The value of loyalty cannot be underestimated. But building true brand loyalty is no mean feat; in fact, we see many businesses making bad decisions and in turn not managing to convert transacting customers into loyal ones.

Through our work with the companies who are getting it right, as well as talking to consumers about what loyalty means for them, we think we’ve cracked how businesses can convert customers into advocates by balancing what we’re calling ‘the loyalty equation’. Spoiler alert – it’s not just about points.

The changing state of loyalty

Customers are less loyal to brands now than ever before. As we navigate the cost of living crisis, consumers are increasingly looking around for the best price, with 52.9% willing to switch brands if they can save money. In this climate, successful loyalty schemes have therefore become a coveted asset.

Now, more than ever, customers are demanding more value than just a basic ‘earn and burn’ loyalty points system. They want high quality digital and physical experiences – and for a brand to consistently deliver on expectations and create moments they will remember. With loyalty propositions that offer exceptional experiences beyond points, businesses can extend to new audiences as well as grow the value of existing customers.

What we see is an opportunity for businesses to lean into the experience-driven era of loyalty by capitalising on serving customers’ emotional needs, as well as just their functional ones. Successful companies know that being able to do both of these things is critical to success.

The question becomes: how do you achieve the balance between a customer’s emotional needs and their functional ones? And how do you make money while doing it? Let us show you.

The loyalty equation

At the crux of any good loyalty scheme, there are two key strategies that help convert a transactional customer into a loyal one. We like to call them: “delivery” and “delight” tactics.

In essence, “delivery” tactics involve faultless delivery of your value proposition to execute against core customer needs (think: right product, right price, right place), with “delight” tactics serving their emotional needs, built on delivering personalised, meaningful experiences and creating a sense of belonging through community. Delight tactics are the secret sauce that makes a proposition unique to your brand and your customers.

Delivery

Delivery is about seamless execution of your core product and service offering. The product or service that a customer receives must align with their expectations and you also need to think about: the range of products on offer, price, availability, customer service and accessibility. Loyalty propositions are a waste of time unless your core offer is as-good-as or better than your competition.

By creating a compelling product and service that is so superior to your competitors, you create an environment that makes customers reluctant to buy from anyone else.

The strategies that you use to nail delivery will be different for different organisations. But the concept still stands: get this bit right, and people will want to buy from you time and time again.

Who gets brilliant delivery right?

Tesco has triumphed in using delivery tactics to meet the most functional need of its Clubcard customers: affordable food which doesn’t compromise on quality. To achieve this, they have rolled out strategies such as price-matching branded products with other supermarkets and offering exclusive discounts to customers who shop with Tesco Clubcard.

With Tesco Clubcard, members get immediate rewards for their spending each time they make a purchase, effectively prompting non-members who feel like they’re missing out to sign up, and simultaneously encouraging current customers to come back to Tesco, again and again.

In addition, customers can subscribe to Clubcard Plus – a paid monthly subscription in exchange for 10% off groceries in-store twice a month. This is a great example of a delivery tactic which serves a distinct, high-value audience while addressing their functional needs.

The result is an offering that discourages shoppers from going elsewhere because the value for money they get with Tesco feels hard to replicate at other supermarkets.

Delight

Delight is about creating moments that play into your customers’ emotional needs and make them feel valued. Brands can do this by rewarding loyalty with exciting experiences, personalised offers, community benefits and ‘surprise and delight’ offerings.

In doing so, you create an environment that makes customers want to remain loyal because they feel a sense of belonging.

Used together, these two strategies (delivery and delight) make it hard for a customer to leave, while also making them want to stay – a powerful force to be reckoned with.

Who gets brilliant delight right? 

Sephora, a multinational beauty retailer, is a great example of a company that has successfully curated a loyalty program centred around delight to create a community of loyal beauty followers.

At Sephora, loyal customers are rewarded with more than just monetary discounts. The Sephora Beauty Insider loyalty scheme is free to join, but the top two tiers of the three-tiered membership are only accessible if you exceed the annual spend threshold, therefore gamifying the membership experience.

As customers climb the tiers and become more valuable, they get even better rewards. ‘Rouge’ tier members (the highest tier) receive 4x points during multiplier events, a birthday gift, a special reward of $100 and first access to new products.

To promote engagement with the digital community, Sephora members can also earn points by sharing beauty regimes, writing reviews and referring friends. The result is a loyal following of beauty fanatics who are not only loyal but also strong advocates of the brand, therefore bolstering customer acquisition as well as retention.

Balance

Great loyalty propositions successfully balance spend and return across delivery and delight. Crucially, the organisations that are doing it well understand which customers they are targeting and with what. There is no point in giving away all your ‘delights’ to customers who would be your top spenders anyway, and so a careful balance has to be struck between nailing delivery and delight for different audience groups.

But knowing how to get the balance right is the tricky bit.

At Manifesto, we have a formula to identify the key audience groups you need to focus on and the tactics you need to deploy for each one in order to achieve that perfect balance.

Getting this right means creating a compelling loyalty scheme that builds regular usage habits, drives repeat purchases and develops a meaningful bond between customer and brand. Success will mean a cohort of brand advocates and, ultimately, growth in long-term customer value.

Want to learn more?

For now, this is just a sneak peek into our loyalty equation. If you are interested in learning more about how to nail the balance between “delivery” and “delight”, we will be publishing our full report in a few weeks time, so watch this space!

In the meantime, if you would like to read more about loyalty, you can read our previous report, ‘The Loyalty Code’.