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TRANSCRIPT
The Future of Consumer Loyalty
Table Of Contents
Loyalty
Blast From The Past
Flash Forward To 2018
Changing Expectations, Changing Relationships
Two Types Of Loyalty
Emotional Loyalty
Behavioral Loyalty
Three Steps To Building Loyalty For The Future
Step 1: Know Your Customer
Step 2: Build A Customer-Centric Strategy
Step 3: Leverage Technology To Deliver The Right Experiences At The Right Time
A Few Companies Who Have Gotten It Right
Final Thoughts
3
4
5
6
7
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19
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LoyaltyEmpowered by technology, the demands of the 21st century consumer
have drastically changed. The modern consumer expects brands to provide
tailored products and services—how they want it, when and where they want
it—and they are willing and ready to switch to brands that best serve these
demands. Even with a superior product, brands that only rely on traditional
loyalty programs primarily focused on driving behaviors can find themselves
losing to competitors who are able to create a superior experience that fosters
emotional attachment to their brand. In fact, brands that leverage the power
of emotional loyalty by building personalized, value-add experiences achieve
higher market share, program ROI, and customer advocacy. This whitepaper
explores the focus areas required to build a seamless, highly-personalized
loyalty program that will help your brand drive revenue impact by enabling
customer connection and cultivating emotional loyalty.
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Blast from the PastThe year is 1998, and Jennifer is a writer for the
local newspaper, The Gazette. She works at a
small desk among dozens of others on the floor,
while her boss occupies a lush window office.
On a typical Friday night, Jennifer leaves work
at 5 p.m., where she is stuck in an hour-long
traffic jam. During the slow drive home, she
listens to a local radio station that always plays
Meow Mix commercials and Kid Rock.
Jennifer stops at Blockbuster to cash in on her
“rent 5 get 1 free” loyalty program reward, only
to find that Shakespeare in Love is out of stock.
Disheartened, she leaves with a copy of The
Waterboy instead.
She then heads over to the grocery store to
shop for dinner, standing in line for another
20 minutes while she thinks about taking up
her geeky neighbor on the offer of a date this
weekend. Sighing, she wishes it were easier to
meet quality men in her area—luckily, the cashier
accepts the coupons she cut out from the
Sunday paper, putting her in a brighter mood.
She arrives home at 7 p.m. to find the house
colder than her box of Hot Pockets. In 1998, this
was a typical Friday night for Jennifer.
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Flash Forward to 2018Jennifer leaves The Gazette office at 5 p.m.,
bypassing the parking lot, ignoring the
row of waiting taxis, and instead hopping
into the Uber she ordered 3 minutes ago
from her phone. She still sits in traffic
(unfortunately, that hasn’t changed yet)
but she has synced her Spotify account
with the car’s audio system and is listening
to the latest Discover Weekly mix, a
collection of songs Spotify recommended
based on her preferences.
She also uses this time to catch up on
eligible dating candidates on Bumble. She
finds someone she is really excited about,
and they arrange a date for this weekend.
When Jennifer arrives home, she finds the
Amazon Fresh groceries that she ordered
earlier in the day waiting on her doorstep.
As she opens her front door, she walks
into a warm and toasty home thanks to her
convenient Nest app.
After dinner is made, she asks Alexa to dim
the lights and turn on Netflix, glances at
the shows recommended for her, and then
continues binge watching the new season
of Stranger Things right where she left off,
because, you know, she can.
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Changing Expectations, Changing RelationshipsOver the last 20 years, a lot has changed for the average consumer thanks to
technology—from the way we watch our Friday night movie, to how we meet and interact
with the people closest to us. For today’s businesses, the important takeaway is how this
technology has changed consumer expectations. Consumers now expect businesses
to know who they are, what they want, how they want it, and to provide it to them in the
easiest and quickest way possible (thanks, Amazon).
In this landscape, it is imperative that businesses adapt to create and maintain meaningful
and direct customer relationships—or risk going the way of Blockbuster. Some of today’s
most successful companies don’t merely adapt, they transform their entire business to
focus on that direct-to-consumer relationship. A good example of this is Starbucks, and
how the company has changed the entire coffee industry—starting out as a “third place”
where customers were invited to linger and spend time together, and evolving into a
technology-driven daily staple, anticipating and predicting customer needs through
features like prepay and mobile ordering. A direct link to consumers allows a company
to not only react to behavior but use information to predict future behavior. It enables
companies to craft personalized experiences, products, and services that meet ever-
shifting consumer needs.
