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What makes a customer loyal? What did retailers and brands do to build trust and affinity with customers in the days before loyalty cards, CRM systems, customer segmentation and other technology enablers?
The answer is simple: good old fashioned service. A successful retailer knows what its customers want, takes care of them when they visit the store and shows knowledge and insight into their personal preferences. It surprises them with an extra product or service they weren't expecting and taps into some of the basic instincts that we all have -to be nurtured and liked by our fellow human beings.
An example is the local bakery that competes against massive supermarket chains, yet continues to build a successful business with a loyal base of customers. In turn, those customers promote the bakery simply because of the personal attention and interaction they receive from staff. So even though the baker sells its produce for up to twice as much as the local supermarket, it also sells twice as much because of that unique and personal customer experience. The bakery isn't the cheapest, but it's always busy. People make it a destination store because the level of service appeals to them on a fundamentally emotional level. They feel genuinely cared for and valued by an owner who is proud of his/her business and appreciates the custom of their supportive shoppers.
Great customer service like this creates fantastic customer loyalty – and has done since the days before technology-based loyalty programmes were ever invented. It's our contention that while technology has equipped brands such as airlines, retailers and hospitality chains with the tools they need to reward customers, the way in which that technology is currently applied to customer loyalty does not address the need for emotional connections between brand and consumer. However, we are equally convinced that technology is now emerging that will enable brands to create much more meaningful relationships with their customers. When applied within the right scenarios, it will help brands to build and retain genuine and valuable long-term customer loyalty.
So what's the difference between reward and loyalty?
The biggest problem with today's customer loyalty programmes is that the organisations running them don't see the difference between reward and loyalty. Programmes referred to as loyalty schemes tend to be based on transactional exchanges, such as money back on purchases (credit cards) or points for money off future purchases (store cards). These are rewards that appeal in a rational sense, but do nothing to build loyalty on an emotional level.
According to consultancy group
, most companies get loyalty programmes wrong - despite spending a fortune on them. Its findings say that US companies alone spend $50 billion (£31billion)a year trying to boost loyalty, believing that they will increase profitability by 20 per cent if they take the initiative. Only if the programmes workedwould this expectation be realistic.
Surprisingly, most companies don't get it right and their loyalty programmes fail, and tragically for the business, they never see a proper return on investment. At the heart of the problem is the lack of initiative to make loyalty schemes appealing to customers. Often companies will set up a programme without considering the changing preferences and habits of consumers. Most crucially, they are often set up so that the onus is on the consumer to make the effort to redeem points. If they don't redeem them they just keep adding up or they are forgotten - and this isn't beneficial to anyone, especially businesses. Reward programmes shouldn't feel like hard work for the person that's meant to be rewarded. But a lot of them do come across that way.
The McKinsey&Company research found another problem with loyalty programmes: they can actually turn shoppers away from stores. Its analysis of US retailers revealed that those with loyalty programmes posted a lower sales increase than those without loyalty programmes. If businesses are going to go through the trouble of developing loyalty programmes - knowing that that they have a great chance of failing - marketers need to put a lot of thought into how they are going to offer a unique experience for the customer, an experience that will make it worth for them to keep coming back for more.
A run-of-the-mill loyalty schemetypically won'twork, yet most brands continue to offer similar rewards to those of their competitors and there is nothing to distinguish one programme from another. One bank may offer a certain amount of cash back, and the rest will follow with similar offers.
First Direct provides a genuinely different approach and great understanding of its customers' needs – not by competing on rewards programmes. Metro Bank is another example of how a financial company can grow without any special loyalty schemes in place. In 2011, Mumsnet awarded the bank with a special innovation award. Ironically, there was nothing innovative about what it was offering. The bank was a step ahead of its competitors because it valued the needs of families. Metro not only offered extended hours and weekend openings, but also basic facilities that make it easier for parents to come into a bank for service.
Mumsnet voters loved that every Metro Bank store had customer toilets with baby changing facilities as well as space for prams and no steps to navigate. The branches also had great perks for the kids like free piggy banks, crayons and lollipops. Staff seemed to want to offer amazing service too.
Like our barber shop, those banks recognise that customer loyalty tends to be strongest to a brand, rather than a retailer that happens to sell that brand or a mechanism for payment, like a card.
Consider the example of an office worker who decides they'd love a can of Coke. Their emotional attachment to the Coca-Cola brand means that they are more likely to buy their can from the nearest outlet, even if it costs more, than they are to walk miles to the cheapest store – even if that store offers loyalty points and vouchers. Similarly, banks that offer cash back for using their credit card miss the fact that customer loyalty is not with the card – but will instead be with the brand or experience on which they are spending.
