KnowYourCustomer

The Changing Definition of Customer Loyalty: From Transaction to Interaction

Data is far more flexible than it used to be, letting marketing teams get a better idea about consumer habits. This is leading to a change in customer loyalty strategies: where a decade ago these programmes were nearly always based around the transaction, effective strategies are now increasingly focused on the interaction.

For most industries customer loyalty cards used to be about one thing: the transaction. Spend enough of your money in a shop and you’d be rewarded. Bogofs, reduced rates, money back. It was simple.

A few years ago, some larger organisations, particularly on the telco side, started dipping their toes into something new: recommend a friend and get a discount. The relative sophistication of their databases meant that they could associate one client with another and it became possible to start to reward customers not just for their own loyalty, but for becoming enough of a brand ambassador to recommend a product or service to a friend.

When this first began it was only really the preserve of very large organisations that were not tied to inflexible legacy systems for their customer relationship management. It also relied on big-ticket purchases that had a predictable pattern of spending such as mobile phones and satellite television where contracts were renewed on an annual or bi-annual basis.

More than just phone a friend

Technology’s evolution is in the process of changing things. It’s giving a far wider cross-section of industries the opportunity to take advantage of more flexible information association, and as a result is allowing wider links between the data that’s stored in different systems.

While it’s probably still too soon to talk about it from an English perspective, a measure of this evolution became clear during footballs’ 2016 European Championship, where a major electronics retailer tied the price of a television to the success of a team. Customers could nominate a team when they purchased a television in the run up to the tournament and would get a rebate based on the number of goals that team scored.

From the retailer’s point of view, this helped them to create a database of people that are interested in sports promotions that could form the bed rock of future activity.

While this was a major national retailer offering the deal on a fairly big-ticket item, it does highlight the changing scale of customer loyalty and reward schemes. Smaller organisations can now take advantage of this more flexible technology as the shackles of legacy systems fall away. With the right systems and advice, they can potentially start to contemplate some more innovative loyalty approaches.

The backbone of a relationship is loyalty

It also means that there is the ability to move from traditional, transactional-based customer loyalty schemes to something that takes into account the broader conversations that are occurring on social media. During the first few years of social media, some very canny brands used it as a way to build their presence, enjoying a direct relationship between their adverts and the number of likes that they had on YouTube or Twitter.

Loyalty systems have now evolved to take this into account, making it even easier for companies without vast marketing teams to take advantage of wider interactions with consumers and encourage them to play an active role in promoting the brands that they use.

As customers become more involved in conversations with companies, they are also becoming far more invested in the brands. They are providing data that is helping companies offer more targeted promotions and offers, which are in turn generating more conversations that are delivering more actionable data.

This feedback loop is moving the transactional customer loyalty and reward model into something far more interactional. The firms that take advantage of this development will steal the march on their competitors and put themselves in a strong position to standout.