As companies undergo this transformation, they cause massive disruption to the
traditional consumer experience. The rules are changing: Amazon, a historically online
retailer, opens physical stores; Best Buy, a traditional wholesaler, now has stores within
stores; Netflix resets the expectations for entertainment at home. Disruption is the
name of the game. The question becomes how to augment core competencies with
offerings that resonate with consumers and provide value that inspires them to engage
and consolidate share of wallet with one retailer. In short, how can a business build an
experience that fosters long-term emotional and behavioral loyalty?
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Two Types of Loyalty
Loyalty has two dimensions: behavioral loyalty and emotional loyalty.
Consumers develop behavioral loyalty through highly rational decision making,
which manifests as repeat purchasing. Behavioral loyalty can be seen and
measured: Does the product or brand deliver a high perceived value for
consumers, as indicated through repeat business? Does the product or brand
help consumers avoid pain or inconvenience, as evidenced through feedback?
While valuable, behavioral loyalty has limitations to fostering long-term loyalty.
For example, consumers can be behaviorally loyal to specific retailers, but easily
change their preferences if a competitor offers a compelling enough difference
in price, product, or convenience.
Actions that can be seen and
measured, and are the result of
rational decision making.
E.g. Repeat purchase in retail,
or subscription renewal.
Behavioral Loyalty Emotional Loyalty
Emotional responses that are difficult
to measure, and result from intangible
perceptions, attitudes & values.
E.g. Preference for a brand based on
alignment to personal values.
91% of retail customers
who feel valued stay
with the brand.
(Forrester, 2017)
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Emotional Loyalty
Emotional loyalty works in tandem with
behavioral loyalty, and manifests as a
consumer’s affinity to a brand—going
beyond rational reason. An emotionally
loyal consumer raves about the brand
to their coworkers, friends, or family,
and feels a genuine attachment to the
company. Emotional loyalty develops from
connecting with a brand on a values level—
such as making a customer feel confident,
appreciated, or valued—and a strong belief
in the brand’s mission; emotionally loyal
consumers feel that the product or brand
aligns with their aspirations, wants and
needs, and their values.
While emotional loyalty endures the test
of time, it doesn’t always neatly translate
to a repeat purchase every six months.
However, it does mean that a consumer
will purchase from this brand over others,
and that they will be an advocate in the
marketplace. In fact, in the traditional
retail industry, among customers who felt
valued, 91% plan to stay with the brand,
89% plan to increase their spending with
the brand, and 90% will advocate for
the brand (Forrester, 2017). Given these
statistics, advocacy especially should not
be undervalued in a world driven by word
of mouth and social media.
As an attitudinal relationship, emotional
loyalty can be more difficult to measure
and translate into ROI. However, this type
of loyalty wins out over behavioral loyalty
in the long-run. According to Forrester, a
one-point improvement in the CX Index
score can lead to an incremental $244
million in revenue for a big-box retailer
(Forrester, 2017).
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Loyalty as an Outcome
Traditional loyalty programs, like those
we saw in 1998, were rooted in behavioral
loyalty—the programs were based on
rational decision making, and served
a highly transactional function. They
rewarded members who followed certain
habits and routines, like dropping by the
video rental store every Friday night.
The space quickly became crowded,
with very little differentiation in the value
these programs offered to consumers.
As companies and technology have
evolved, the need for differentiated loyalty
programs has also become more critical to
a business’s success.
The new role of loyalty focuses on
developing an emotional connection,
based on trust and likability, in addition to
repeat transactions. Companies are now
focused on gathering consumer data to
understand how they can help people
by making their lives easier, reducing the
stress of certain activities, or by making
them feel good. In this new world, loyalty
is not necessarily a discrete program
so much as it is an outcome—a state
of relationship achieved by delivering
a superior experience that stimulates a
positive emotional response.
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Three Steps To Building Loyalty For The Future
In 2018, companies need to be agile,
proactive, and innovative to get an edge
over the competition, as the battle for
a consumer’s wallet and mindshare is
heating up. In order to stay ahead of the
competition, it’s important to not only have
a superior product or service, but to deeply
understand consumers and predict their
needs. A robust and differentiated loyalty
program is a key ingredient to long-term
success. While there is no single correct
way to go about building this, there are
three key steps a business can take to
set themselves on the right path towards
building loyalty for the future.
“...it’s important to not only have a superior product or service, but to deeply understand your customers and predict their needs.”
