Loyalty Programmes: Nurtured, Engineered, or Both?

The Gift Club

 

This article explores the concept of whether loyalty can be (should be?) nurtured or engineered, or a mix of the two. Industry experts weigh in on the question, and we look at the different methods of creating a successful programme.

Picture the scene – Our founder, Hadie and her family are off to New York on their jollies. They’ve got free plane tickets thanks to their long-standing loyalty to their credit card company.

As she’s sat on the plane, prosecco in hand, she starts thinking about how great she’s feeling towards the credit card people. They’re flying her to the other side of the world for FREE, just because she paid for stuff with their branded piece of plastic.

This got her thinking about the other brands and loyalty mechanisms that she comes into contact with every week: the Sainsbury’s cash coupons, the BP rewards points, the Amazon Prime deliveries. The benefits are clearly earnt, and the value is therefore recognised.

“…So why is Netflix different? There’s no added benefit; no reward for watching this episode or completing that series. Yet we still give them our money every month.” She ponders.

She overhears a line from the in-flight movie her son is watching:

“Loyalty is nurtured, it cannot be engineered.”

After spending some time internally debating this statement, she came to the conclusion that she wasn’t sure she’d agree. Naturally, therefore, as soon as her feet hit US soil, she jumped on LinkedIn to share this notion with the industry and see if anyone would agree with the statement.

 

Here’s the result of the poll.

Is this statement true: “Loyalty must be nurtured, it cannot be engineered”

Yes – 85%                No – 15%

73 votes

The post threw up some interesting views from a number of loyalty experts, so we thought we’d delve into the subject a little further…

 

Different types of loyalty

 

First and foremost, let’s just cover off the difference between customer loyalty and brand loyalty.

 

What is customer loyalty?

 

Customer loyalty is the more transactional of the two. It is heavily influenced via positive experiences with your brand and/or products, where the satisfaction rating is high. Pricing strategy, product quality and quantity, and product availability are all contributing factors.

 

What is brand loyalty?

 

Brand loyalty on the other hand, refers to the deeper connection that customers form either consciously or subconsciously, because they perceive your brand to be trustworthy or of a higher quality than your competitors. Brand loyalists are likely to be serial repeat shoppers who are comfortable trying out new products, and who would publicly endorse your brand and/or services. In this case, it’s got very little to do with pricing or stock availability – many people with brand loyalty will pay more money or wait longer than needed just to shop with a brand they love.

In the case of nurtured vs engineered, some might argue that it depends which of these loyalty types you are yearning to create. Customer loyalty can lean into a more transactional process, whilst brand loyalty relies on building a meaningful relationship.

“Organisations that build and nurture brand loyalty do so by humanising themselves” – The psychology of brand loyalty and online communities, Disciple Media

 

Three categories of loyalty

 

According to Christie Nordhielm, a clinical associate professor of marketing at the Ross School of Business, University of Michigan, customers can be grouped into 3 main categories of loyalty: heart, head, and hand.

 

Heart loyal customers (emotional)

 

This type of loyalty is highly personal. It’s emotional in nature and not rooted within any rational explanation. If a product choice is made based on heart loyalty, then it is likely to be something that reflects a person’s personality or identity. These customers are hard to entice away – their loyalty is felt on a deeper level and even personalised recommendations towards replacement brands won’t deter the connection.

 

Head loyal customers (transactional)

 

The most practical of the loyalty types where the customer will likely have a specific reason for their purchase. The decision is driven by rationality, common sense, and necessity, and will often take into account the price, durability, safety, or ROI of a product. To sell to this group, you’ll need to put across a good argument that proves your product or brand is superior to your competitors.

“Our customers are loyal to us right up until the second somebody offers them a better service. And I love that. it’s super-motivating for us.” – Jeff Bezos

 

Hand loyal customers (habitual)

 

This customer is loyal out of habit. There’s no emotional or even rational reason behind their purchases. They simply buy because it’s a routine they’ve established. They likely don’t check prices or look for items that are on sale.

