Creating intimate customer relationships

Nowadays, consumers are far more discerning with where they’re shopping as they seek out merchants they trust and those they have a longer-term relationship with. Data is having a big impact on how these experiences are brought to market and this article takes a deeper look into this theme. In 2020, consumers prefer personalized experiences and individualized offers to remain engaged with merchants. Imagine ran a study of a few hundred consumers and found that 7 out of 10 people are highly influenced in their choice of retailer by loyalty programs they opted into.

The last time you were going to buy something, did you use a recommendation engine on the web? When you made the purchase, did you choose a retailer with whom you have a membership? After the purchase, did the retailer follow-up with a personalized email or notification? You probably did, and that’s because some businesses are using tools to personalize their relationships.

The efficacy of each of these methods is determined by the level of personalization they use, however, not all businesses are equipped to maintain a holistic view of their customers. Data-rich retailers, such as Amazon, have developed a granular understanding of what each consumer wants and are able to tailor offers to boost sales. Our study found that 85% of consumers actively engage with 3 brands with which they have loyalty programs and over half engaged with over 7. These brands are capitalizing on a captive, loyal, audience to boost retention and increase sales.

Consumer choice is at an all-time high with consumers being bombarded across an ever-expanding number of channels and fatigue is setting in. To combat this, consumers are more discerning about where they spend their time, what they listen to and where they spend their money. Unoriginal generic loyalty programs, coupons, apps and wallets do not help and further confuse consumers. A lot of consumer spend is dictated by the value received from rewards, however many merchants don’t have access - or the means - to extend appealing rewards or experiences, causing a large amount of undifferentiated wasted spend. A platform that can deliver targeted value to consumers would certainly be a powerful tool for most businesses, but funding it efficiently is key to its success..

Customer Loyalty

The most popular and effective loyalty programs have three layers:

Personalization

Emails with personal touches increase open rates and result in a 6x increase in sales. Those that capitalize on insights from unique data and/or the influence of peer recommendations to assist in your purchase decisions are even more effective. For example, those based on purchase history generate 3x higher approval ratings than those with less personalization.

Incentives

Perks can make customers spend more and they often become the nudge a customer needs to complete a transaction. The best brands have designed incentives with high loyalty margin to increase customer perceived value, at lower cost to the merchant. If done right, customers remain loyal, spending 12-18% more, and visit more often. Your investment in them is rewarded, as half of customers will choose your brand over a competitor due to the presence of an incentive. Optimizing this equation is a win-win for all stakeholders.

Automating intelligence

Brands that succeed rely on data to define loyalty strategy. Understanding what customers want and being able to deliver it at the right moment is the holy grail of ensuring a loyal customer with high lifetime value. Automating this in an omnichannel world is hard, yet with 52% of customers demanding a seamless experience on mobile as well as web, it is rapidly becoming table stakes. Data should converge into insights that generate actions automatically, at scale, in real time.

The rise of the loyalty economy is creating winners and losers

Merchants that understand these new consumer relationships witness 20-40% of their sales volume coming from customers inside their loyalty program. Target RedCard and Starbucks are good examples. These “loyalty leaders” grow revenues faster than their industry peers and best in class merchants fund these programs via unique linked payment options to extend their reach.  

Most businesses are missing two important assets: data and insights. Large, tech-enabled brands have more data from their historical customer base to understand users' behavior. They can also afford to build the tools that translate these insights into actionable recommendations for their consumers automatically.

We found that 56% of consumers feel more loyal to brands that “get them” - an important emotional response to maintain a strong and intimate relationship. Without providing engaging, relevant experiences and rewards, consumers churned. Intimacy, built on data, is key.

Retailers like Target have embraced this movement. Target has iterated on its loyalty program several times culminating in its Circle program with over 70 million active users. Circle combines 1% savings on all purchases with birthday rewards and personalized offers designed to make the program more attractive to consumers. Target has gone further by leveraging their Red Card program to fund enhanced rewards (5% cash back) funded by eliminating payment costs and over 23% of Target’s revenue comes from customers in this program.

Sears paints a striking contrast to the success of Target. Roughly the same size in 2007, Sears filed for bankruptcy in 2020. Sears funded an expensive loyalty program with 49 million members, that resembled a spray and pray approach, versus leveraging data to optimize communication and rewards. Generic messages such as “Shop Your Way: Amazing Member Deal! Get $15 off your purchase of $100 at Sears PLUS other great deals!” hurt more than helped. Only 1 million loyalty members were active in 2014, and four out of five Sears shoppers never returned to a Sears after their first visit. Studies found that 68% of customers left because they felt the company didn’t care about their business.

It’s clear that developing a culture of continuously optimizing intimate customer relationships is the key to long-term successful growth. We quickly assume loyalty simply means a combination of discounts, points or freebies. However, loyalty is all encompassing and related to product and customer service satisfaction delivered in real time. It is more about a great customer experience which can be enhanced by delivering more value through communication, support, and R&D in other areas. However, not all merchants have the means to deploy an effective program - 85% of SMBs believed that they needed help but couldn’t find a solution in the market.

Loyalty can fund itself

Business owners believe funding incremental discounts or rewards for their customers without guarantee of future revenue is a way to increase costs in an uncertain business environment.

The opposite is true.

Releasing funds available for R&D, customer support, marketing or other initiatives have a direct impact on customer loyalty, and with little to no initial investment the ROI is sky high.

All businesses can unlock the benefits of launching these programs by combining them with a low-cost payment method, however, administering, maintaining and growing these programs is expensive and difficult. Business owners currently pay transaction fees that fund loyalty to credit card companies, but instead they could redirect that spend to fund loyalty to their customers directly. On top of the net savings generated, merchants benefit from increased customer lifetime value from higher loyalty.

It’s time for consumers to start benefiting more from their relationship with you, than a plastic card.

Imagine enables businesses of all sizes to launch their own programs funded by eliminating transaction fees. We handle all transaction processing, account management, KYC, compliance, and identity to remove this burden and allow you to focus on delivering a better, more intimate experience to your customers.

If you’d like to learn more, please contact us at merchant@gotimagine.com.

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