Digital has revolutionized the way consumers shop and think about brand loyalty, unraveling the traditional brand equity equation. The heightened level of product research consumers can conduct through digital channels makes it more difficult for brands to extract a premium based on their name alone, with seven in ten consumers no longer viewing brand loyalty as a reason to pay higher prices.
Additionally, the percentage of affluent consumers who can identify a favorite brand decreased significantly over the past decade, impacting a diverse set of brands at a variety of price points. Although consumers are becoming less emotionally tied to brands, they increasingly display transactional loyalty, which is dependent on ever-changing factors including price, positioning, and ease of shopping.
In times of traditional equity erosion, both formal loyalty programs as well as features that reward regular engagement form an important bulwark against defections. According to Gartner L2’s recent report, Loyalty 2018: Balancing Risk Versus Reward, 43% of consumers would consider buying more to earn loyalty rewards from brands in categories that interest them. There is, however, room for improvement, as 44% of consumers in a loyalty program think brands could do more to maintain member loyalty.
However, amidst fading consumer allegiances, brands teeter uncomfortably between ramping up their loyalty investments or forgoing programs altogether. Within department stores alone, 15% of brands have launched a loyalty program this year. Meanwhile, 2% of specialty retail brands have shut down their programs. Brands seeking to increase loyalty investments are removing barriers to entry and revamping reward structures.
Removing barriers to entry, such as requiring a credit card for signup, is key to combating declining program engagement. Other brands have placed more emphasis on rewarding their most loyal customers in the hopes of further increasing their engagement levels. Macy’s, which recently shifted to a multi-tender model as well, introduced a tiered loyalty program with differentiated rewards for members based on spend, rewarding the 10% of its customer base that accounts for half of its annual sales. The department store has seen 4.2% sales growth in Q1 2018 and attributed some of the momentum to the overhaul of its rewards program.