Customer loyalty: why loyalty programs are no longer enough

Customer loyalty offers several advantages. Recurring customers represent, on average, 80% of the turnover in the trade. Their average basket is also substantially higher.

But how to generate loyalty?

Since the '80s, most retailers have offered loyalty programs to their customers to :

• Incentivise the consumer to come back to the store to make purchases
• Improve their customer knowledge through data collected from their customers

However, the traditional loyalty card has become no longer popular with consumers in recent years. Or, at least, it is no longer a guarantee of loyalty. Some discounters do without them very well. And other brands, such as Decathlon, are progressively disengaging from them in favour of new loyalty models.

So, has the store card that gives you the right to promotions or discounts gone?

Why and above all, what can you replace it with to build customer loyalty?

Traditional loyalty programs are losing ground.

Critical figures for loyalty programs

Traditionally, loyalty programs consisted of the following:

• rewarding customers financially according to their purchase volumes
• granting promotions on certain products to cardholders

Perceived as an essential lever for customer loyalty, loyalty cards have flourished among retailers in mass distribution and specialised stores.

However, the concept is showing signs of running out of steam.

The numbers speak for themselves:

• 58% of consumers do not use the loyalty program they signed up for, according to a McKinsey study.
• In 2019, 79.7% of consumers dropped out or did not use at least one of the loyalty programs they signed up for, according to the Loyalty Observatory's 2020 Loyalty Barometer.
• 22.3% of consumers never or rarely use the benefits of their loyalty card because they find it too complicated, because they need to remember or because the benefits don't interest them.
• Only 20.3% of consumers used all of their loyalty programs in 2019.

The limitations of traditional loyalty programs

Loyalty programs aren't a guarantee of loyalty anymore for several reasons:

• The generosity does not necessarily convince customers of the benefits: the cashback logic on which loyalty programs were built is no longer attractive. Instead, consumers are looking for other uses than purely financial ones.
• Hard discounters like Lidl have yet to develop loyalty programs but attract consumers with attractive prices. The economic uncertainties linked to the COVID-19 crisis reinforce their model
• 60.2% of customers with a loyalty card also have the loyalty card of the competitor.Autre inconvénient des programmes fidélité basés sur le cashback : ils sont coûteux.
• Another disadvantage of cashback-based loyalty programs is that they are expensive. If loyalty is not achieved, the ROI of these loyalty programs is questionable.

For all these reasons, retailers are forced to rethink their loyalty programs.

Can inflation breathe new life into loyalty programs?

In the inflationary context we are experiencing in 2022; price is once again a priority choice criterion for consumers. As a result, some turn to hard discounters, others to "Mini-price" departments or are hunting for promotions.

In other words, price is an essential item in customer satisfaction. Moreover, customer satisfaction generates re-purchase and loyalty and conditions the future sales of stores. In that case, retailers cannot, at this time, avoid the question of the price if they want to build customer loyalty.

However, even from this point of view, traditional loyalty programs seem outdated and ineffective.

Can we still convince customers by offering a free yoghurt pack for every two packs purchased? Does mass promotion, with its one-size-fits-all offer, still meet consumer expectations?

Certainly not.

Customers are no longer satisfied with standardised, "generic" promotions limited to certain products. While personalisation is gaining ground in most sectors, they also expect their loyalty to be rewarded with exclusive benefits linked to their basket's structure or consumption habits.

In terms of promotion and loyalty, the time of "one size fits all" is now over. Under these conditions, which models can loyalty evolve towards?

How to rethink loyalty programs?

Reinventing mass promotion in response to inflation

As inflation brings the issue of purchasing power to the forefront, price is again becoming a loyalty issue. Retailers have understood this and have launched actions accordingly.

Intermarché is proposing to transfer 5% of the price of all products available in its stores to the loyalty card of the most modest customers.

At E. Leclerc, the anti-inflation shield aims to protect consumers from price increases on a hundred or so everyday products. In the event of a price increase, consumers will be credited with E. Leclerc tickets on their loyalty card for the amount of the rise.

