Brands now need to focus more on the core customer experience before investing in conventional loyalty reward programmes, according to CRM and customer engagement agency Underwired, which here offers up 2014's key trends and forecasts for customer loyalty, and identifies what brands will need to do to keep their competitive edge. This article is copyright 2013 The Best Customer Guide.

The company has recently identified a shift in consumer attitudes toward loyalty programmes where customer experience is increasingly valued over traditional points-based schemes. In fact, recent research showed that 86% of UK adults own at least one loyalty card and 29% carry five or more.

A survey by Plastic Card Services found that British shoppers save an average of £100.32 each year using loyalty points - but they are still missing out on a combined £351 million worth of unused points annually. This, Underwired suggests, is an indication that the value seen in these rewards is dwindling.

Underwired believes that the brands that will lead the way will be those that put customer insight at the centre of their marketing activity, rather than putting loyalty programmes ahead of real customer loyalty-building strategies. Consequently, the company suggests a four-point strategy, as follows:

  1. The heart rules the head
    Neuroscience is revealing new insights into the role played by emotion in influencing seemingly rational activities such as our purchase decisions. What's really interesting is the extent to which this happens without our being consciously aware of it. Consequently brand owners need to consider the emotional 'story' as much as the rational argument.
  2. If you have to buy it, it's not loyalty
    A programme that serves to 'buy' desired behaviours can provide short-term gains but is just not sustainable as brands find themselves having to out-gun the schemes their competitors set up in response. Simplistic points-based mechanics are easy to imitate and easy to exceed. If one brand can buy loyalty one week, so can a competing one the next. The net result is that you risk being left with a programme that has become an undifferentiated commodity.
  3. What's the real value?
    Given the cost of loyalty programmes, they can dilute profit and drain resource with little positive effect on consumer consumption habits, simply mirroring existing behaviours amongst existing customers. Furthermore, loyalty programmes can cause brands to waste huge volumes of rich data - viewing customers as blunt generalised groups understood only in terms of functional behaviours.
  4. Loyalty is the outcome
    It's important to view loyalty as an outcome of a wider customer strategy. True loyalty is the natural result of ensuring your customer experience is strongly aligned with the needs and motivations of your consumer and understanding what they value most. True loyalty meaning; earned not bought, difficult to replicate, enduring, emotional not simply functional.

"As the airline industry discovered to its cost twenty years ago, consumers have come to regard traditional loyalty programmes as something of a 'hygiene factor' - one which is expensive for the brand owner to maintain and increasingly ineffectual in actually promoting loyalty," concluded Underwired's planning director, Tim Williams. "A smarter strategy is to focus on the key aspects of the customer experience that matter to most people. Consider where is the greatest risk for something to go wrong, and the greatest opportunity for something to go right. Act on this insight and you have created a highly effective loyalty programme that's also a platform for all your acquisition, retention, win-back, social media and advocacy strategies."