The Future of Digital Loyalty

Over the last five years especially, there's been a mindset change and companies born as product companies are infinitely more successful without any of the baggage of larger incumbents. Many of the clients we work with are experiencing significant digital disruption in their markets from those born as digital products. A great example to highlight this is the traditional big banks having to respond to challengers like Monzo and Starling.

I think most of us have experienced interacting with one of those challenger banks and I've seen the results of a product mindset versus the traditional way of doing things. The entirety of banking services provided by Monzo is designed around the customer from the ground up as a fully-featured coherent digital product, at Red Badger, we're helping organisations be more digital product minded, instilling that continuous product delivery mindset. I want to take 30 seconds to set the scene for modern consumers.

I know Chris is going to get into a lot more detail on this and Gen Z specifically a bit later. So I won't labour the points too much, but consider this a bookmark to insert a lot more insights in a few drinks time.

The key consumer trends over the last 10 years have led to an infinitely more connected consumer with access to always on digital. It's not just sitting there passively in the background either. It's shouting out for attention with things like notifications. All the time. Access to the customer has become much easier as the barrier to entry is lower.

However, this has also become more fragmented with many more channels or spaces where customers want to engage. Expectations around what a great experience across channels should be, have already elevated, especially by these digital-first product organisations. Everything needs to be joined up, integrated, easy and instant.

Standing out in our space is really hard.

Loyalty programs can also go stale, pure points-based schemes, are no longer enough to entice membership and drive loyalty on their own, meaning enthusiasm can be low and there is slower participation and uptake. As time goes on, this can also mean reduced penetration. And if penetration drops, this can also impact the value for the business in our exchange.

So we're giving away too much and not generating an increase in customer outcomes. But retention is really difficult. Competition is fierce, especially with the direct to consumer brands as the barrier to entry for those brands is so low. Platforms like Instagram make it really easy to target individual customers. Retention really relies on the customer perception of your brand and having an emotional connection beyond just points and rewards.

Finally, always-on consumers and the sheer volume of digital channels means cutting through that noise is difficult. The number of schemes people engage with is not high and stickiness is difficult. The average number of schemes participated in is around 15, six of which are actually used regularly.

So brands that are doing well, understand the customer's values and likes and try to create an emotional connection. So here's how things are changing for loyalty. And in a lot of cases, they already have changed. We know that feeling connected to a brand's purpose and having a personal relationship, caring about what the brand stands for results in more engaged customers.

I guess the point I'm trying to make here is things got complicated. This really isn't something that you can just buy off the shelf anymore. Data has always been a huge part of loyalty from a commercial viability point of view in order to maximize that customer lifetime value. Historically, this has been taking place behind the scenes and the data lake far removed from the customer experience, but there's far more opportunity to be using that data intelligently.

And Starbucks is a great example of this. They launched an AI platform called Deep Brew in 2019. I think chess fans will appreciate that name. It's a machine learning platform sitting on top of decades of customer data. That clever use of this data enables a very personalised experience, but it can also enable Starbucks to push tailor-made recommendations according to the time of day and the frequency with which a customer may usually visit.

For example at one of their locations, it could recognise Joel has normally picked up his flat white at Liverpool street by now. “How about we send them an offer in case he's nearby and forgot about his caffeine fix?”, which would obviously never happen.

A great example of a premium loyalty program with loads of the stuff on the right-hand side of that list I showed you a minute ago, it's Lululemon.

They're experimenting with a subscription-based loyalty program that carries a variety of benefits. That's free products when you sign up, ongoing discounts, access to online workout sessions, physical in-store events, like early access sales and in-person physical activity sessions.

It's being piloted in a number of cities in the US and Canada and wherever it's launched. It's a mixture of transactional and experiential benefits. And that's an example of a brand putting loyalty at the centre of that business and how they identify with our customers.

And, leisure is a really competitive playing field, but focusing on their brand values and rewarding loyalty that resonates with their customers is really, really smart.