Lidl offers a 5% discount on the amount of the basket once a month in the form of a coupon that can be downloaded from the brand's app.

However, these schemes, linked to a particular economic situation, seem difficult to sustain over time. Therefore, they only postpone a necessary reflection on the future of loyalty programs.

Moving towards a subscription logic

For a long time, loyalty programs were free and only rewarded members financially through a kitty system.

But all these programs look the same from the consumer's point of view. As a result, customers don't necessarily see any distinctive benefits. And so, there is inevitable volatility from one brand to another, from one loyalty program to another.

In the end, isn't it more relevant to reserve exclusive advantages to its members in exchange for their loyalty while capturing them with a subscription system?

Amazon was a pioneer in the "subscription retail" field with its Amazon Prime program. By subscribing to the program, customers benefit from additional services: free and accelerated delivery, access to products or VIP events,...

In the retail sector, Walmart has also created a subscription program. Launched during the health crisis for $98/year, the program offers unlimited deliveries. It has succeeded, with 11% of American consumers already subscribed by early 2021. And 43% of subscribers planned to keep their subscriptions after the health crisis.

The subscription retail model has been emulated in France, particularly in response to inflation.

The Casino group has launched the Casino Max subscription, which allows its members to benefit from an unlimited 10% discount on all their daily purchases for the duration of their commitment. In terms of services, the subscription also includes free delivery on Casino Plus, the group's online shopping service in the Paris region.

Carrefour has also launched its subscription formula, which gives a 15% discount on purchasing more than 7,000 private label products.

The advantage of the subscription is that, since the customer pays, he will be more captive and loyal to the brand. The challenge for retailers, of course, is to find the right mix of benefits to justify the consumer's commitment.

Relying on customer listening

In early 2018, Decathlon decided to scrap its cashback-based loyalty program.

In an email sent to its insider customers, the retailer justified its choice by listening to customers (customer voice):

« Goodbye loyalty program, we have listened to you… ».

Thanks to customer feedback, the company realised its customers needed to consider the program's generosity more.

In the spring of 2021, a wholly redesigned customer loyalty program, co-constructed with customers, will be launched. This new program reflects the company's desire to move from a transactional approach to a relational one.

With the Decat'Club, it is no longer only the purchase that is rewarded but also the customers' commitments:

• The practice of sports
• The equipment in sports materials and articles
• Eco-responsible actions
• Sharing opinions on their customer experience with Decathlon

For each of these actions, the customer is awarded loyalty points that can then be converted into rewards :

• Sports gifts: for example, coaching sessions
• Gift cards
• Free services: free delivery, workshop services,...

Personalise loyalty programs with data

To reach their loyalty objectives, loyalty programs must evolve towards more personalisation and contextualisation.

In other words, offering a customer €2 in vouchers for every €50 spent is no longer relevant.

The customer is looking for exclusive benefits in line with his needs and buying habits. By personalising loyalty benefits, retailers can also engage their customers emotionally.

The new generation of loyalty programs should therefore rely on predictive analysis technologies to : 

• anticipate future purchases
• make those purchases more straightforward, more convenient and more personal

No more generic benefits! The customer wants to benefit from advantages adapted to his needs and preferences and calculated in real-time.

This is the choice of Franprix, for example, with its app  « Bibi ».

The idea is to offer each consumer registered on the app a personalised selection of products and promotions via the most relevant channel. To do this, Franprix relies on data and machine learning to offer a highly customised loyalty experience.

Conclusion

Customer loyalty can no longer rely solely on cashback-based loyalty programs.

More than financial benefits, customer engagement comes from exclusivity and positive emotion. This implies a shift from a reward logic to a logic of additional services. The redesign of loyalty programs must also go toward increased personalisation and contextualisation.


In short, the loyalty program must become a full-fledged component of customer experience optimisation and, therefore, it must be co-constructed with the customer thanks to customer listening.