The missing ingredient in loyalty; behaviour

There’s a lot of interest from brands who have products and services in loyalty.

This can result in hefty investment in schemes which try to bridge the gap between provider and consumer.

Is there a danger that some of these brands are wasting their money on schemes that won’t move the needle for their customers?

What are we talking about when we talk about loyalty?

When we talk about loyalty or reward programmes, what we’re really talking about is productised behavioural design.

The coming together of experience design, technology, data, experience strategy and brand into a shared space with the aim of encouraging certain user behaviours.

This often happens under the proviso that the customer is rewarded in some sense - either intrinsically or extrinsically - for demonstrating the behaviours you want them to.

For example, ‘we would like customers to buy more eggs from us,’ so we incentivise that purchase through discounted prices, points collection resulting in free gifts. Likewise, we would like a customer to continue using us as their chosen provider of flights, so we reward their tenure with an exclusive perk, like a free flight to New York after x number of transactions. 

Loyalty defined

Loyalty is a subset of behaviours that companies want to reward and encourage.

What does it mean to be loyal?

Here’s some definitions:

• Loyal to the rewards - “I just want my free ‘x’ - if I can get that quicker or easier elsewhere, I’ll leave”

• Loyal to the programme - “I’ve collected this many points I might as well carry on”

• Loyal to the ecosystem - “I’ve already spent a lot of money and time. To leave would cost me time and money.” or “I like the fact I collect points here then spend them somewhere different”

• Loyal to the product - “I would recommend this product to a friend” 

• Loyal to the brand - “I would always buy a product made by this brand over any other, despite the cost”

You might meet all of these modes of loyalty, but they don’t automatically lead from one to another, nor necessarily should they.

To illuminate the issue another way, loyalty strategies can be seen through three lenses:

Transactional loyalty

With transactional loyalty, customers expect something back for their patronage.

This often goes hand in hand with ways to save money, and links to the rise of the savvy consumer thanks to sites like Martin Lewis’ Money Saving Expert. 

Brands use repeat purchasing behaviour to drive customer acquisition or for promoting other behaviours of value such as paperless billing or the frequent use of products, services, platforms and stores. 

Example: Nectar and their relationship with Sainsbury’s. 

Pros of transactional loyalty

• The scheme scales well and appeals to a majority of users

• Active investment from customers is low

• Scaling equates to the accumulation of customer data. This data can be used to improve the programme, digital outputs or sold on to other vendors

• It creates a new marketing channel e.g. Tesco Clubcard and email marketing keeps the brand front of mind with consumers

Cons of transactional loyalty

• Schemes are often price orientated and a race to the bottom that can detract from the end user experience

• Rewards are low or slow to accumulate. Low active investment from people creates a low return for the brand in the immediate to mid-term

• The scheme is easily replaceable in the mind of users because there’s little emotional investment

• Lower engagement over time as people become jaded to the benefits, particularly when the return is low

Entangled loyalty

Entangled loyalty demonstrates the sunk cost fallacy.

Customers know they’ve spent ‘x’ amount of money in an ecosystem and know it would be foolish to leave and often difficult to do so due to the perceived cost, time, money and effort of moving.

Examples: Apple, I’ve got an iPhone and a Mac, my music library is saved, and my data is in the cloud. 

Pros of entangled loyalty

• It can extend the lifetime value of customers for brands, they’re more likely to repurchase potentially costly products because of having done so before and being tied in

• It can create new business models (e.g. multi sided platforms) that in turn extend the ecosystem – e.g. the Apple Watch

Cons of entangled loyalty

• Users can become resentful of being trapped in the system and seek to leave

• Some users are wary of joining and being trapped, especially with negative feedback being easily accessible on social media

• It’s also tempting for companies to veer towards dark UX which impacts brand trust

Emotional loyalty

Loyal customers who are emotionally invested in your brand are the holy grail of loyalty.

Emotional loyalty is demonstrated most explicitly through advocacy (e.g. NPS), repeat purchase and non-transactional engagement, e.g. vouching for a brand and recommending it to friends without being prompted.

Customers with this level of investment are more likely to respond to intrinsic or random rewards and like recognition and preferential treatment, they want to feel part of something.

Emotional loyalty typically aligns to purpose driven brands. These are brands that stand for something whether that’s good causes or great design. They also double as lifestyle and personality signifiers - take Patagonia.

Pros of emotional loyalty

• Consumers with this level of loyalty are more likely to buy and engage regularly

• Customers are also more likely to advocate for you, which serves as an engine for growth and an additional marketing channel

• Exclusivity makes these people feel special and builds an advocacy loop

• Customers are more likely to follow you through periods of product change and strategic pivots

• Greater customer lifetime value

Cons of emotional loyalty

• Often this group only makes up a small percentage of a brand’s user base and is not easily scalable, although they may bring in additional users based on recommendation

• Retaining this group requires high maintenance and expensive additional features to help people feel ‘included’

• It’s easy to focus on emotional loyalty and miss the bigger picture, resulting in more disgruntled users than less

The nuts and bolts of the problem

As a brand it’s perfectly valid to focus on one type of loyalty.

Successful and well thought of programmes have existed within each category. However, an ideal state would cater for a spectrum of behaviours within a single programme.

This can help you move from transactional relationships into emotional ones over time - achieving both scale and engagement without alienating or excluding different groups of users with a range of needs.

Loyalty programmes or schemes often fail because there are diminishing returns on purely transactional programmes as customers get used to the rewards and come to expect the same treatment every time. 

Really great loyalty programmes sit on a spectrum incorporating transactional, entangled and emotional elements. A strong loyalty framework builds out transactional rewards into journeys which extend and develop over the course of a customers’ lifetime. This creates a tiered journey for different user groups which extends with the amount of time and effort they invest into the scheme and as a result your brand. 

What’s important is understanding the lifetime journey and how users’ expectations change over time. This must extend to your wider customer experience strategy and brand touch-points to make a measurable difference.

The bottom line is through customer-centred design you increase your chances of understanding your customers’ needs and wants and therefore your ability to design for them.