What’s wrong with loyalty?
By David Ashford, CPO
Before I attempt to answer that question, let's quickly pivot to another question; what does loyalty actually mean to each of us, and why do we seem to be content with mediocrity in this region?
Let me start by saying that these are my own views, and people who know me may suggest that I’m being 'a bit provocative', in order to stimulate some lively dialogue. Am I deliberately poking the bear? Absolutely.
Loyalty is probably best described as an ongoing emotional relationship between a seller and a buyer to drive preferential behaviours. Sellers want buyers to make repeat purchases, instead of going to competitors. They also want buyers to buy more frequently, buy more in terms of quantity, and buy more expensive products and services. And, of course, they also want buyers to influence others to do the same.
And what’s going to make the buyer play their part in this loyalty game? Incentives and rewards. In addition to a quality product or service; a buyer is unlikely to remain loyal or positively influence others if they’re dissatisfied. Perhaps we could conclude that:
loyalty = incentive + quality + reward
So, how can we all win at this game?
Let’s define an incentive as something that drives a behaviour, and a reward as a thank you for having done it. I’d suggest that the incentives must be genuinely appealing to attract customers in the first place. Then, the product or service must meet or exceed expectations. Then, there should be a reward which may take the form of a future incentive. And so, the circle goes on.
But why is loyalty a thing? Well, because the world is a competitive place. The cost of living is going through the roof, while salaries are relatively stagnant. Buyers are getting smarter and becoming more discerning. Why are they going to choose you over your competitors? And we all know that it’s cheaper to retain customers, than it is to acquire new customers.
However, Marketing Week’s 2024 Language of Effectiveness Survey revealed a third (33%) of brands analyse new customer acquisition in their suite of effectiveness metrics. But, only just over a quarter measure customer lifetime value (26.2%) and customer retention rates (25.1%). Why is there such a gap? I believe it's because marketers are struggling to land reliable data insights on their existing customers to make the exercise as fruitful as acquisition analysis should be.
While there’s a lot going on when it comes to loyalty in this region, I’d argue that there’s lots of missed opportunity – things that are mediocre at best, or simply aren’t being done at all. And I simply don’t know why.
Why do telcos still send me messages in Arabic when I’ve been a customer for 15 years?
Why am I asked to enter my delivery address when I’m always asked for my location at the time of delivery?
Why is the onus on me, the customer, to speak up to get rewarded, every single time, when I've done my bit by choosing the product or service in the first place?
A few years ago, during COVID, I got the message loud and clear that sellers weren’t interested in growing their businesses, they merely wanted to survive. But now, I would hope that they’re looking for ways to achieve competitive advantage… to grow.
Sellers often have their own loyalty programmes, but these don’t provide buyers with a great experience. Sellers are quite good at asking if you are a loyalty member, but often the incentive isn’t worth the additional hassle. I don’t want to announce my mobile number out loud. I don’t want to have to remember to download or open an app (often requiring me to sign in again when I have my mobile data turned off for that app).
Maybe sellers actually like it when buyers forget to use the loyalty programs – this “breakage” means they don’t have to give away any discount, cashback, points or any other form of savings or reward.
But, I have two major problems with all this.
Firstly, why do sellers think it’s ok to ask their buyers to make two transactions every time they make a purchase?
One to declare their identity and the other to make the payment. It’s not ok! It’s so simple to get the identity of the buyer from the payment itself.
Secondly, breakage is a serious problem.
All good retail marketers will be familiar with RFM analysis. How on earth can a marketer segment and target customers based on Recency, Frequency and Monetary Value of transactions if they are missing data? If customers don’t use your loyalty app then your RFM analysis will be horribly inaccurate and likely skewed. I’d even argue that maximizing your data collection is directly proportional to the effectiveness of your RFM analysis.
Restaurants have long bleated about the fact that the food delivery companies don’t give them access to the customer data. My own view is that the customer belongs to the food delivery company - they do the marketing, the sale, the delivery, and often the customer service. Imagine if I used a catering company for a private party and that catering company demanded to know the name and address of all my guests!
Most restauranteurs don’t even know anything about the customers sitting in their restaurants!
How can you grow your business if you don’t know anything about your customers?
You need to be able to profile your high value customers – what do they look like and what’s the best way to retain them and acquire more customers like them?
This is a problem that can be fixed… by identifying the customer through the payment itself, using card linked technology. If you're unfamiliar with card linked technology, we're kind of the experts, so please reach out to mimojo if you’d like to know more about this.
Effective loyalty requires personalisation and relevance, and this in turn requires quality data. For buyers to consent to you collecting and using their data, they need to trust that you’ll do so safely and responsibly, and they have to be convinced that there is a positive value exchange. They’re not on this planet to help sellers, there has to be something in it for them.
Tristan Harris, a former Google design ethicist, declared “if you’re not paying for the product, you are the product”, and I think this is starting to sink in. I believe we’ll become more polarised when it comes to data privacy. There’ll be two types of people in the world: those who will never consent to their data being collected, and those who are happy to allow responsible operators to collect and use their data in return for some value.
I start to have a problem when the non-consenters complain that they are being discriminated against. They’re not. They’re just not benefiting from lower prices, etc. that the consenters are getting as part of the value exchange. Why should a company give you the same discounted prices, when you are more expensive to market to?
A big barrier for consumers is data privacy, but this is easily manageable through the right adoption of international data protection standards, and the communication of such. I believe that data privacy is all about customer consent, whereas data protection is mandatory for all data controllers and processors – they must respect the laws of the land and the choices made by customers.
For sellers to drive preferential behaviours by engaging effectively with their buyers, they must fully appreciate the power of data. They should be selective about the data they capture and ensure buyers fully understand the value exchange when they are asked for consent. Data should be timely, accurate and useful.
The data can be used for targeted marketing – the more relevant and personalised the marcomms the better. The data can also be used to provide different incentives to different people.
We’ve just started scratching the surface and I believe there’s so much more we can do in this region. As sellers we can challenge ourselves to do better – more appealing incentives and less friction. As buyers we can vote with our feet.
But the very first thing we need to do is talk about it. Whether you agree or disagree, we’d all be better off if we engaged in conversations about this. Please get in touch.