What motivates a customer to purchase products from a particular brand?
It’s a familiar question that has perpetually been asked by retailers around the world, but they have often struggled to settle on a conclusive answer because there are multiple factors at play and consumers’ needs, preferences and shopping behaviours are continually evolving. It has been particularly challenging since the pandemic.
According to McKinsey & Company’s COVID-19 US Consumer Pulse Survey, economic pressures, store closures and changing priorities have prompted 75 per cent of US consumers to change their shopping behaviour since the start of the pandemic. Research found that 36 per cent have tried a new product brand, a trend that was partly driven by popular items being out of stock due to supply chain constraints. However, 73 per cent of those who had purchased products from a different brand said they would continue to do so. This suggests that the drivers of loyalty are once again changing, according to Shanthi Rajagopalan, senior director of strategic planning for worldwide retail and consumer goods at Microsoft.
“The e-commerce explosion has turned consumers into ‘super surfers’ who jump between different channels, devices and websites as they shop and this has caused shocks to loyalty,” she says. “While price and quality have historically been (and largely continue to be) the main drivers behind customers’ purchase decisions, they’re increasingly considering factors such as whether a brand offers convenient and personalised services, and whether it aligns with their own ethical, social and environmental values.”
If brands don’t meet their expectations consumers are also increasingly happy to turn to a competitor that does. “Research from PwC suggests that 59 per cent of consumers will walk away after several bad experiences while 17 per cent will do so after just one incident,” says Rajagopalan. “So, it’s clear that customer experience is the new battleground for brands that want to become – and remain – the top choice for every consumer.”
Turning shoppers into lifelong customers has always been a top priority for retail brands, but it is challenging to find the perfect mechanism, according to Guy Elliott, executive vice president and industry lead for retail and consumer products for Europe, Middle East and Africa, and Asia Pacific, at consulting firm Publicis Sapient.
“Historically, loyalty programmes have been impersonal and transaction-based – for example, customers earning points for every purchase and redeeming them for rewards such as product discounts,” he says. “However, the proliferation of these schemes in the retail industry means that they’re no longer a differentiator for brands, so they don’t engender true loyalty. Instead, brands should take a holistic approach and build a loyalty programme that drives retention across all customer touchpoints.”
It's crucial for brands to rethink end-to-end service design and re-evaluate all their customer touchpoints to ensure no pain point is left untreated, says Rajagopalan. “They must also improve the interstitial moments in the customer journey, especially if their business model means that consumers rarely engage with a human brand ambassador,” she adds. “These interstitial moments provide the ideal opportunities for retailers to anticipate consumers’ needs and make personalised interventions that will drive loyalty that extends beyond the transaction.”
Brands are now experimenting with various types of experiences to attract and retain customers. “Some brands are doubling down on their resale business, providing customers with the opportunities to sell products back once they’ve finished using them, while others – like furniture and homeware retailer Ikea – have developed services to enable customers to rent items,” says Rajagopalan. “These services keep customers coming back to stores regularly, ensuring that the brand stays top of mind and often tempting people to buy items they would not otherwise have purchased.”
In addition, brands such as sports equipment and apparel retailer Nike are inviting customers to join exclusive communities of like-minded individuals. “The free Nike Run Club app allows users to track their running journey, access training and wellness tips, participate in individual or collective fitness challenges, and more,” says Elliott. “Nike isn’t selling directly to customers, but rather welcoming them into its ecosystem and delivering a value-added service that caters to their needs, thereby subtly establishing itself as their preferred brand.”
Some major retailers are taking this a step further by introducing subscription-based models, where customers pay either a one-time or recurring membership fee to join a loyalty programme that offers exclusive benefits and personalised experiences. For example, Walmart customers can pay to join the US-based hypermarket chain’s Walmart Plus scheme to gain access to exclusive perks such as free deliveries, exclusive fuel discounts, movie streaming platforms and more. Similarly, exercise equipment and media company Peloton offers members live and on-demand classes, personalised class recommendations, access to training programmes, and more via its paid-for loyalty app.
Research indicates these paid programmes are successful; consumers typically have bigger baskets, transact more frequently, and are more apt to engage with a brand’s broader suite of offerings. A 2020 McKinsey & Company survey found that the likelihood of someone spending more with a brand increased by 60 per cent if they participate in a paid programme, compared to just 30 per cent if they are a member of a free programme.
“Although paid loyalty programmes are difficult to implement initially, brands can derive higher customer value from those who sign up if they’re executed well,” says Hilding Anderson, vice president and head of retail strategy for North America at Publicis Sapient. “In this scenario, paying members can be worth several times more than non-paying members, so it’s worthwhile for brands to consider establishing this type of programme if they can.”
