Loyal customers are the backbone of any successful business. But what exactly defines a loyal consumer in today’s tech-infused market filled with variety? Marketers have defined loyal customers as those who spend more, come often and encourage their peers to become customers, as well. However, according to a new study by Cardlytics, frequency does not always result in loyalty.
Retailers refer to the industry phrase that “20% of customers drive 80% of volume.” However, they do not take into account that this 20% is not always exclusively loyal to any one brand. Heavy category users are being mistaken for loyal users. For example, a consumer may not be loyal to a specific restaurant, but frequents restaurants in general. Therefore, a person that the retailer previously thought was a loyal customer shops just as frequently, and may be just as loyal, to a competing location.
This information becomes particularly important to retailers who want to reward truly loyal customers, not just frequent category users.
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To successfully identify loyal customers and better understand their browsing and buying behaviors, Cardlytics conducted a Whole Wallet report, which outlined an overview of customers’ overall spending, rather than just their spending at particular locations.
The report uncovered four different stages or categories of customer loyalty:
1. New Customers: Consumers who haven’t spent their money at a particular retailer, but have within the category.
2. Infrequent Customers: Consumers who have spent some money at a particular retailer, but are not frequent users of the category.
3. Heavy Switchers: Consumers who spend a lot within the category, but spread this spending across several retailers.
4. Heavy Loyals: Consumers who spend a lot of money within the category, and almost always with the same retailer.
The Cardlytics report confirms that customer loyalty as a concept and a principle is far more complicated than simply creating a points or rewards program. Of all things to consider, retailers must understand each customer’s unique shopping habits within a specific category, and of course, within the retailer’s store. Marketing messages and tactics should be refined accordingly.
Illustrating this point, Kasey Byrne, CMO at Cardlytics, said that “really loyal customers — the folks who exclusively shop at a brand — simply shop less than their more variety-seeking peers. This would suggest very different marketing messages to these consumers.”
Marketers must rely on new strategies for each category of consumer. New customers respond well to advertising and promotions. Heavy switchers can be targeted with things such as promotions and seasonal incentives and messaging. Heavy switchers are already big spenders in the category; they just need the right incentives to choose one retailer over another. On the other hand, heavy loyals do not need much incentive to shop at the specific store because they are already loyal. Marketing for heavy loyals should be directed to customer experience and preserving margin.
Byrne concluded: “I think this speaks to the need for retailer marketers to stay hungry. You simply can’t rely on brand loyalty to be enough, at least not for the higher-spending variety seekers.”
