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Resilient Loyalty: A Retail Value Proposition For The 21st Century

  • Written by  Dan McClure, ThoughtWorks

VP site only ThoughtWorks headshotWhat we’ve come to call loyalty is badly broken. Businesses have let themselves slip into a mass-market definition of loyalty that isn’t pretty. We foster fear and pander to greed all the while pretending its love.  

Deeply disruptive changes are on the horizon that will make this shallow engagement obsolete. Fortunately, these same forces offer a new path for building individual relationships that merit something closer to true loyalty.

Failing Visions Of Loyalty

The concept of a trusted brand emerged in the 20th Century in response to a marketplace that was generally opaque and worrisome to consumers. In the 1960s, Americans traveling along one of the new interstate highways didn’t know which motels or diners were clean or safe, but they knew that a Holiday Inn or McDonalds would provide good, reliable value.

Today, the buyer’s need for trusted brands has been undermined by unprecedented market transparency driven by the likes of Yelp, Facebook and Angie’s List. In the past, customers may have been fearful of trying an unknown product, but that simply isn’t a problem anymore. We do not need to be loyal because we are afraid.

Loyalty point programs may seem to be on firmer ground, but that is hardly the case. History shows that these costly programs thrive during periods of market commodification, and today, largely undifferentiated industries like airlines, hotels, and credit cards turn to customer bribes when they have few other opportunities to distinguish themselves.  

These are not programs that foster love. They are more like expensive investments to drive an addiction. When the bribes fail, buyer dollars move and consumer anger spreads across social media. An estimated $10 billion in business moved between competitors following a downsizing of hotel loyalty programs.  

Disruptive Serial Innovators Change The Game

When genuinely original competitors emerge in the market, they can leap frog incumbents weighed down by lookalike products and the cost of loyalty programs.
During the mid-20th Century, S&H Green Stamps pioneered spend-and-get loyalty, printing more stamps than the US Post Office. Yet they disappeared along with their five and dime clients when new, sophisticated retail models entered the market and reshaped the entire sector.   

Today, retail, travel, finance and almost every other industry, are entering a period of unprecedented disruption. Rapid advancements in technology, falling barriers to market access, and an explosion in the number of empowered competitors have combined to drive established business propositions into obsolescence with ever-accelerating speed.    

As disruptive change becomes increasingly commonplace, loyalty programs that presume a stable and commodified marketplace won’t survive. Today’s new competitors enter the marketplace in ways that undercut incumbents along every major dimension: Cost, quality and value. Loyalty as usual won’t survive these attacks. Companies can’t create the façade of trust, or pay a bribe for love if no one even wants their services.

A New Kind Of Value-Based Loyalty

Hypercompetitive markets force businesses to become serial innovators. New sources of value, not just more points, are required. Fortunately, there are exceptional new opportunities to offer genuinely different products, services and experiences to customers, building intimacy at a level that hasn’t been possible through most of the mass-market era.

Three big developments in technology are intersecting to create an incredibly powerful ecosystem for innovating highly personalized contextual value. Big Data drives unprecedented consumer insight. The Internet of Things empowers this insight with a million ubiquitous touch points, and the Cloud opens the door to an unlimited number of providers who can deliver to a customer’s unique moment of need.  

Consider the commonplace act of putting on makeup for an evening out. Imagine Fernanda receives a dinner invitation on her phone late in the afternoon. In the world of Big Data, information about the evening’s weather, drawn from public weather data available in the cloud, can be combined with updates about planned lighting levels from the restaurant’s automated building management system. She is automatically provided with insights into and recommendations for tonight’s event.

Now we put that knowledge to use. Rebecca Minkoff and eBay recently launched a smart dressing room, improving a traditional in-store buying experience. That same technology could be leveraged to produce much greater intimacy and value in the home. So, when Fernanda arrives home and takes a dress from the closet, her home network of interconnected devices all share in the knowledge that she’s wearing a green silk dress.  

We can even match this with observations about her current skin tone as seen in the mirror. Perhaps she picked up a nice tan that weekend, and it becomes possible to recommend a highly personalized makeup plan, tailored to her individual complexion, that can be displayed in the mirror itself. Her surroundings become a true partner in her daily life.  

Replacing The Old Loyalty

This is just a fraction of the emerging ecosystem for creating personalized value.  There are no targeted coupons or points to break a tie among lookalike competitors.  There is a real reason for continued engagement based on the intimate knowledge that can be woven into daily life.

This is a big disruption. We can stop paying bribes. We can stop trying to make people be afraid. Instead we can be serial innovators of personalized value. We can create the kind of service and engagement that largely vanished a hundred years ago, but is waiting to be reborn today. A lot of loyal customers are waiting.         


Dan McClure is the Innovation Design Practice Lead at ThoughtWorks. He has extensive experience and enthusiasm for blowing up the status quo. He has spent over 30 years as an insurgent innovator for organizations ranging from automotive manufacturers to educational institutions. Today he leads Innovation Design for ThoughtWorks in North America.

 

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