Commitment to the brand will be low, but the search for a replacement brand is even lower. To convince a hand loyal customer to switch up their behaviour is therefore tricky, but not impossible. In a retail environment, you’ll often see promotional discounts on products that have been strategically placed next to a household staple. The aim is to lure this type of customer into trying this product by offering a deal too good to miss. IF they like it, then it’ll likely convert into another hand loyalty purchase.

“Brand loyalty would exist if your customers ONLY kept coming back to you because:

– you have the best product

– you’re the best company delivering that product/service

BUT if someone is going back to a company because of the extra perks, then is that brand loyalty? Or are they just loyalty to what they’re getting?!

In the context of human-to-human interaction, without a shadow of a doubt, the statement is true. But when it comes to business-to-human, the human will only be loyal to what they get!” – Thish De Zoysa, Founder and CVO, Their Perfect Gift

 

So, are loyalty programmes nurtured, engineered or both?!

 

Studies show that 2023/24 will see a shift towards emotional loyalty, which has two, easily identifiable components: personalisation and experiential rewards. Creating memories or providing members-only privileges are good examples of this.

In Antavo’s 2022 Global Customer Loyalty Report, only 20.7% of respondents said they are already offering an emotional loyalty programme. When asking respondents from companies planning to launch or relaunch their loyalty programme in the coming two years, 53.6% specified that their programme would focus on emotional loyalty over rational loyalty.

This suggests that brands are recognising the need for a deeper connection, thereby supporting the argument for programmes that heavily nurture the customer.

“Definitely in my mind loyalty has to be nurtured in order for customers to feel valued and be loyal.” – Clare White, Partnership Development Director, Catalina UK

It seems that this is an age-old discussion. The following is an excerpt from a 1995 Harvard Business Review article that asks ‘Do rewards really create loyalty?’.

“A rewards programme can accelerate the loyalty life cycle, encouraging first-or second-year customers to behave like a company’s most profitable tenth-year customers—but only if it is planned and implemented as part of a larger loyalty-management strategy. A company must find ways to share value with customers in proportion to the value the customers’ loyalty creates for the company. The goal must be to develop a system through which customers are continually educated about the rewards of loyalty and motivated to earn them. Achieving sustainable loyalty, measured in years, requires a strategic sustainable approach.”

 

From this, we can see that loyalty experts from almost 30 years ago already knew that identifying the data to engineer a programme is a fundamental part to its ongoing success.

Back in the present day of 2023, and referring to a recent member podcast recorded with Ben Chesser, CEO of Coniq. Hadie asked him to share his thoughts on the concept.

“No, I absolutely don’t agree [that loyalty must be nurtured and that it cannot be engineered]. You can’t do it without the data. You can create an experience through nurturing, but behind it you need to really understand your customers. Is what you’re doing creating value? Is it driving longer dwell times? etc.

Engineering is critical. We are an increasingly data-centric world with thousands of ways to communicate with our customers. We need to measure the response to that communication.

The really great businesses are data-centric with a lot of engineering in the background, but there’s a big glossy layer of experiential and nurturing on top. If you try to do the magic without the science, it just won’t work.”

You can check out the full podcast recording here

 

Can some models even be considered as ‘loyalty’ programmes?

 

“Loyalty is a two-way street. Consumers are now continually evaluating your brand to determine whether it’s worth their money, support, and most importantly— their time.” – Ebbo

When we spend and then we’re rewarded, it encourages us to spend again. This seems to be the obvious, winning journey for both consumer and brand. But what about the subscription services where we spend out to get the product, but we feel loyalty towards the company despite them not offering a reward?

Netflix and Spotify are the perfect examples. We’re not technically rewarded with anything beyond the product that we purchase each subscription for, yet the engagement that each brand provides us with via personalised recommendations seems to be the magnet that keeps our satisfaction in check.

Ben Jones, Vice President of Business Development at SVS raises a valid point around the automatic tenure to services like these.

“As regards Netflix, they have a slight monopoly on some of the films and series they have so you’re tied in IF you want those programmes. You can’t just move to Prime, Disney+ or Paramount if you want to watch what only they have (which they know). So it will depend on their content to keep you ‘loyal’.”

