What is digital loyalty?
Loyalty schemes are often thought of as a stamp card that get you a free coffee, or airline schemes that give you airmiles and status for your spend.
In reality, “good” digital loyalty is a way a business can communicate with their customer to influence their behaviour. Loyalty is not just about points and rewards but about how you structure them to create that impact. Credit cards and airlines started the trend – and they still do loyalty well – but now new players have joined the fray.
Loyalty schemes tend to rely on aspects of behavioural science like nudge theory, loss aversion and confirmation bias. These are all used to prompt and re-enforce engagement and purchase behaviours. In layman’s terms, they influence decisions by promoting positive connection to a brand, as well as guilt or fear of missing out.
SME loyalty – the post-pandemic opportunity
Done right, loyalty is a mechanic to drive sales and profits, and is especially important for SMBs coming out of the global pandemic. In theory, digital loyalty schemes should be cheaper (since we all know that digital equals cost savings) – but for SME’s it can be difficult to get right and expensive if done wrong.
Digital loyalty programmes now make sense to demographics they didn’t appeal to before. Previously, only brands catering to millennial or Gen Z audiences, or “city” brands, would offer purely digital loyalty schemes without disenfranchising their somewhat more traditional customer base. Now, with a generational leap toward digital and the greater understanding and use technology like QR codes, digital loyalty is accessible to a broader set of brands. Today, 95% of loyalty programme members want to engage with their brand’s programme through new and emerging technologies.
While cost savings, and profitability, might come in the long run, loyalty can be a huge investment for a smaller business. There can be fixed costs such as staff training and hardware, and of course the cost of the reward itself. Part of the art of loyalty is making sure you put in place a programme that works for your type of business and your type of customer. Fundamental to this is monetary rewards that make sense for both parties. Over the course of a year, consumers need to receive at least £30 / $50 in perceived value to bother engaging in a scheme. One small businesses alone can struggle to give back this kind of value.
How digital loyalty can work for SMBs
One obvious answer of SMBs is to combine forces with other, similar businesses. Whether groups of independent coffee chains (like Black Sheep Coffee), or geographically clustered businesses (like Pixie), small business loyalty aggregation is growing in popularity. It offers the right value exchange: for the consumer, value is aggregated in a single place, making the return for a single sign-up worthwhile. And businesses can benefit from cross-marketing to consumers of other brands. This can help level the playing field between larger and smaller merchants.
Loyalty is all about personalisation, and retailers need a really deep understanding of their customer base to make their scheme work. Tech giants like Google and Facebook have vastly increased customer expectation of personalisation, and offering customers benefits that don’t suit them can damage relationships. This is another reason why working collectively and seeing a more complete view of customer spending can be hugely beneficial to smaller businesses.
Once the value exchange and personalisation are right for consumers, the digital experience needs to be thought through too. Balancing a simple, engaging consumer experience, with the right amount of friction so that the consumer knows they are getting the benefit and a seamless experience for the staff at checkout that doesn’t embarrass the consumer or add time at till.
Who can help
Many companies are playing in the SME loyalty space. Those who succeed will have access to SMBs and a genuine passion for serving them. They will be experts in creating great digital experiences. And most importantly, they will have access to the transaction data, and have the trust of both merchants and consumers to use that data responsibly.