In an increasingly competitive market, retailers are working hard to retain their existing customers; especially when acquiring new customers is five times more expensive than retaining loyal ones. Retailers already know that consumer spending will be up by over 20% this year, so getting their loyalty strategies right could be the difference between success and failure.
The challenge retailers face is exactly how to ensure their strategies provide the required impact. This can be achieved, especially when research shows that only one-third of UK customers are satisfied with retailer loyalty schemes whilst existing customers spend on average 67% more than new customers.
Every indication shows something clearly needs to change in this space.
Increasing the average customer spend is extremely important in the retail industry, especially on Valentine’s Day when there are so many opportunities for upselling. Retailers are keen to drive customers to spend more and increase their margins as a result, all the while knowing the total checkout value was higher than if the customer wasn’t part of the loyalty scheme.
However, a simple loyalty scheme with a physical card that was issued many years ago won’t make the cut anymore. Consumers have shifted towards a channel-less shopping experience, so loyalty schemes must mirror this change in order to stay current and above all, to ensure the loyalty scheme remains usable.
Getting this right is critical to the retailer’s success, given that 49% of consumers spend more once they have joined a loyalty scheme. Retailers must make the move from physical card to digital card; enabling the customer to download the app quickly to their phone, or integrating it with a larger loyalty app that enables the customer to have multiple digital cards in a single location.
Technology has facilitated this change. Now loyalty schemes no longer operate independently, but we increasingly see schemes such as Nectar encourage collaboration between businesses to achieve a common goal - in this case Sainsbury’s, eBay and Esso. With 61% of retailers citing customer retention as their biggest obstacle and 83% of customers confirming an effective loyalty scheme makes them more likely to do repeat business, it has never been a better time to take advantage of digital loyalty platforms.
Competing on more than price
Furthermore, loyalty is increasingly important in the retail sector as consumers and retailers split their focus on price. On the one hand, discount-heavy retailers such as Primark, Aldi and Lidl are enticing customers with the promise of a good deal for consumer’s loved-ones, but on the other hand, 52% of millennials admitted they feel it's important that their values align with the brands they like, so the experience offered by the retailer and their promises concerning environmental and sustainability policies are now garnering far more interest. Leading up to Valentine’s Day, consumers have been conscious of giving their loved-ones or friends a gift that lasts, rather than something that will result in unnecessary waste. Retail is becoming about more than just price, and this is where loyalty has an increasing part to play.
A loyalty scheme must incentivise a customer to come back, but loyalty cannot replace a good brand, only supplement it. The balance must be right between giving the customer a reason to support the brand, but also to return to the store or online and most importantly, spend more. This doesn’t always have to be points; retailers should increasingly explore other options, as 67% of consumers said surprise gifts were important to them.
If one thing is clear as we celebrate what could be the biggest Valentine’s Day yet, it is that the retailers with the strongest loyalty schemes will be streaks ahead in the retail race and win the hearts of consumers. It may be too late for retailers to make changes now, but lessons can definitely be learned for Valentine’s Day 2021.