Elliott notes that paid loyalty programmes simultaneously act as a flywheel for encouraging customers to keep coming back to the brand, and a flywheel for enabling the business to do more to improve the consumer experience, products and services.
“Online retailer Amazon, for example, uses money generated by Prime subscriptions to fund research and development efforts that allow it to create better products, services and experiences,” he says. “Meanwhile, [cash and carry warehouse chain] Costco makes most of its profits from member subscriptions, so it can reduce margins on products and cut prices for customers. These lower prices are attractive to customers, which means Costco attracts more subscribers and can continue decreasing prices, and so the cycle continues.”
To power their loyalty programmes, retailers must capture and analyse large amounts of customer data from multiple channels in real time. “The rapid move to e-commerce has opened up new experience channels and created vast troves of valuable data that can be used to transform everything from merchandising to supply chain, marketing, customer service and more,” says Rajagopalan. “Data is the great enabler for every retailer – and their data estates are now their best assets. Unlocking the insights hidden inside their data gives retailers what they need to build connected, personalised experiences for customers, employees and partners.”
However, to earn access to this data, retailers must first gain the trust of their customers. Rajagopalan advises brands to be explicit about both the information they are collecting and how they will use it to benefit each individual consumer.
“Trust is a long game to win, and a short one to lose,” she says. “It takes years to build long-term loyalty, but one small slip-up can reset things to zero so it’s critical for retailers to get it right. If brands want to use customers’ data to drive their loyalty programmes, they must prove they can be trusted to use it wisely and transparently and provide perks such as personalised services, relevant product recommendations, exclusive promotions or better delivery options in exchange.”
Brands also need to implement the right technology to manage their loyalty schemes. “Retailers need to know as much as possible about their customers to be able to make them feel special and deliver the types of experiences that will keep them coming back time and time again,” says Anderson. “Now that they’re doing business across multiple channels, they need a robust omnichannel platform to centralise their data, as well as artificial intelligence technology to analyse it for insights.
“They also need to upgrade point-of-sale (POS) systems to ensure customers receive the same promotions in store and online, empowering store assistants with instant access to data-driven insights about each customer so they can better respond to the needs of individual customers in real time. Publicis Sapient is working with a number of its clients to take the idea of a headless, omnichannel architecture and extend it into both traditional and customer POS systems to allow them access to so much more information than has historically been available.”
In addition, brands are capitalising on the capabilities of customers’ smartphones – and perhaps combine them with technologies like augmented reality – to develop mobile applications that create a seamless, convenient and personalised shopping experience.
“For years, retailers have been trying to equip physical stores with cameras, kiosks and other technologies to deliver interactive, digital in-store experiences but this is expensive, so now they’re exploring how they can offer the same experiences and services via mobile applications,” says Anderson. “For example, they’re using mobile apps to send customers personalised product recommendations and promotional offers in real time while they’re in-store. It’s driving desirable behaviour, recurring purchases and loyalty.”
In future, brands will explore the potential of new technologies to create solutions such as headless loyalty services, predicts Rajagopalan.
“Just as retailers have been adopting headless commerce because they want a singular commerce engine that drive transactions across multiple channels, they’re now exploring how they can create headless loyalty engines that are always present, regardless of which channels customers engage with,” she says. “We’ve also seen brands considering how they might use the metaverse and Web 3.0 to improve customer experiences in future too.”
Meanwhile, Publicis Sapient is experimenting with blockchain technology. “We’re looking at how we could build a secure programme on blockchain technology and then construct an ecosystem around that to offer anywhere, anytime loyalty,” says Anderson.
The advent of such new technologies, combined with market changes and ever-evolving customer expectations and behaviours, makes now the ideal time for brands to capitalise on opportunities to enhance the whole customer relationship in a way that will drive lifetime loyalty, says Rajagopalan. However, she cautions against haste.
“Retail brands should view the race to win customer loyalty as a marathon not a sprint – every experience matters,” advises Rajagopalan. “A customer’s last best experience sets the standard for the type of experience they expect everywhere, particularly in the digital world where experiences transcend industry boundaries. Brands must take the time to understand their customers, plan loyalty strategies carefully, and harness the power of technologies and solutions from Microsoft and key partners such as Annex Cloud, Clutch, Namagoo and Publicis Sapient, to help them develop and deliver unforgettable experiences that lead to lifetime loyalty.”
A variety of Microsoft partners also contributed to this feature: Annex Cloud, Anywhere365, Clutch, Diebold Nixdorf, Experian Data Quality, Namagoo and Sunrise Technologies. Read about how they are using Microsoft technology to help retailers create and deliver the types of compelling customer experiences that drive long-lasting brand loyalty.
This article was originally published in the Autumn 2022 issue of Technology Record. To get future issues delivered directly to your inbox, sign up for a free subscription.