Customer loyalty has taken a hit in 2020, and marketers have differing views on whether it’s more important than ever before or whether it even exists. Combine the traditional scramble for loyalty following the holiday season with the stat that 75% of shoppers have tried a new product this year, and it makes for an exceptionally top of mind topic for C-suite executives and marketers.

“Marketers have to understand what consumers value now and how their priorities and finances have changed–that will impact where they’re loyal and how they’re loyal in the future,” states Kristin Demel, retail strategy director at Callahan.

Kristin talks with Joe Cox, director of communication strategy, about how brands can address shifting loyalties and why it’s different for every brand based on the specific needs and values of the consumer.

Listen here:

Other podcasts in our Retail Wrap-up 2020 series include:

• Retail Wrap-Up 2020: Why this is a one-of-a-kind holiday season
• Retail Wrap-Up 2020: Stop saying omni-channel
• Retail Wrap-Up 2020: Shopper modes are the new purchase channels 
• Retail Wrap-Up 2020: Will Black Friday Ethics lead to retail innovation?
• Retail Wrap-Up 2020: Setting goals for 2021

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Joe:
Hi everyone, and welcome back to Uncovering Aha podcast, devoted to transforming data into action then inspires creativity and accelerates growth of our business, as well as our brand. I’m Joe Cox, director of communication strategy at Callahan, and today we’re continuing our holiday 2020 retail wrap-up series, this time focusing on customer loyalty, this holiday season. I’m joined once again by Kristin Demel, Callahan’s director of retail strategy, who is giving us an insider look into how retailers are dealing with the holiday shopping season, especially in 2020, in order to help retailers and marketers prepare for what’s to come in 2021 and beyond. So Kristin, Thanksgiving weekend is behind us and somehow my inbox survived Black Friday and Cyber Monday. It was packed full, but now it’s at final push for retailers to December, to the end of the holiday season and which leads to that transition right into the new year.

Joe:
And so it sounds like a really good time to take a hard look at customer loyalty. This subject of customer and brand loyalty can be confusing, because for retailers and marketers out there and the pandemic hasn’t really made things more clear. We hear marketing pros from one side say, “Loyalty is no longer exists with shoppers. It’s gone.” All the way on the other side where we’re hearing the C-suite saying, “It’s more important now than ever.” So my question to you is, what’s kind of the truth out there for retailers? How should they be looking at loyalty as they transition into 2021?

Kristin:
Loyalty is always a timely topic to discuss around the holiday season, because we know that folks are buying more things or different things than they would throughout the year. And so historically retailers have used this season to capture new customers and then there’s this scramble in the following quarter to try to keep and retain. But this year it’s especially top of mind, because we’ve heard all of the stats that have happened throughout 2020 through the pandemic and the new consumer behavior. The stat that resonates with me is 75% of shoppers have tried something new this year, which when you combine that stat with the scramble for loyalty coming out of holiday traditionally, this makes it an exceptionally top of mind topic as we think about C-suite executives and marketers. And you’re talking about your inbox surviving Black Friday.

Kristin:
Well, my inbox is struggling to survive all of the content that’s coming out and landing in my inbox about loyalty programs and solutions that are available to purchase, to address consumer loyalty, and I’ve been listening to these podcast just trying to understand, okay, what’s the common thought process out there? And I’ve been hearing a lot in these podcasts around, well the answer to address consumer loyalty is to amplify social media and personalize your message. And it really made me stop and think, “Well, is this really the answer, and is this really how folks should be addressing shifting loyalties?” What are your thoughts?

Joe:
Yeah, I agree. To me it reminds me of some of the prior conversations that we’ve been having. And over the overall theme, I think is really that tough shift, but necessary shift from reactional, which we’ve all been very reactional in 2020 for good reason, but getting that over to intentional decision-making. And the large portion of the new products and shopping patterns will carry into the holiday season to 2021, so it’s to understand, “Hey, 2020, whenever January one hits, it’s not going to just go away.” And we’re just starting new, it’s like what have we learned from this?  Also it makes me think of how easy it is by the numbers to mistake consistent transaction with the idea of brand loyalty.

Joe:
I’ve either worked with enough clients or been on the marketing side with brands enough to know that a lot of times they’ll just say, “Hey, this person is here a lot or buys my product X amount of times, every month or whatever it is.” And that is considered loyal. That’s not always the case and I hate that 2020 really showed us that. Then finally it’s like… And I think this is good across retail or CPG, restaurant. It’s like, “If you’re wanting to change, you’re going to have to check those assumptions that you have at the door.” We’ve been really shaken up in 2020, and it is a perfect opportunity to start fresh and start taking out all those old ideas and old assumptions that we don’t really know where they came from, but they became part of our strategy in what we do, and really start to question those things. And when it comes to loyalty, it’s like, Why were consumers loyal to us in the first place? And then the important one is, why did they leave you?

