The Loyalty DivideRetailer and Consumer Perspectives

Retail 2018

The research cited in this paper was conducted in February 2018 with over 13,000 consumers globally and 500 businesses across retail, hotelsand restaurants in 9 countries across North America, Europe, Latin America and Asia-Pacific: Australia, Brazil, China, France, Germany, India, Mexico, UK and USA.

Independent research and creativeconsultancy, Morar HPI, conductedthe survey which explores consumer and business attitudes towardsloyalty and advocacy today andin the future. This report is basedon the findings from the study.

Methodology

IntroductionFor retailers, winning customer loyalty is an ongoing quest that they will turn themselvesinside out for, measuring and assessing customer behavior in the hope that it will leadthem to the holy grail of gaining someone’s life-long fidelity. Which is why ever-evolvingcustomer loyalty programs offering consumers rewards points, cashback, giveaways anddiscounts form the cornerstone of so many retailers’ business strategies. For a retailer aloyal customer is a win-win situation as they spend more, return for repeat business andprovide word-of-mouth marketing that is far more effective than any branded content and advertising. But in this hunt to win over customers, are retailers deploying the best tactics? We’ve uncovered a divide in perception between how businesses view their loyalty programs and what their customers actually think, which questions what loyalty is going to look like in the future.

As increasingly sophisticated algorithms enableretailers to target and personalize their offers more effectively, are consumers forming strongerconnections with brands? Or is the role of socialmedia, in particular influencers, blazing a trail for a kind of loyalty that is far more difficult for businesses to harness? In this new loyalty landscape, we have identified four behavioral types – The Broadcaster, The Enthusiast, The

Lazy Loyal and The Seeker – typologies that most people shift between depending on what they’re purchasing, creating even greater complexity for retailers hoping to win them over. On the flip side, if retailers can tap into these behavior patterns and create more tailored loyalty programs, then the opportunity for gaining new and, more importantly, loyal customers is huge.

We’ve uncovered a significant divide in perception, which questions what the future of loyalty will look like.

The Great Divide

Misconception 1 - offers are relevant

Retailers are heavily invested in loyalty programswith ever-increasingly ubiquitous point collectionincentives, tier-based loyalty programs, socialmedia engagement rewards, even paid programsa la Amazon Prime. In a drive to grow customerbases, and then retain those customers, retailersutilize loyalty programs to offer what they think arerelevant and incentivizing promotions and rewards– discounts, free gifts, upgrades, points, accessto exclusive shopping events, even cash back.Consumers, however, are far less engaged in thepromotions than retailers realize. Rather thanhaving an open attitude, our consumer researchbears out a far more selective approach, as well asa widespread feeling that the offers on the tabledon’t always feel relevant. While retailers believe53% of their customers are more loyal now than

they were five years ago, only 37% of consumersactually said they were. And while 58% of businessrespondents believe consumers will sign up toevery loyalty scheme offered, in reality less than a third of consumers do, with a significant 63% only using one to three loyalty programs regularly.Relevancy of offers and rewards is another areathat throws up a large discrepancy: less than athird of consumers think the rewards and offersthey receive are relevant to them most of the time;58% of retailers think they are. It’s clear that ifretailers want loyalty schemes to be successful,a new strategy is required. At the moment, overhalf of retailers don’t engage influencers or brandambassadors despite the fact that consumers tendto be more trustworthy of brands that arementioned online by third parties.

When it comes to loyalty,our data reveals a significantsplit in the perception ofretailers and consumers.

Retailers say they offer consumers relevant rewards

Consumers say most offers and rewards from retailers aren’t relevant to them

4% offers are rarely relevant

22% offers are rarely relevant

38% offers are sometimes relevant

45% offers are sometimes relevant

58% offers are mostly relevant

32% offers are mostly relevant

Retailers Consumers4% say consumers rarely join loyalty programs

19% rarely join loyaly programs

38%say consumers only sign up to select, relevant

Retailers collaborating with influencers

Consumers more likely to trust brands reviewed by YouTubers

55% do not do this

22% disagree

30% neutral

48% agree

45% currently do this

50% only sign up to select, relevant programs

58% say consumerssign up to every loyalty program

32% sign up to every loyalty program

Misconception 2 - consumers are very engaged with loyalty

Misconception 3 - loyalty is a consumer / retailer only relationship

The Future of Loyalty

Younger age groups in particular have a propensity to join loyalty programs and say their loyalty is growing.

