Understanding Customer Loyalty In A Changing World With Epsilon

Customers are becoming less loyal. That sentence likely strikes fear into the heart of marketers around the world. Being unable to rely on previous buyers could have significant impacts on an overall business’ bottom line – not to mention campaign effectiveness.

In a changing and uncertain world, getting loyalty right can be transformational for a business. But, while customer loyalty programs might conjure images of reward cards and buy nine, get a tenth coffee free cards, loyalty is a far broader and more nuanced topic.

Global AdTech and MarTech company, Epsilon has dug into the changing world of customer loyalty to produce its Loyalty Index report to help brands measure true customer loyalty and find the key drivers that will keep customers coming back.

The Loyalty Challenges

There are four key challenges facing marketers looking to boost customer loyalty and ensure repeat business.

The first sounds simple but, in fact, poses a question that cuts to the heart of marketing. Are we focusing on what matters to customers?

Answering this question requires marketers and brands to understand what their customers actually want. Depending on the brand, the answer can change markedly. For example, a clothes store offering a loyalty point system that rewards customers for cumulative purchases might sound like an incentive. But, clothes are not typically repeat purchases and consumers tend to hold onto items longer. What’s more, with a growing interest in slower, more sustainable fashion, should clothing retailers be looking to reward mindless consumption?

The next challenge is ensuring that brands measure up to their competitors and, if possible, surpass them. Meeting this challenge requires marketers to keep an eye on rival brands and, where possible, extricate themselves from their work and think as a customer. Is your loyalty program better, or do you think it is because you thought of it?

The third challenge is benchmarking. Measurement is critical for marketing – everyone knows that. But, with loyalty programs, it is essential to to understand the potential of the category.

Epsilon measured behavioural loyalty in three ways: Share of Category, Share of Wallet, and Share of Time. But, again, the most important share can different from market to market. For beauty retailers, Share of Mind is more important (51 per cent ) than for apparel brands (37 per cent ).

However, for consumer retail banking brands, Share of Mind is essential at 73 per cent . On the other hand, Share of Value is significantly less important (7 per cent) than for beauty retailers (32 per cent). Being able to measure your attitudinal loyalty – and loyalty drivers – is vital to ensuring success.

The fourth challenge is about understanding your own strengths and improvement areas. This requires marketers to think holistically about their own offering. If you are a market leading brand, you need to find ways to maintain your lead. If you are a market challenger, you need to target the leader’s weaknesses. Emerging and niche players, meanwhile, need to find novel and niche loyalty levers to pull.

Understanding the Index

Epsilon studied 2001 consumers across four categories and 40 brands to develop its Loyalty Index. Then, using its attitudinal loyalty drivers, it was able to score brands in different categories. Epsilon also scored brands in each loyalty driver to determine where they can improve and where they are already strong.

In its research, Epsilon identified 14 loyalty drivers that influence consumer attitudes to brands. Some will be familiar to marketers such as promotions, placement, price, product, and service. Others will be less obvious such as entertainment, access, and participation.

It is these loyalty drivers that influence consumer attitudes and determine Epsilon’s attitudinal loyalty scores – the Share of Heart, Mind, and Value. These combine to form the Epsilon Loyalty Index, a statistically proven predictor for behaviour that brands can measure against to understand where they stand in the marketplace and how they can improve their standing or consolidate their leadership position.

The final part is understanding what drivers affect the Index score. These can be divided into two camps – the fundamentals and the accelerators. The fundamentals are promotion, price, product, service, and placement.

The accelerators, meanwhile, are the value-added services. Broadly, these are the things you need to do once you have a customer invested in the brand, think financial incentives, feedback and community forming, personalising communications and offers, and offering exclusive rewards and treats.

The Index, then, can help brands understand their consumers interact with their brand and how they can be influenced by non-financial drivers.

Are your customers true loyalists? Will they pay more, switch less, recommend to friends, and look to get involved in the brand? Think about tech fanatics obsessed with one brand or another. An Apple fan is unlikely to ever buy a Samsung phone, for example. They are also more likely to get involved in community events and love participating in the brand experience.

Or, are your customers multi-brand loyalists or explorers? Multi-brand loyalists tend to switch between one or two brands and seek access to new products and respond well to personalisation, keeping your brand at the top of their mind. Explorers, on the other hand, are open to different brands and look for novelty, engagement, and entertainment.

Transactional shoppers, meanwhile, only respond to price and rewards. They want guarantees, promotions, deals, rewards and incentives. These are the people who respond well to buy-nine-get-tenth coffee deals. For example, Pret A Manger in the UK launched a coffee subscription. Shoppers pay £25 per month and are able to get five drinks per day. As a result, rather than hopping to the nearest coffee shop to wherever they might be, those buyers seek out Pret A Manger shops and will travel further.

Loyalty in Apparel Retailing

Epsilon’s research, looking at Multi-brand retailers in Australia offering clothes, footwear, bags, and accessories, found that the clothing market has the fewest true loyalists of any category they studied.

As a result, staying in a consumer’s head is absolutely essential. Share of Mind was the most important attitudinal loyalty factor at 37 per cent. Making sure that consumers think of your brand when they need new clothes is imperative. However, at 34 per cent, Share of Heart is not far behind. Clothes help define a person and can help demonstrate their personality and values. Making sure your brand maintains a consistent image is absolutely essential.

“Customer retention is critically important to our success, built on our robust brand equity and service, that delivers customers with seamless omnichannel solutions, product quality and ultimately customer trust in our brand,” said a spokesperson for a leading Australian clothing retailer.

