After Covid-19, nearly every customer type will be more deliberate in how they spend money writes Chuck Ehredt.
Some will deliberately seek a fantastic, maybe life-changing experience in the second half of 2020 – to reinforce the reasons for living in the first place. Others will deliberately spend more wisely than they did during the past decade.
What I´ve noticed in Barcelona as I sit on my balcony in the evening is how many people are walking by with ice cream. One year ago, there might have been 2 people in 50 enjoying an ice cream cone. Now, it seems like 2 in 10 are enjoying a treat.
Limitations imposed by Covid-19 are making people seek some pleasure and I view this as a very deliberate decision – whereas last year, such a choice might have been more frivolous.
In truth, most customers have always been deliberate, but during the past decade they developed habits to buy routinely from preferred brands (or they deliberately did not). Now, all that can (and in many cases will) change as they emerge from the lockdown and will absolutely consider new habits.
Whether you are a net winner or loser in this reset depends on your value proposition for each customer, not the general proposition you offer allcustomers.
But value will be interpreted more deliberately.
Active collectors of airline or hotel points should be offered an interesting trip for the points they have available (or perhaps with a 5,000 mile purchase). This will reward them for making an effort to collect points with partners, and encourage them to travel when the occupancy is low.
Such incentives can be customized by member – based on their balance and effort to collect your loyalty currency – but the point (pun intended) is to demonstrate great value and leverage your excess capacity to recapture their motivation. And, it should be focused on the 60% of customers in the middle, not your top 10% or bottom 30% of earners.
Non-travel brands should consider something similar.
Brands with loyalty programs have had the opportunity to remain engaged with members during the Covid-19 crisis. They’ve found new ways to serve needs through the program, or to express empathy at a time when customers care what a brand is doing to keep customers safe, support employees, and evolve to meet their rapidly changing perceptions of value.
If you don’t have a loyalty program or most of your customers don’t participate, you lost this meaningful opportunity to keep your brand top of mind. If you have a loyalty program and did not communicate with customers, you have missed an important opportunity to show the emotional side of your brand.
After all, people remember emotions, but only remember transactions when they go badly (because the ‘bad’ transaction creates emotion).
Some of your customers have been sick or lost loved-ones. Others have lost their jobs. And most are worried about how long this pandemic will last. Brands that care about their customers have been proactive in communicating that they recognize the severity of the situation, they have taken steps to address it, and they are optimistic that the future will be bright.
The pandemic in which we are living and the recession that is unfolding will change not only the marketplace where you had been succeeding, but will change the way customers relate to brands over the coming years.
It is making people more deliberate.
The current situation creates the opportunity to re-set the types of relationships we want to have with frequent customers, as well as the 80% +/- of customers who tend to be less frequent, but are still relevant to achieving your growth objectives.
Loyalty marketing is a mix of science and art, but in its most basic form, loyalty programs are a value exchange. The customer shares information and gives the brand permission to communicate in exchange for better experiences and value.
When the vast majority of your customers consider joining your loyalty program, they do some simple math. The equation will be something like “If I spend $1,000 with this brand during the next 12 months, what benefits (or reward) can I get?”
Or they might consider “If I buy coffee or lunch at this restaurant 50% of the time in the next month, what will they do for me?”
Customers will be more deliberate about these types of decisions going forward.
The point is that when a customer calculates whether it is worth joining your program or changing their behavior to allocate more share of wallet to a particular business, the hurdle value is going to be in the $25, 25€, or 25£ range of accumulated value per year. If you can´t reach this threshold alone, you need to collaborate in a wider coalition or offer someone else´s popular loyalty currency.
Brands also need to find more clever ways to make the perceived value of rewards as high as possible while keeping the cost in the 1-2% range. We wrote about how to create this magic in an article earlier this year.
If the typical frequency of your business does not enable customers to claim a meaningful reward at least once per year, then the only way you are going to get the majority of customers to join (or remain active) is to collaborate with complementary brands, so that together, you enable the customer to remain focused on their goal.
Brands need to have real, direct partnerships with complementary brands so all stakeholders can benefit optimally from the collaboration. This allows customers to earn more points because no middleman is taking a cut. Both partners benefit from better customer insight, and the earning transactions take place in real time, which dramatically improves customer experience.
Why would you care which loyalty currency your customers earn if it gets them to join your program, shop more frequently, and increase basket size?
Getting customers to join should be of paramount importance. If you have been stuck with the same level of participation for the past few years, you need to try something new – because the more deliberate customer emerging from this crisis may defect.
Among your mid-tail and longer-tail customer, there will be some – perhaps even many – who resemble your best customers. You simply don’t know which ones until you find the key to get them to join and start analyzing data.
There are nota lot of people like your top 5% of customers, but I’ll bet that, of the second quartile and third quartile of customers, half of them resemble those in your top 5-15% bracket. They simply haven’t yet been motivated to become more frequent with your brand.
The key to getting them engaged is offering them more choice in how their loyalty value can be put to use. Some will want instant benefits, others will want to earn your loyalty currency with partners, and others will want to exchange out to a more aspirational program. Since exchange has very wide appeal, but few actually do it, offering this can be transformational. Yet because you control the exchange value, the cost can be minimal.
Are you offering compelling reward alternatives that enable 75% of your customers to redeem every year, or to be recognized as special by inviting them to an amazing experience?
Stop and think about that for a few minutes. It is fundamental.
Can most of your customers earn a meaningful reward every year?
Most brands invest exclusively in rewarding the 10- 20% of customers who are most frequent.
Rewarding frequent customers is very important, but if you are under-invested in the mid-to-long tail and enticing them to shift share of wallet, then I’m certain your program ROI is less than it should be.
At Currency Alliance, we do not provide professional services. We simply operate the global marketplace platform which makes it really easy for brands to collaborate, so that their customers are more motivated to collect points/miles.
The observations shared in this article are based on insights gleaned from serving nearly a hundred brands that everyone would recognize.
We have seen very deliberate changes in customer spending behavior during the first 4 weeks of the Covid-19 crisis that then changed considerably during the past 8 weeks.
People are now spending less overall, but they are deliberately buying items related to their hobbies or passions and spending less frivolously.