How many of us wake up thinking "I must spend some money on my credit card this evening" and how many wake-up thinking "I'd really like to go to an Italian restaurant this evening with my friends and family"? It's the experience with the restaurant that gives us pleasure, not the act of paying the bill.
The customer loyalty gap
Historically, banks have attempted to address this loyalty gap by aiming rewards at customer groups. However, this can backfire. For example, groups such as 'young women between 20 and 25' include people with very different needs, from those still in full-time study to those embarking on a career or starting a family.
Indeed, the use of warehouses full of customer data does not always deliver a satisfactory result. Despite the clear advantages of buying through an online retailer such as Amazon, customers can find it irritating to see suggested purchases based on a present that they bought for a relative months or years before. And while store cards can provide a positive experience in store, for example by allowing you to print vouchers for particular offers, those offers are only available in that store for particular products. And what happens if you've left your loyalty card at home – why should you miss out on your offers?
Again, technology enables retailers to build reward programmes, but they may not deliver and indeed could disappoint – helping to erode loyalty rather than build it. The customer's experience begins when they walk through the door and doesn't end until they leave. Similarly, the approach taken by airlines to encourage frequent fliers to choose their service is great in theory, but when it comes to booking free flights participants often find that it's impossible to travel when they want or to the destination they prefer.
According to a
by Collinson Latitude, nearly half of flyers never take advantage of their air miles because of the tedium associated with redeeming points and the rigid terms and conditions that apply. Figures also show that 60 per cent of people believe that they can't afford to take all the flights they need to get anything of value back. In the UK, where nearly half of all British adults fly each year, less than one in four - 23 per cent - collect airline loyalty points, even though it's possible to do it yourself by phone and on airline websites.
The failure of air mile programmes reveal how technology-enabled reward programmes can disappoint and erode loyalty, rather than build it up – if the customer's needs aren't a priority-or the rewards seem too unattainable. Delta Air Lines recently announced that it will be changing its mileage programme in 2015 by making loyalty scheme customers spend a lot more money on the airline to reach elite status each year. The reason for this new policy? The airline said it wants to make room to accommodate its more 'valued' customers. It seems that frequent flyers want status and like elite programmes that throw in perks as well as free flights. But what about the remaining passengers? Nobody wants to feel undervalued or 'inferior' for travelling economy class and they certainly don't want to be punished for it by the airline that sold them the ticket.
The trend towards omnichannel retail only exacerbates the need to understand what makes a customer loyal to their brand. Experience now extends beyond physical stores, transport and hotels onto mobile, social and ecommerce sites. The bad news is that this creates more of an opportunity for brands to get interactions with customers wrong. The good news is that it provides brands with more touch points with customers and more of an opportunity to give them positive experiences to enjoy and remember.
However, social media is also bringing new challenges to the reputation of loyalty programmes. Of course, technology exists to power sites that gather ratings or 'likes' for particular products or services and on the face of it this is a powerful approach. The problem is that a whole industry has grown up around increasing the apparent popularity of products, whether that's buying blocks of 'likes' or paying for celebrities to endorse products via Twitter.
Although advertising is deliberately designed to affect consumer opinion, at least everyone knows that they are being 'sold' to. With fake loyalty and promotion, the boundaries between truth and reality can be more difficult to establish. More consumers trust in 'people power' when researching holidays or consumer goods – but can they be sure this is genuine?
In our view, celebrity endorsement can be a short-term approach that lasts only as long as a consumer has an emotional attachment to that celebrity. We may enjoy looking at pictures of David Beckham in his Police sunglasses, but does that make us any more loyal to the Police brand?
Finally, voucher schemes or discount coupons reward customers for coming to a store, but tell those stores very little about who is using them. Retailers are often paid by consumer brands to include money off vouchers in their advertising, so the brands' huge investment in discounts on their products is presented at arm's length rather than directly from them.
Can technology support genuine loyalty?
The most successful loyalty programmes occur when they establish a direct relationship between brand and consumer. The Holy Grail of loyalty programmes is when brands can offer their customers accrual and redemption of individual offers in real time at the point of purchase. This is only possible using a new breed of e-commerce platform that can integrate with customer loyalty programmes as well as support mobile payments.
Payment and loyalty apps must be easy to use and not present customers with endless payment walls when they try to use their phone to make purchases or receive offers. They don't want to be left having to type in their card details every time they pay or access clunky mobile versions of e-commerce sites.
Not only is simplifying payment important to adoption but so is putting the customer first and knowing what they want. Most people like the way they pay for things already and aren't looking for alternatives to disrupt the process. If they are going to switch over to mobile payments they are going to want to be rewarded for doing so. In other words, they want a reason to use a payment scheme - and finding a way to keep consumers loyal to the brands they like is essential if mobile payments have a future.
