Customer loyalty in retail has fallen by 14% to just 65%, down from 79% in 2022, according to the new SAP Emarsys Customer Loyalty Index 2023.
Given cost-of-living pressures and interest rate hikes, consumers are reassessing their spending habits and loyalty to brands. The SAP Emarsys research found that three in five (60%) consumers now prioritise cost over brand loyalty and a growing one-fifth (23%) no longer feel they can afford to be loyal.
SAP Emarsys regional vice president for Asia Pacific & Japan, Will Wilson recently spoke to Retailbiz about why retailers need to step up their personalisation and engagement with consumers like never before to retain their loyalty.
“Our Customer Loyalty Index 2023 shows that 65% of respondents said they are loyal to a retailer and only 22% said they have changed retailers because of price,” Wilson said.
“The idea of a rolling recession is hitting different industries at different times. When it comes to creating loyalty in an uncertain economy, we need to acknowledge that not every customer is born equal to your brand. For example, a recent report from one of our clients, Adore Beauty, revealed that three-quarters (76%) of revenue comes from returning customers. Adore Beauty has a formal loyalty program but customers are coming back because they see value.”
Three ways to promote customer loyalty
Wilson believes there’s three factors to consider when promoting customer loyalty.
“The first is segmentation of different demographics – finding out who are your most active and loyal customers. One of our other customers, Camilla, has a very loyal customer base with 1,000 customers who shop more than 120 times a year with them – that’s loyalty – and they don’t have a formal loyalty program. They are treating their customers differently, inviting them to events such as early access launches and social nights. It’s about understanding, promoting and rewarding loyal customers in different ways, so understanding the segmentation is the first key thing.
“The second is personalisation, which is key to ensuring that customers feel heard and understood. It’s about the customer lifecycle. Brands will talk to new customers differently compared to highly engaged active customers, so having a personalisation strategy is important. How can a brand anticipate a customers’ needs based on the information they’ve provided? A great example is replenishment. Understanding that recurring behaviour and prompting the purchase slightly earlier through some sort of incentive.
“The third is discounts, which shouldn’t be the default – but it’s the reality. However, strategic discounts can encourage the right behaviour with your customer base such as incentives ahead of key sales events like Black Friday.”
A strategic discount approach
Brands need to be true to their DNA and luxury cosmetics brand, Aesop is a great case study, according to Wilson.
“Aesop has 120 SKUs, never discounts and doesn’t have a loyalty program, but the company was acquired by L’Oreal for $2.7 billion. A great example that shows brands don’t always need to compromise just because of a major sales event like Black Friday,” he said.
“In saying that, I understand the need for brands to participate and unfortunately, a lot of Australian consumers have been conditioned to expect these discounts. This is why it’s important to have a strategic approach to understanding who and why you’re giving those discounts. For example, early access to new products to high value customers. But as a business, you need to understand why you’re doing it – is it to reduce stock before Christmas?
“The biggest risk for retailers is margin erosion; a perceived lower value of quality by always being discounted, but again, there’s an expectation for some brands to discount and it’s a normal strategy for retailers like The Reject Shop. It’s okay to give yourself permission to lean into Black Friday and Cyber Monday because of its importance in retail.”
Developing a personalisation strategy
Data hygiene is critical for creating a strong personalisation strategy, according to Wilson, and this comes down to four key data sources.
“The first is contact data – who are your customers? The second is sales transaction – understanding customer purchase history and recognising cross sell or upsell opportunities. The third is a product catalogue – what complementary products you can recommend such as a top that can be paired with the jacket recently purchased? The fourth is web behaviour – how you are interacting with channels such as the website and email?
“These four key data points allow brands to have a good 360 degree view of the customer and understand the customer lifecycle – a new customer versus a long-time customer – which is the key ingredient for a data strategy that allows brands to personalise the experience.
“For example, shopper information for our customer, Baby Bunting helps understand if it’s a personal purchase or for someone else, if they’re shopping for their first, second or third child, to make appropriate product recommendations.
“It comes back to adding value based on the information the customer has given, but you need the right data strategy to do that and incrementally earn value, from thanking them for their purchase or providing great customer service. In our Customer Loyalty Index, customers are more triggered to leave a brand after a negative customer experience, more so than price.
“At SAP Emarsys, we have a tactic called progressive profiling which allows brands to gamify the ability to get more customer data and it’s more exciting and less invasive than just asking for more data points. You don’t need to know everything about all of your customers on day one. Brands need to work to that level of maturity to gain zero-party data, from asking customers to opt-in to emails and asking for product feedback via a survey or NPS to delivering a great post-purchase experience. It should be a two-way conversation. It’s situational depending on the category of retail – beauty versus furniture for example – but it still comes down to an incremental journey.”
While it’s tempting for retailers to just have their eye on discounts as we enter the peak sales period, Wilson strongly encourages retailers to think about segmentation, identifying high value customers and rewarding them accordingly.
“This means you can be more strategic in your discounting. The balance between acquiring new customers and rewarding returning customers has to be right for your business. It’s also about getting the data strategy right for personalisation and considering how to work towards a zero-party data strategy.
“Although we’ve conditioned a lot of consumers to expect discounts during this period, shoppers are ready with their wallets, which is great as we head into the Christmas period.”