Brands Must Strike A New Balance Between Loyalty And Reach

Loyalty marketing is still very relevant for today’s brands. It is now part of the wider customer-engagement strategies and much more sophisticated than before.

Byron Sharp, a marketing academic and director of the Ehrenberg-Bass Institute for Marketing Science, caused controversy with his book “How Brands Grow,” when he suggested that a focus on loyalty—and, therefore, customer retention and segmentation—is failing brands when it comes to growth. Marketers should, instead, build market-based assets to achieve a better return on investment and direct resources into customer acquisition and broader reach.

In an era when customer experience is a priority and purchase journeys are complex, it’s an idea that generates a reaction from marketers. Portfolio non-executive director Jenny Ashmore, a former senior marketing executive, said: “Many people are very binary about Byron’s work—is it true or not?—but I would argue there’s a lot of subtlety. Many of the ideas overlap with things marketers are doing under other guises, not necessarily under the headline of loyalty.”

Whether marketers agree with Sharp’s views or not, his rules for growth are widely regarded as a good read, not least because they reflect current questions and considerations around loyalty, engagement, and consumer expectations.

Finding Balance

For most brands considering mass marketing versus precision targeting, it’s less a question of either/or and more about the need to balance the two, depending on current strategy and specific audience needs. This is especially true for any badge brand, from beer to mobile phones, according to Richard Dunn, chief strategy officer EMEA at Wunderman. “CMOs must ensure their brand appeals to as many people as possible while ensuring their most loyal customers feel wanted,” he said.

“Brands are part of a person’s identity. If you only speak to people who buy from you, then you miss out on what brands are actually about, and how important our social networks are when we make decisions. Your product needs to have social value with the majority of consumers.”

It’s no longer enough for a customer to simply know they have the best product on the market, their friends need to know it too, and broad reach can help generate the social cachet associated with brand choice.

Consumer Needs

Yet, today’s self-interested consumers also want brands to cater to their specific needs. Wunderman’s recent “Wantedness” study found that 72% of U.K. consumers only consider those brands able to show they understand and care about them, and more than half (54%) felt more loyal to brands which show a deep understanding of their priorities and preferences.

Scandinavian Airlines (SAS), for example, has identified an opportunity to align its brand and product offer with the values of its high-value customers, deliberately segmenting and defining passengers who travel frequently as its “five-plus” audience. The target group’s typical characteristics include being “very independent, very curious, and they see flying and travelling as a way of self-realisation,” according to Didrik Fjeldstad, vice-president of brand and marketing.

“They are very demanding and have requirements of us as an airline company, but also as a brand and a lifestyle company they relate to every day,” he said.

Dual Strategy

In the FMCG sector, distribution, awareness, and repetitive brand assets—all recommended by Sharp—often play a larger role on the commercial outcome and are welcomed by some industry insiders as a back-to-basics approach. FMCG companies are in a position where a dual strategy around customer loyalty may be more in order.

If you see your brand as a “commodity,” then penetration “certainly trumps loyalty,” said Alex Smith, founder of brand and business consultancy Basic Arts. But this overlooks the trend towards more niche and purposeful brands that consumers will go out of their way to buy, such as eco-friendly cleaning products.

“That means that this new breed of brand can become successful with far less media spend through nurturing the loyalty of a more discerning breed of consumer,” Smith said.

The trend towards brand loyalty and more niche products is growing. Smith said: “90% of the 100 biggest advertisers in FMCG in the U.S. lost market share in 2015, precisely due to this migration from commodity brands that favour penetration and zombie-level awareness, towards brands that are more considered purchases. However, there’s nothing to stop a big brand playing both games simultaneously.”

Generating Loyalty

For brands in categories other than FMCG, customer loyalty can be far more complicated. Marketing agency LIDA works with service-based brands including O2 and the Royal Mail, as well as retailers Boots, New Look, and Ikea. “For businesses like these, there is a real challenge around managing a reasonable cost of new customer acquisition, and a huge appeal in focusing on existing customers to build a genuine sense of loyalty, which is commercially realised in lifetime value,” chairman Matthew Heath said.

Loyalty marketing is becoming more, not less, effective in driving value, according to Heath, who says this is because of marketers’ growing ability to “use increasingly rich forms of data to develop far more relevant customer engagement activity that is fast becoming properly connected up across all touch points.”

Future loyalty will, therefore, depend on baking it into the whole brand experience if marketers are to achieve their objectives to put the customer first. This will call for even greater segmentation and flexibility.

“Lots of brands still think about what they want to communicate out, rather than the context of the customer and what may move the needle to make them spend more, more frequently,” Emily Buckman, global strategic consultant at mobile engagement platform Urban Airship, said.

Under pressure to meet quarterly objectives, brands often choose the easiest group to target, especially when challenged with just how many user journeys and experiences they have to create today. Buckman added: “Actually, all of your audience is valuable, and you have to reach as many customers as possible, you just need to treat them in slightly different ways to get the most out of the relationship.”

Rebuilding Schemes

Ease of use, or extreme utility through next-day delivery, as well as experiential rewards all have a role to play in the move towards a new world of loyalty based on brand experience, rather than transactions.

For the retailer pioneers of transaction-based loyalty schemes, a rethink is in order as points and rewards have become devalued and customers fatigued.

Matt Lee, director of shopper marketing agency Capture, believes retailers and the brands they sell are too obsessed with “high/low offers”—when a similar discount moves around from product to product. This makes it a real challenge for retailers to cut through to customers, especially as schemes are no longer a rarity and they’re fighting over a relatively small number of floating customers.

“If retailers really want to take loyalty seriously, they need to scrap current thinking and leverage technology to personalise and scale—they already know what offers customers have bought,” he said. “Also build in great functionality such as being able to bank an offer. That way they’ll get away with giving less money off, and give customers what they actually want.”

In categories where consumers are more emotionally invested, however, legacy loyalty schemes have not had their day quite yet. Travel and hospitality rewards are highly valued by customers, and schemes run by players in this sector continue to make a big impact, even if they’re not up to date.

Ian Chambers, chief commercial officer at Monarch Airlines, said: “We don’t have a market-leading loyalty scheme, but, even in its existing format, it drives huge business value for us.” Monarch is now planning to rebuild and replatform the solution, backing investment in customer retention at the same time as its customer acquisition plan. As a business focused on growth, that means spending on a brand awareness campaign too. “You can’t focus on the one and not the other,” Chambers said.

Far from being yesterday’s news, loyalty remains relevant for today’s marketers but is no longer just a stand-alone piece. It’s increasingly wrapped up in customer and category-engagement strategies. For marketers targeting growth, this will mean a laser-sharp focus on meeting multiple audience needs, rather than just shortcutting to the quick win.