Mobile applications must therefore be able to gather data about the consumer at a personal level, process their needs and taste preferences, and then be able to give it to them instantly at the checkout counter. This is difficult to achieve but will secure the future of mobile payments. Imagine the business potential of offering consumers an app that knows they are 'loyalty' members of different stores and can instantly have points given to them on their reward card when they make a purchase and offered an instant gratification for making a purchase at a store with the app.
The consumer doesn't need to do anything to be rewarded - not even take out their loyalty card from their wallet. All that's required is to pay with their app and they receive an enhanced shopping experience in return. This 'enhanced experience' could be provided through a gift with purchase, extra bonus points or a reduction in the price of purchase.
It's important to remember that customer loyalty will come to those retailers who offer their consumers the right experience, not just the right rewards. There is always a competitive retailer, bank or airline that may decide to offer more rewards. If this is all companies have to offer to shoppers then they will instantly switch loyalty to the retailer providing the most rewards: a transactional rather than an emotional response.
How do merchants use technology to create relevant loyalty schemes?
Happily, technology now exists that enables consumers to store all of their points and coupons in one place on their phone and choose when and where to redeem them.
It's important to remember that consumers are constantly bombarded with offers that are not relevant to them. There is also a compelling need for technology that helps merchants to grow sales and brand loyalty. This is particularly relevant in the payments industry where merchants are looking for ways to embrace mobile technology, one of the most efficient payment methods for consumers globally.
MPayMe's ZNAPTM provides a mechanism through which merchants can segment consumers based on previous buying patterns and deliver offers and discounts particularly relevant to them. These offers can be delivered to customers via their mobile device when they are in (or in close proximity to) a store. Loyalty redemption becomes much easier and more efficient as consumers can redeem loyalty rewards directly via the app at the time of purchase. For merchants, there is no incentive to offer additional payment options that do not provide any added value to their business. The ZNAPTM application and infrastructure provides merchants with the critical data required to facilitate loyalty programs, targeted special offers, and anytime/anywhere payments and offers on the go.
ZNAPTM can handle any existing loyaltyscheme and allows merchants without one to create one. A customer can link every loyalty card they have from a variety of merchants to their ZNAPTM account and gain the benefits of each individual programme in real time wherever and however they shop with ZNAPTM.
Thinking back to our busy bakery example, it ticks all of the boxes to create excellent customer loyalty. It knows its customers, knows their preferences, delivers a brilliant and satisfying service and throws in extra surprises along the way. Using new ecommerce platforms like ZNAPTM, brands can recreate that approach – and technology can play a role in building genuine customer loyalty at last.
Case study: Chester Races
In August 2013 MPayMe showcased its mobile app ZNAPTM at Chester Races, one of the world's most prestigious horse racing events. MPayMe collaborated with the event organisers to create the first ever QR-BAR - a VIP drinking lounge that enabled all orders and payments for drinks and canapés to be made through mobile phones. Hundreds of invited guests from the business, media and celebrity worlds were each given a Sony Xperia handset upon entering the QR-BAR. Each phone was loaded with the ZNAPTM QR app, which attendees used to scan a QR code on a welcome poster located at the entrance to the venue.
Once checked-in, users simply tapped on the 'Catalogues' tab in ZNAPTM at any time to view the QR-BAR drinks menu. To place orders, users then simply added their drinks of choice to the shopping cart and tapped the small shopping cart icon in the top right corner to proceed to check-out. To ensure a queue-less experience at the bar, users then entered their table number into the app, followed by a special PIN number to confirm the order. Orders were then completed and more than 600 drinks and snacks delivered to the customer's table area in a matter of minutes.
The successful showcase of ZNAPTM at the QR-BAR proved the willingness of the public to try a new way of paying for goods and services. The one-day event demonstrated how ZNAPTM mobile technology can offer customers a quick and easy way to pay - without the hassle of carrying money or waiting in long queues at the till. The ZNAPTM app also gives merchants a fantastic opportunity to pinpoint what customers want through collated marketing data and to deliver the right types of incentives to strengthen their loyalty.
ZNAPTM is now available to download for free on smartphones. Consumers can use the app to pay by scanning a QR code with their handset, selecting a pre-stored credit/ debit card, and entering a four-digit PIN to complete the transaction. Both buyer and seller receive instant confirmation once the payment is processed. ZNAPTM differs from simple mobile payments technologies because it gives users a unique user experience by rewarding them for their custom. This is achieved through ZNAPTM's ability to compile unique marketing data about each customer, which merchants then use to offer meaningful discounts, special promotions and other exciting programmes for the customer directly via the app at the time of purchase.