Baby boomers (the demographic with the mostdisposable income) report the largest waning inloyalty, with only 19% of them saying they aremore loyal than they were five years ago. Thisis in stark contrast with the 53% of retailers whobelieve customers overall are more loyal. However,the outlook is less bleak among the youngerage groups who have a propensity to join loyaltyprograms and say their loyalty is growing. Whichis good news for businesses as they are heavilyinvested in the programs. A massive 72% measuretheir loyalty reward programs in the context ofcommercial objectives - and for 62% the programsare seen as a commercial imperative. However,over one in four retailers are only recognizing

loyalty by measuring data such as increased visits to their sites, higher spend and active engagementwith loyalty programs. These activity measures,while obviously important, don’t take into accountthe impact of word-of-mouth marketing and thegrowing role of social advocacy, which can beseen as behavioral measures. These two sidesto brand loyalty are gradually coming into balancein terms of their importance, with consumersincreasingly recommending brands to friends,following brands’ online activity and postingreviews online. However only a few retailersare measuring behavioral benefits – only athird monitoring online reviews and socialmedia posts.

Consumers demonstrate their loyalty to retailers in terms of both activity and behavior

Question: Thinking about the retail brands you are most loyal to, why would you say you are loyal to them?

However, nearly a third of retailers will only take into account activity measures of loyalty

Activity

Behavior

become loyalty card members

25%

recommend these brands to friends

31%

visit these brands more frequently

than others

34%

follow brand activity online

20%

spend more with these brands than

others

31%

post reviews about the brand online

14%28%activity only

of retailers think consumers are

more loyal

53%

Consumers are less loyal than retailers think

Less loyal than beforeAs loyal as before More loyal than before

Pre-millennial(18-24)

Millennial(25-34)

Gen X(35-54)

Baby boomer(55+)

12%

45%

43%

14%

42%

44%

16%

52%

32%

17%

64%

19%

The Rise of Social Advocacy

Social media has become a massive player in building brandawareness as well as brand loyalty. As consumers increasinglyinteract through social media channels and look to influencersand YouTubers for unbiased opinions, so the influence of thesechannels on their choices grows, with consumers across all agegroups increasingly willing to share retailer and brand-relatedcontent through their own social channels. Consumers thinkit’s essential for retailers to have a presence on social media and will trust YouTubers and influencers over and above traditional advertising. Around half of all respondents said they are likely to research brands on social media before buying, save ideas on social media about products or retailers, share photos of retail experiences and products and follow influencers whopost about favorite retail brands.

53%are likely to

research brands on social media before buying

46%are likely to save ideas on social media about products or

retailers

43%are likely to

share photos of retail experiences / products on social

media

43%are likely to

follow influencers who post about favorite retail

brands

Consumers think YouTubers and influencers are more trustworthy than traditional advertising or celebrity endorsements.

Retailers used and recommended by social media influencers are more trustworthy than those recommended by celebrities

YouTube reviews are more trustworthy than branded advertising or communications

Social media influencers are more trustworthy than generic customer reviews

DisagreeNeutralAgree

21%

38%

41%

25%

38%

37%

31%

35%

34%

Personalization: Connected and Immediate

When it comes to retail experiences, for consumers, personalization is about being recognized as an individual, with a level of service that goes beyond a traditional brand experience – and it very much centers around two core ideas: connection and immediacy. The former is perceived by consumers to be a service that is valuable or relevant to them

personally – they do not want to receive generic, cookie-cutter offerings; they want their uniqueness to be recognized. Immediacy is pretty much what it says on the tin – how can a service make everything about the consumer’s whole experience fast and easy.