 

Does the type of loyalty programme make a difference?

 

There are several defined types of loyalty programme, each with their own hooking mechanism. They range from very simple and free, to complex and paid.

The common denominator action for any type of programme to be successful is to conduct sentiment analysis.

Sentiments play a huge role within the sales cycle, because customers associate products and service with certain feelings (good and bad). By understanding these feelings – and acting on the insight – your brand will provide better customer experience longer term, thus leading to sustained loyalty.

“Loyalty is built over time, but all brands (and people) must know that loyalty can be lost very easily too… one poor experience or action can lose someone forever.

Many brands fail to adequately plan for when things go wrong with their most loyal customers. You can nurture all you want but if you have no strategy or mechanic to react when something bad happens, the loyalty you’ve created can disappear quickly.” –  Simon Jamieson, Managing Director at Marketing Lounge Partnership

In fact, according to Forbes, negative experiences are the primary threat to building customer loyalty, leading to over 80% of customers leaving a brand.

Here we look at two distinctive types of loyalty programmes that have proven successful time and again.

 

Tiered loyalty programmes

 

A tiered loyalty programme is a type of membership where customers enjoy different or additional benefits that increase with each price band or commitment level. As customers advance upward through a programme’s tiers, they should have access to better and better rewards.

According to Antavo’s 2022 Global Customer Loyalty Report, tiered programme owners reported a 1.8x higher return on investment compared to programmes that do not offer tiers.

Tiered programmes fundamentally work because the brand has engaged the customer in the investment of the upward journey. There’s a commitment required in order to maintain membership at the higher levels, and the perceived value of the reward is what fuels that commitment. This is an example of both nurture and engineering – the tiers and rewards are engineered to drive the commitment, but the customers need the nurtured approach to stick with the delayed gratification whilst working their way up the ladder.

 

Subscription loyalty programmes

 

Subscription loyalty programmes are paid for on a monthly or annual basis. In return for the payment, customers will receive a set of benefits that they believe are worth that investment.

The most famous example would likely be Amazon Prime. Effectively, customers are willing to pay for the access to fast, free delivery. But the additional benefits of TV, music and reading entertainment, plus exclusive member-only deals provide the extra perceived value, on top of the functional fast delivery need.

Subscription loyalty programmes come in all shapes and sizes now. They’re ideal if you want to ensure a high ROI but will only work if you make the investment worth it via high value rewards or always-on benefits.

“Many brands think of loyalty as free and are uncomfortable charging customers for it. But 91% of consumers are likely to choose a retailer whose premium loyalty programme they belong to over a competitor that is offering a lower price.” – Ebbo

 

5 ways to create a successful loyalty programme

 

This is an excellent blog on how to retain loyal customers that uses case studies to denote five distinct formulas that can instantly boost loyalty:

Engagement and habit-building — the Netflix way
Build great content, listen to the data that matters, and personalise engagement.

Breaking the barrier – the Hostelworld way
Run research on your customer base and solve their biggest problems.

Truly special experience — the Amazon way
Go above and beyond to provide a great service.

Social proofing, for the win – the Beardbrand way
Create a community.

Take the conversation pledge – the Freshdesk way
Introduce technology that facilitates human interaction.

_________

In summary, it seems that the answer is that true loyalty is the result of a considered, hybrid approach. All research points towards the success of any programme boiling down to both transactional AND emotional behaviours.

The type and category of desired loyalty should be defined before a brand chooses the type of loyalty programme to deploy. In depth research of both existing and prospective customers is key ahead of launch, which should then be continually monitored on an ongoing basis. Effective engagement through marketing, customer listening, and regular touchpoints should ensure a successfully engineered AND nurtured loyalty programme.

To continue to explore this and other equally deep and meaningful topics, why not purchase tickets to our live event in London this May? It’s going to be an action-packed day full of networking, insights and hands-on problem solving. You might even debate if you’re there because we’ve nurtured or engineered your loyalty 😉

Please note that comments taken from the original LinkedIn post and podcast have been edited for clarity and length.

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