frequent purchase or encourage recommendations, there is a clear difference between loyalty for a reason and loyalty beyond reason.

That difference can come down to many small things, at every touchpoint your client has with your business. It can be personal recognition of a client’s name and value – the way Singapore Airlines greets its frequent flyers. It could be through recognising the significance of a purchase in your client’s life – one property management firm, for example, provides new tenants with a ‘welcome home’ kit including cleaning supplies and fridge essentials.

Or it can be the unexpected generosity of acknowledging an anniversary in your business relationship, or providing thanks for a referral or review.

None of these things require a complex points-for-purchase program. It’s really just a simple human response to the personal relationships that already exist in your business. And in our digital world, that can have more cut-through than ever.

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This material has been prepared by Macquarie Bank Limited ABN 46 008 583 542 AFSL & Australian Credit Licence 237502 ("Macquarie") for general discussion purposes only, without taking into account your personal objectives, financial situation or needs. Before acting on this general information, you must consider its appropriateness having regard to your own objectives, financial situation and needs. The information provided is not intended to replace or serve as a substitute for any accounting, tax or other professional advice, consultation or service.