March 26, 2024

Loyalty - Retail Industry Review

Loyalty is not dead, but it is certainly changing its look. Review the 5 generations of loyalty here. (3 minute read)

Paul Martin, Global Retail Lead & Head of UK Retail, KPMG

Loyalty is not dead, but it is certainly changing its look. The days of retailers needing only to look at what goes on inside their own stores are numbered, as the retail industry is transforming in the way it views loyalty. So far within retail, we’ve gone through 5 generations of loyalty:

1st Gen - The Advantage Card

In-store earning points, to bring people back into the store.

2nd Gen - The Membership Card

The big innovation was looking at SKU level data, so cross-selling was done between products. Eg, people that buy ice-cream might also like chocolate sauce...

3rd Gen - The Exclusive Club

Wanting customers to feel like they're part of an exclusive club by offering special events, discounts, and gifts.

4th Gen - The Service Bundle

Large e-commerce were rewriting the book on loyalty by understanding that it’s all about frequency of consumption, and began bundling various streaming services, and shipping/payment methods for the customer’s convenience.

5th Gen - The Super-app

An app which the user never leaves. It serves all their daily task needs, from communications to shopping and commerce.

Five recommendations to increase customer loyalty in today's business landscape:
  1. Retailers must remember that consumers don’t think about having a different wallet per brand - to them there is only one wallet; their own. It’s the retailer’s task to capture as much of that wallet as possible. The key activity therefore is to ‘predict future behaviour’ which means you have to be able to measure performance in near real time.
  2. Some clear trends we're seeing within the retail industry are a drive towards greater customer power/choice, and a rise in purpose-led businesses. Business models are changing, and partnerships are becoming key to the future of retail. The cost of doing business is also shifting -for example, running costs are getting more expensive and essential retail will have to reduce these by 10-20% this year. Non-essential retail will have to reduce costs by 25-50% to stay competitive.
  3. We're seeing that retailers are actively looking for next-gen loyalty solutions. For instance,  major supermarkets are currently investigating and launching new loyalty programmes. A decade ago in 2010, retail’s main debate was online vs offline. However, this ship has sailed - it’s no longer one or the other, but rather both. Since 2020, there’s a new debate: and it’s all about privacy vs convenience for the customer.
  4. My advice to retailers is get to know your customer as well as possible, and know also the costs of: acquisition, net retention, and sales per customer. Look for the right data and tech -focusing on quality over quantity - and drive purpose & reputation in your proposition. Thinking about the well-being of the individual, the planet, and the mind, is key.
  5. I'm very supportive of the research into Cheddar's ‘point of loyalty’ as I believe Open Banking spend data - and most importantly understanding customer lifetime value at a near individual level - is a great tool to help retailers stay one step ahead of their competitors.

Unlock the power of customer loyalty with Cheddar - the 5th generation loyalty app that's revolutionising cashback solutions for businesses. Download the app and try it for yourself👇

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