“Our approach to loyalty is both data driven and grounded in building deep customer relationships. For us customer loyalty gives us the opportunity to offer and reward with exclusive money can’t buy opportunities and experiences”

Epsilon found that consumers are more likely to be exploratory when shopping for clothes. They’ll flit around between different retailers and brands. To capture their attention, Epsilon recommends creating novelty and a feeling of newness. It is important to remind customers that you have something new and make sure you shout about it more while also maintaining solid values – this could be a commitment to sustainability or offering a unique shopping experience.

Education and Participation, meanwhile, were identified as under-leveraged loyalty drivers for apparel businesses. Creating compelling content to demonstrate your brand’s value and proposition could turn an unreliable explorer into a died-in-the-wool brand loyalist.

Similarly, creating a community, whether online – as some fast fashion brands have managed – or in real life, can be a great way to help make consumers feel valued and included in your brand’s offering. Again, many fashion brands look to put on music-based events to help demonstrate a particular aspect of their personality and seem cooler than potential rivals.

Loyalty for Beauty Brands

Focusing on skincare, cosmetics, hair care, body care, and fragrances, Epsilon only looked at multi-brand beauty retailers and found that Share of Mind was even more important in beauty than in apparel. As such, the two key predictors of loyalty are top of mind awareness and intent to visit.

Being front-and-centre in a customer’s mind is more likely to see your brand get repeat business. This could be achieved through impressive advertising and social campaigns, being present at every turn in a customer’s life.

But, you should ignore Share of Value and Heart at your peril. Your customers are literally putting your products on their bodies and they rely on your products to look and feel good. Plus, beauty can be expensive – if you can offer a great product at a cheaper price, you will likely fare well.

The fundamental loyalty drivers – place, promotion, price, etc. – play a far more significant role in driving loyalty compared to apparel retailing. However, when it comes to accelerators, Epsilon found that recognition came up strong, this could be because buyers have a greater need for social proofing and acceptance among their peers.

All told, Epsilon found that there are a high number of transactional shoppers in beauty. Pricing is sensitive in this category. But, rather than simply relying on a race to the bottom, brands can also offer a strong differentiating factor to justify a higher price. However, branding alone does not constitute a differentiator for these customers.

Rewards and experiences should not be discounted. While driving top of mind recall is the largest loyalty lever to pull, customers also value experiences. Free facials and treatments can be a great way to get customers in shops and attached to the brand. Similarly, producing useful and inspiring content can help brands position their products as essential for looking good.

Loyalty in Grocery Retailing

When it comes to grocery retailing, Epsilon found that consumers have a couple of favourite brands and tend to stick to them. Perhaps unsurprisingly, consumers tend to switch based on price, convenience, and assortment above all else.

While the shopping experience remains important, people rarely go grocery shopping for the love of it. It’s not unimportant – but you’ll likely lose more customers based on a bad experience than you would ever gain from a stellar shop floor and customer service.

As a result, companies need to focus more on the loyalty accelerators. Staying in a customer’s mind is, again, essential. However, behavioural loyalty programs such as innovative reward schemes are a fantastic way to boost customer engagement and retention.

However, there is a great scope for brands to be innovative within the grocery space to help drive Share of Mind. Moving grocery shopping from a purely transactional affair to a slightly more experiential business could reap huge rewards. Food-based content is huge on social media platforms. Leveraging this kind of content with influencers and content creators can be a fantastic way to highlight new product ranges or reinforce points of difference from competitors – is your produce more sustainable? Is it all grown in Australia? Do you have new and exclusive product lines?

This kind of content will also help drive Share of Heart. If your brand appears to be more relatable and closer to the needs and wants of consumers, they will view you more favourably and will be more likely to return.

Loyalty in Banking

When people find a bank, they don’t tend to leave. In Epsilon’s research, the retail banking sector has the largest percentage of true loyalists. What’s more, these consumers are likely to be emotionally connected to their bank. After all, it’s been there through all of life’s great adventures from moving house, buying a car, and navigating overdraft fees.

As a result, Share of Mind and Share of Heart dominate the loyalty picture. Share of Value, meanwhile, takes up just 7 per cent of the index. Rather than suggesting that consumers are willing to pay more for brands if they feature prominently in their minds or are emotionally engaging, it’s because banks tend to aggressively benchmark against each other on pricing.

However, there are some caveats that marketers should consider. Younger consumers are more likely to be explorers, according to Epsilon. Plus, with the long-term arrangements with these customers, aggressively targeting younger consumers could reap huge benefits for the company. Creating ‘success stories’ highlighting their long-term success with older customers can be a good way to engage younger and perhaps less financially confident customers.

Despite the relative lack of customer movement in the market, there are some significant opportunities for brands to attract new customers due to under-leveraged loyalty drivers. Banks don’t currently tend to have innovative loyalty programs and struggle to build community and participation. Personalising communications and hosting financial workshops, for example, could be fantastic methods to help customers feel more engaged and connected to their bank. As a result, they might be more likely to promote the brand to friends and family and less likely to leave, themselves.

Hearts, Minds, and Holistic Thinking

Driving customer loyalty in a changing and uncertain world requires more than just loyalty points and BOGOF offers.

Instead, Epsilon has found that brands need to think holistically about capturing the hearts and minds of their customers – not only to attract new ones but to retain old ones. Nowadays, consumers expect more from their brands. They want to feel included, they want to feel valued, and they want to feel seen.

By influencing their attitudes, not just appealing to their base financial needs is essential to keeping customers onboard your journey. In order to influence their attitudes, brands need to think critically about how they can keep themselves at the front of a customer’s mind. Innovative content campaigns and creating a community feel can help consumers feel engaged with the brand, whilst potentially attracting new customers who are feeling a bit listless when it comes to their brand of choice.

The most important point, however, is to listen to customers and understand their needs. Capturing space in their hearts and minds cannot be achieved by force, you need to be clever and innovative. Getting across your value proposition, as well, isn’t about bombarding them with simple deals.