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Step 1: Know the Customer
This is much easier said than done. The
challenge most businesses have in today’s
environment is not the quantity of data
they have about their customers, but rather
having the right data. Even with innovative
marketing technologies and an abundance
of consumer data, knowing one’s customer
is still a struggle today. This is due to a
variety of factors—legacy systems don’t
talk to each other, data lives in five different
databases, laws regulate what data can
be collected, data is available but not
useful—the list goes on and on. While
each obstacle to having actionable data
may have its own solution, addressing
each of these factors enables the ultimate
outcome: a single source of truth for
knowing your customer.
“Consumers want to feel that the product or brand aligns with their aspirations, wants, needs, and values.”
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Stitch Fix is a great example of a company that does this well. The incredible success
Stitch Fix has achieved in its first six-years is due primarily to its tenacious desire to
know its customer.
The company takes a two-pronged approach to this—the analytical, data led method,
in combination with the human touch. By virtue of its business model, Stitch Fix collects
information on a customer’s physical measurements, their taste, preferences, past
purchases, reasons purchased, etc. Further, the company keeps a database full of
additional attributes such as seasons, past trends, designers, and so on.
With all this information, plus advanced mathematical algorithms, Stitch Fix has a strong
foundation for knowing who its customers are. However, even Stitch Fix acknowledges
the difficult part is bringing this information together to make the right recommendation
at the right time through predictive analytics—since ultimately, humans don’t always
make rational and predictable decisions.
This is where the human element comes in through personal stylists; they understand
and can respond to their customers to truly personalize recommendations. For example,
when a customer expresses the need to create an outfit for an upcoming event, the
stylist can make a recommendation that uses the algorithm as a baseline, but truly
personalize it to match what the customer is telling them about their needs for
this specific occasion.
The stylists are the secret sauce to knowing the customer. As Stitch Fix CEO, Katrina
Lake explains, “Our stylists know exactly how special such life moments are and can go
above and beyond to curate the right look, connect with the clients, and improvise when
needed. That creates incredible brand loyalty.” (Lake, 2018)
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Step 2: Build a Customer-Centric Strategy
Once a business has a solid understanding of its target customers, it can build a loyalty
strategy that is relevant, resonant, and meaningful. The strategy depends on the target
consumer, the industry, the business model, and the overarching strategic direction of
the company. Successful loyalty strategies are commonly built on the following tenets:
Offer members utilitarian benefits
Design complementary services, products, and offerings to ease consumer pain points.
Amazon has led the charge on this front and succeeds by using Prime as a vehicle to
deliver meaningful customer value.
Amazon quickly learned that a large barrier to shopping online was the cost of shipping.
By providing free shipping to paying members, this obstacle was removed. From here,
Amazon continued to learn more and more about their customers and their shopping
habits, further iterating on their customer-centric business model. From these learnings,
Prime has expanded to offer additional value to members, from movie streaming to
grocery delivery to deferred payments for apparel.
At its core, Prime solves for a core consumer pain point: not having enough time in the
day to get everything done.
Today’s consumers are incredibly busy between work, family, social obligations, and
hobbies. Prime offers utilitarian benefits that allow members to free up time that would
otherwise be spent shopping by providing fast, convenient, and personalized services.
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Make members feel special & recognized
People like to be recognized. It confirms that they are valued by others, both in their
personal and professional lives. When people feel valued, their satisfaction rises and
they are motivated to continue the behavior that results in recognition.
The travel industry has this one well-figured out—top fliers in airline programs receive
special treatment, from first class lounge access and upgrades, to status for life. When
the experience of spending time and money with a business makes a consumer feel
valued, chances are they will continue to consolidate their spend for ongoing special
treatment, which in turn, makes them feel valued—and the cycle of behavior goes on.
While some industries excel in this area, research shows there is room for improvement
in others. According to Forrester, negative emotions such as annoyance, disappointment,
and frustration can have severe impact on ROI, with TV service providers notoriously only
retaining 17% of their customers—translating to $104 million left on the table.
(Source for all quotes: Forrester, The US Customer Experience Index, 2017)
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Member-aligned values
Consumers spend their money with businesses they respect. They also have the potential to be
vocal advocates for the businesses they support, which is easy to do in today’s world of instant
status updates and social media. Word of mouth is a powerful tool, with 84% of millennial women
reporting that comments, customer ratings, and reviews influence purchase decisions (Merkle
and Levo, 2018). Further, a brand’s alignment with personal values is important to over half of all
millennials (Euclid, 2018), making a strong case for businesses to stand for something meaningful.