Kristin:
I love that you brought back in that idea of reactionary behavior. I think retailers and brands right now are still scrambling to react and that thought process of, “Okay, well, why did they leave me?” If we think about the consumer behavior that’s happened in 2020, I think the first thing out of retailer and brands minds would be to say, “Well in stock, people left me because I didn’t have the product.” They’re not like really leaving me. They just left me for their second choice. But I think to your point on, well, you got to check those assumptions as you think about what consumers have been through price. Price might be something that they left you for.

Kristin:
There’s an influx of value focused shoppers now based upon everything we’ve gone through. So really checking, okay, is it your value proposition? Is it your price that they left you for? When you think about availability, like I had mentioned in stock comes top of mind, but with it also accessibility. So were you a harder retailer to shop or a harder brand to shop? Were you farther away from them? Did you have an experience miss? When you think about accessibility, now we have to consider the digital, the social, all the environments that are not store and how was that for them? Did they leave you because of the experience that you’re giving them?

Kristin:
I was reading an article from Retail Dive about some of the most damaging to customer loyalty problems. And one of those was hard to navigate site, followed by a difficult process. The example they cited was around returns. And so as you think about, why did they leave you? I think you have to get real, you can’t be glass half full when you’re checking your assumptions, you’ve got to be glass real. Are you really as good as you think you are?

Kristin:
To those questions you raised, I think once you have gotten real with the answers on there and you have a handle on your assumptions, I think you have to then transition your mind as you’re building this loyalty strategy around, well, what are your customers valuing now? Because heads up, Joe, you and I spent a whole podcast talking about the fact that consumer behavior and what they value and how they prioritize is different now than it has been in the years leading up to this. And so I think you can’t just ask yourself the question, what do customers value? I think you really have to push into, what do they value now to understand how their priorities have changed, and their finances changed and how is that going to impact where they’re loyal and how they’re loyal in the future?

Joe:
I keep thinking of Starbucks and I’ll get to that, but it’s kind of easy to say that values shifted and it just was really good for some companies. Like it was the mobile values shifted and some got lucky. They were on it already. They were into something that more people came on board with, but I don’t know if that’s the case. So, I mean, let me talk through this a bit. A lot of times when we’re talking about what a brand is doing to be innovative, I find that investing in customer experience, especially when they don’t really need to, is kind of the key here. Not about necessarily, “I knew there was a pandemic coming.” But if you look at Starbucks specifically, the original concept, and correct me if I’m wrong, kind of pulling us out as the loyalty driver was the product.

Joe:
It was a differentiated premium product. We had Folgers. And then we have $5 coffees, but they’re delicious and there’s some whipped cream on them, it’s great. And then later that was strengthened with this proximity and location. We will be everywhere, from the airport to target, but really it was all about that third place. It was still that third place strategy, that place between home and work, where we can hang out and do things, which really doesn’t sound very pandemic friendly. What I’m saying is they didn’t sit on their laurels, instead they invested super heavily in something different in that third place. And it was that digital loyalty, like they focused on… And yes, this sounds very much like they were preparing for 2020, but this is like three years before that. It was drive-thru, contactless pickups and deliveries with that digital and mobile ordering. That was since the app came out in 2013.

Joe:
So they weren’t preparing for the pandemic. They were focusing on making the experience easier for somebody to snag the coffee. And they wanted to make it as frictionless possible for that consumer. That’s what their focus was on. Not on preparing for a zombie apocalypse, it just happened to pay off huge for them because they were looking at their customer. And I will throw in this little snippet, as of this year did you know that nearly a quarter of the U.S. orders are placed on the Starbucks app? So at 25%, that’s insane. That amount of loyalty coming in, because, “Hey, this is the app that I use to make that order happen. I hit the same button. And if I went to another place, it would be annoying.” If I went to another coffee place, I’d have to remember in my mind what kind of coffee I like, I’m not sure because it gets really specific. And it’s that grab on to the customer through that focus of experience.

Kristin:
They made your coffee ordering a reflex, not a decision. And I like what you were saying about, three years ago, they were investing in frictionless and that was like, frictionless investing before frictionless was even cool.

Joe:
And that means expensive. It means that we’re spending a lot.