For loyalty programs to remain relevant, retailers need to aim for a level of personalization that feels niche, not mass.

Connected is being recognized as an individual. Immediate is about compelling offers and instant gratification.

Loyalty programs that are truly personalized are very engaging for consumers.

Connected

Immediate

think personalized offers based on their stated preferences

are appealing

69%

think immediate benefits are more

appealing than accumulating points

74%

think personalized offers based on

purchase history are appealing

66%

think store proximity is most important in

driving loyalty

82%

think personalized content and

communications is appealing

58%

think an effortless loyalty program with automatic

offers is appealing

72%

find appealing

79%

find appealing

72%find appealing

66%

find appealing

85%A personalized experience where retailers automatically suggest, order or recommend products that best suit personal preferences

Receive intelligent recommendations of places to stop off on a route from navigation apps based on previous behavior or preferences

Personalized offers based on my purchase history

An effortless loyalty program where offers are automatically redeemed

The Right to Data and the Role of Technology

As new legislations, such as the General Data Protection Regulation (GDPR), come into effect and consumers’ concerns around privacy, security and anonymity grow, traditional approaches to segmentation and promotional targeting will become obsolete. Understanding consumer behavior and the role of influencers in predicting a consumer’s next action will be key in landing offers that consumers want to receive and, in turn, act on.

Get the formula right and retailers will ultimately drive increased loyalty, which consumers will express through actions and behaviors. However, as more and more stories around misuse of data hit the headlines, and consumers grow wary of sharing their personal information, retailers will be challenged to find new ways to relate and reach customers with offers that are relevant to someone who wishes to remain anonymous. This is where technology and advanced applications in machine learning and artificial intelligence will close the loyalty gap between brand and consumer, and widen the competitive advantage for savvy retailers.

Consumers’ concerns around privacy, security and anonymity are growing.

There is recognition from both consumers and retailers that there needs to be a balance between anonymity and personalization.

But retailers may not be doing enough to offer consumers the transparency they desire.

of retailers offer a fully transparent loyalty

program

32%

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of consumers want fully transparent loyalty

programs

72%

of retailers say GDPR will have an impact on their

organization

87%

of retailers think consumers are concerned about data being passed on to third

parties

52%of consumers are concerned

that their data is being passed onto third parties

53%

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of consumers say they’d consider removing their personal information if

they could

81%

The Four Loyalty Typologies

The research uncovered four main types of shoppers: The Broadcaster, The Enthusiast, The Lazy Loyal and The Seeker, which people will flip between depending on what they’re buying, so the same person might be a Broadcaster when they shop

for fashion, an Enthusiast when purchasing artisan foodstuff, a Lazy Loyal when it comes to technology and a Seeker when replacing appliances. In today’s complex, 24/7 world, we’re all shape shifters as we navigate the retail landscape.

This shopper can be your greatest advocator – or your biggest detractor. With social media channels as her loudspeaker, she is brand neutral but an avid sharer of the experiences that spark her passion, good or bad. So, while that new trash can she bought is unlikely to find its way onto her Instagram feed (unless it breaks after a week), those eco-friendly, leopard-skin leggings by Yoga Democracy definitely will. The photos will be flattering and the praise effusive as she aligns herself with the brand’s style kudos and ethical position. As well as being driven by a desire to tell the world about a great buy, The Broadcaster wants to set out her own stall. Practices yoga, check; has an eye for fashion, check; is interested in saving the planet, check. And while she’s aligning herself in a positive way to a brand, well, that brand is having fairy dust sprinkled all over it. In today’s world, keep The Broadcaster happy and her evangelizing will work harder for you than any ad campaign Madison Avenue could ever dream up. But, be warned, to keep her loyal you need to keep her interested because if you don’t you’ll lose her to the next best thing, which she’s always on the lookout for.