However, to align values with members, a business must first know who the target customers are
and what they care about. REI’s “Opt Outside” campaign is an excellent case in point. On the largest
money-making day of the year, REI shuts its doors to business and instead encourages members
and employees alike to go do what they love to do—be outside. This brilliant campaign was a
big gamble that has paid off, as it has successfully aligned business activities with what the core
customer base cares about, resulting in members who are more loyal than ever. Per REI’s Chief
Creative Officer, Ben Steele, the key metrics are “less about sales and more about a healthy brand,
a brand that’s got a relationship with customers, that’s got a healthy relationship with its employees,
where you see engagement on both fronts. It’s been a huge success.”
On a larger level, Steele acknowledges that while “it’s awesome if 7 million people raise their hands
and say, ‘I’m going to #OptOutside with you,’ it’s a heck of a lot better if people start saying, even
beyond Black Friday, ‘I’m going to make the outdoors a bigger part of my life. I’m going to protect
public lands, because they’re places that I care about. I’m going to step forward for things that
I believe.’ At the risk of sounding grand about it, we’re looking for impact at the societal level”
(Nudd, 2017).
While there is no single “correct” way to build loyalty, it is critical that the loyalty “vehicle” is designed
around consumers. As these examples show, loyalty is no longer a punch-card at checkout—
leaders in loyalty have set the bar quite high with personalized and experiential offerings.
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Step 3: Leverage Technology to Deliver the Right Experiences at the Right Time
Just as a brand’s loyalty strategy should work in concert with the overall approach to consumer
engagement and customer experience, loyalty technology should not be viewed in isolation. The role
of technology in building consumer loyalty is twofold: First, the company needs a loyalty platform that
integrates seamlessly with other core systems and digital tools to deliver core loyalty functionality
wherever it adds value to the experience. Second, brands should build digital and fusion (digitally
enabled physical) experiences to deliver consumer value and build emotional attachment.
Loyalty Platform: In the past, loyalty programs followed a fairly set “spend and get” pattern and they
did not change much over time. As we’ve outlined in this paper, the imperative in loyalty now is to
offer a multi-dimensional program that evolves over time in response to consumer preferences.
Meeting this new imperative requires placing loyalty in the context of the overall customer
technology stack and choosing an API centric platform that is built to integrate well with CRM,
email, messaging platforms and commerce technology. Many long-established loyalty programs in
need of a refresh are supported by proprietary and inflexible systems that were built to handle high-
volume point transaction workloads. Loyalty program redesign moments are also an opportunity
to re-platform on modern loyalty solutions that can not only handle high transaction volumes but
also have a modular and engagement oriented architecture that can flexibly support innovation in
program design.
Experience: Consumers look to digital tools to provide them with experiences that emphasize
ease, efficiency and speed. Brands that build these characteristics into their experiences have been
shown to achieve greater consumer loyalty. Simply put, if you make things easy for consumers you
are more likely to reap not only their behavioral loyalty but their emotional loyalty as well. As you
will read in the examples on the next page, membership based loyalty programs offer the perfect
vehicle for brands to invest in digitally driven experiences for their best customers.
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Sephora
Sephora continues to pioneer the mobile
commerce space, with frequent new
features that enable personalized mobile
experiences in the company’s Virtual Artist
application. For example, the company just
released a mobile contouring experience,
Pocket Contour, which lets members
superimpose contouring on their face
to see how it would look. First, Sephora
recognized contouring as a beauty trend
among millennials (step 1, know your
customer), and realized that their target
customers were having a hard time
achieving the look—contouring can be
complicated with many steps involved.
They then developed a customer-centric
strategy to walk customers through
this step by step (step 2, customer
centricity). To bring this experience to
life they partnered with a technology
company, Map My Beauty. Lastly, and very
importantly, they integrated the new tool
with existing capabilities, so the customer
can purchase products directly in the app
in a seamless journey.
Hilton
Hilton has invested heavily in digital tools
to improve the travel experience. For road
warriors, these seemingly simple tools
make all the difference in a smooth work
trip. Hilton used data to better understand
target travelers and their travel pain points
(step 1, know your customer). They saw
that there was an opportunity to ease pain
points by expediting the check-in process
and empowering travelers to have more
control over their experience (step 2,
customer centricity). They then addressed
these pain points by creating a technology
strategy that gives the traveler the option
to check-in digitally from their mobile app,
along with the ability to select their own
room. Hilton has continued to build further
utility into the app, including the ability to
order an Uber directly through the app
(which comes in handy when you get out
of the airport and are tying to figure out
how to get to your hotel) and providing
a digital room key (forget demagnetizing
those pesky cards!).