If this shopper were a pet, he would be a dog – he isloyalty personified. He won’t shout about it on social media, but once you’ve gained his trust, he will stick with you faithfully. So while he may not post about the great 20% discount his favorite independent gin distiller or sportswear brand is offering or the competition his go-to clothes store is running, he’ll retweet the tweets, like and share the Facebook and Instagram posts, comment on them and enthusiastically tell his friends

about the offer and competition. He’s not looking to be let down and it would take something big to lose his loyalty. So how to gain it in the first place? What The Enthusiast is looking for is high product quality and an enjoyable shopping experience. For him, a favorite brand is like a friend – he’ll follow all their social channels, stay loyal even in the face of new competition, and if you can pique his interest with new and exciting products he’ll be with you for life.

The Broadcaster may flit between retailers but shouts about their experiences, good or bad.

The Enthusiast is an engaged retail brand ‘follower’ who is loyal but not loud.

1.The Broadcaster

2.The Enthusiast

consumers will recommend to others the retailers they are most loyal to

would share photos on social media of great retail experiences in exchange for rewards

would feature the retailer or its products on their social media accounts in exchange for offers / rewards

would submit a product review through YouTube in exchange for an offer / reward

will follow their favorite brands on

social media

20%of consumers are

most loyal to brands that they have a high

opinion of

43%say product

quality and 59% say an enjoyable shopping

experience are most important to them

71%say it’s important

that they can engage with new and exciting products from brands

they are loyal to

51%

43%|||||

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3. The Lazy LoyalOnce this shopper finds the right fit for her, she just wants to forget about the hunt and sit back and relax in the knowledge that her choice of cell phone and laptop, sneakers and bicycle is perfect. She doesn’t want to shop around and often her choices are made around convenience. The bike store is around the corner, it stocks the brand she likes and the customer service is good.

Why would she go looking for something new? It takes a lot to budge The Lazy Loyal from her preferred brands. For this shopper, when it comes to loyalty programs, the easier the better, so schemes where points are automatically redeemed are a winner. The key driver for The Lazy Loyal is convenience so keep making things easy or make them even easier for her and she’ll stick with you.

For The Seeker, the meat in the sandwich is always the deal never the brand. This is a shopper who holds little or no affinity for retail brands – he isn’t moved by aspirational marketing, brand loyalty, social alignment or distracting ad campaigns. This a shopper who is driven by the best value offers, the most competitive prices and compelling promotions. He’s not just on the hunt for the cheapest deal, he wants the best deal. So while one cell phone contract might be more expensive than a competitor’s, if it comes with great value add-ons, then he’ll opt for that. He’s an inveterate deal seeker and rarely signs up to retailer loyalty programs – why would he when he might find a better deal with a competitor? But he would be willing to divulge his personal details in exchange for a personalized offer or promotion. Just don’t expect him to come back to you next time – unless, that is, your deal trumps everyone else’s. Then you have a good chance of hooking him.

say convenient store locations are most important to them

58%will typically stick to the brands they like rather

than shop around

40% of consumers would not find a loyalty program that could be used across multiple

brands appealing

27%think an effortless

loyalty program where points are automatically

redeemed appealing

72%

4.The SeekerThe Seeker likes to shop around for the best value offers and holds little affinity to retail brands.

choose a retailer because of competitive prices / promotions

66%|||||

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would exchange personal details in exchange for a personalized

offer or promotion

56%|||||

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of consumers would always ‘shop around’ for

different retailers to shop with

53%|||||

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would rarely sign up to retailer loyalty programs

19%|||||

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||||||||||The Lazy Loyal is typically unengaged but tends to be loyal to retailers because it’s easy to be.

Oracle provides retailers with a complete, open, and integrated suite

of best-of-breed business applications, cloud services, and hardware

that are engineered to work together and empower commerce. Leading

fashion, grocery, and specialty retailers use Oracle solutions to

anticipate market changes, simplify operations and inspire authentic

brand interactions.

For more information, visit our website at www.oracle.com/retail.

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