Nike
Lenati helped Nike connect physical and
digital experiences for core retail scenarios.
The “Nike App at Retail” solves real
shopping challenges:
• Finding and reserving a pair of your shoes in
your size that is available the very same day.
• Getting in-store assistance on your
terms, from self-serve (scanning product
barcodes to get real-time inventory
information) to personal assistance by a
store associate.
• Unlocking offers and rewards in real time
while in the store or even before entering,
based on proximity.
All of these technology-enabled
conveniences and benefits are available
(only) to members of the Nike Plus loyalty
program – providing a clear incentive
for joining the program. This is a great
example of mobile-led and omnichannel
experiences deepening brand relevancy
and driving customer loyalty.
These are a few companies who have gotten it right:
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Every Company is a Tech Company
These examples come from companies that are traditional brands spanning beauty, travel,
and retail. However, as they have illustrated, in today’s world every company is a technology
company, even if indirectly through working with technology vendors. To succeed in the
digital era, companies must demonstrate a deep commitment to embracing technology as a
capability to augment their core competencies. Further, each of these examples also reinforces
the idea of “mobile first,” real-time technology, and easy customer engagement—all of which
pave the path to loyal customers.
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Final Thoughts
The way consumers shop and engage with brands is rapidly evolving, and companies
have to adapt to keep up. As companies like Amazon continue to take market share
from traditional businesses, it becomes ever more critical to develop direct-to-consumer
relationships. Fostering loyalty based on an emotional connection is important, as emotionally
loyal relationships are more valuable and stand the test of time. That said, it is important
to develop and design a program with an understanding of one’s target customers, and
to leverage technology to enhance their experiences. A program should be seen as an
enhancement to the core experience and relationship with the brand—not a disconnected
experience: This is how you can keep Jennifer shopping with you for the next 20 years.
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Clay Walton-Househead of consumer strategy services
Laurie Meekloyalty engagement lead
Graham Millssenior consultant
Lenati Many of the world’s most valuable brands and retailers engage Lenati to help them acquire, grow & retain customers. Our
expertise is aligned to achieving a stronger customer connection. We are a marketing services and experience design firm that works
on critical initiatives that transform marketing and the customer relationship.
We are recognized by industry analysts as a leading strategic advisor on loyalty and retention. From individual programs to holistic
brand strategies, we can help you build your approach to fostering behavioral and emotional loyalty to drive deeper engagement
with your customers. Our focus is to deliver results and we work hand in hand with our clients to implement market leading advanced
marketing practices including CRM, personalization and membership and rewards programs.
Graham is a member of Lenati’s loyalty team and has experience designing and
launching several retail loyalty programs in the US. He has advised many clients on
how to select loyalty platform providers that best support their long-term goals.
Clay is a Principal at Lenati and leads our Customer Retention and Loyalty Team. Clay
helps Fortune 500 companies adopt and implement customer engagement strategies
that accelerate growth and build loyalty. He has a proven track record of delivering
successful organizational change, program design, optimization, and CRM operations
that unlock business-wide impact. Past clients include Hilton, Nordstrom, Expedia,
Airbnb, Uber, Capital One, DSW, Microsoft, and T-Mobile.
Laurie leads Lenati’s loyalty team, with over 10 years of experience working with
Fortune 500 clients to design, launch and redesign loyalty programs, across all
industries. Laurie has worked with top brands including Nordstrom, DSW and Vans.
Contact us today to learn more about how we’ve helped companies transform their loyalty customer experience.
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References
Forrester, The US Customer Experience Index (2017). https://www.forrester.com/report/
The+US+Customer+Experience+Index+2017/-/E-RES136424#
Lake, Katrina (May-June 2018). Harvard Business Review. Stitch Fix’s CEO on Selling
Personal Style to the Mass Market. https://hbr.org/2018/05/stitch-fixs-ceo-on-selling-
personal-style-to-the-mass-market
Merkle and Levo (March 8, 2018). Why Millennial Women Buy; the behaviors and
motivations of the most powerful purchasing segment, p. 15.
Euclid (June, 2018). Evolution of Retail: Consumer Survey Report – June 2018. The Brand
Perception: How Strong Brand Values Inspire Consumer Trust and Loyalty
Nudd, Tim (November 20, 2017). Adweek, Inside Year Three of #OptOutside With
REI’s Chief Creative Officer. https://www.adweek.com/creativity/inside-year-three-of-
optoutside-with-reis-chief-creative-officer/
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