Kristin:
You don’t get to stay the size Starbucks is and have the success that they have by setting it and forgetting it and not taking for granted, that sounds almost negative, but, they’re always pushing to be better. And coming from the girl that spent a good chunk of her life in and around analytics related to retail, and traffic and trip driving, et cetera, it makes me wonder about the KPIs that Starbucks must have and must be valuing to really understand what loyalty is worth. And if it’s being successful, too many loyalty programs today are really focused on that.

Kristin:
Transactional benefits, you talked about frequency, I’m going to layer in units per transaction, spend customer lifetime value, et cetera, that are really adding up the dollars in the sense of what customers are purchasing. But to be Starbucks and to make those investment choices, that short-term math is never going to work out. And those KPIs are not going to get you the full measurement of what they’re trying to accomplish. There’s this attitudinal benefit that are going to have some KPIs around them for this to ever have made sense financially for them. Because to your point, if they’re doing this three to five years before everybody else is doing it, it’s expensive and they’re going to have had to have invested significantly.

Joe:
Hindsight is 2020, like it always is. Now it’s like, of course put all the money into it whenever it’s been proven huge success, but that was not what it was whenever it started. We all know how tough it is to push in new.

Kristin:
Yeah. Thinking about that, they would have had to have a great grasp on data. And so as I would encourage folks that are listening, as you’re thinking about what the right KPIs are for you, and you’re balancing this transactional financial KPI versus this attitudinal, this can’t be a one-time data poll. You can’t go collect a sample and then use that for the next few years. You need to make sure as you’re setting this up, that you have this consistent evaluation and evolution of your data so that you can really stay on top of the true measurement of loyalty.

Joe:
What a true gift 2020 has given us, because last year’s data is not going to matter. What a great time to start fresh and start those polls on a consistent basis using 2020 as your baseline.

Kristin:
So I think I’m going to refer back to a statement that you made earlier, because as we were talking, you started thinking about Starbucks and I started thinking about a different brand. And you started talking about consistent transactions are not necessarily brand loyalty. And I want to give you a yes, and don’t ever estimate the staying power of loyalty. We are a fickle species and just because we’re loyal today, doesn’t mean we’re going to be loyal tomorrow. One of the brands that I was thinking about that has also been historically very successful is, Bath and Body Works. Some of the things that you said about Starbucks bring to I think for Bath and Body Works around, their concept and you’d jump in if I’m misstating this is, they had this premium product that delivered a high quality aesthetic and delivered differentiated sense.

Kristin:
And they also blew up the candle category by having these scents that rotated in and out. Never before did you have this urgency around, “Oh man, I have to go get that leaves candle, because it’s not going to be there. And that’s the only one that my husband had in the man cave.” So there was this interesting business model that they introduced and it’s been really successful. They’ve had positive comp growth every quarter since the middle of 2009. I mean, that’s over a decade of positive, every quarter being positive. So their business has been great and they’ve had this steady flow of traffic over the last decade, drawing from malls and shopping districts and their promotional offers have really been spot on driving both urgency and basket building. But to all the things we’ve been talking about, 2020 has changed the game.

Kristin:
One of their critical business drivers, which was in-store traffic, but at the same time, it delivered this positive business opportunity around soaps and sanitizers, which has historically only been about 15% of their business. So far they’ve been having a really great 2020, and I know the company has publicly said, they’re cautious about quarter four, but when we start to have this conversation around loyalty and what are customers going to be valuing now and what are they going to be thinking about in 2021, it just makes me wonder how fourth quarter is going to turn out for them and how their customer loyalty is going to stand the test of time.

Joe:
Yeah. Because there is competition out there. Everybody’s moving into other places and to me, it’s a real pressure test to say, “Hey, I am in that place in the mall. And when people will walk by us, they’re drawn in and they fill their baskets. Because it smells amazing. And I can try the products. And it’s an amazing experience.” But the question is, are you going through the test or asking the questions? And the painful one is of, what happens if that gets taken away? And we would have never thought that, what do you mean that gets taken away? People can’t smell your candle online. So that is a big… What happens, and then what is your plan to bridge that gap?

Kristin:
I think having the thought process that people will always be in malls, because there’s always going to be a traffic driver and I’m going to say malls and central shopping districts, because we all know what’s happening to mall traffic, but thinking about what customers are always going to be out shopping, and we’re always going to draw them in, to your point, with the allure of the scents and the urgency and their handbag or wallet is going to be stacked with coupons that are just burning a hole in their pocket to get used. Well now in 2020, a lot of that’s not there, and so as I lived now through Black Friday and Cyber Monday, and I can’t help myself, but get online to see what customer experience is like for a multitude of retailers. Let me give you a few highlights of what I’ve experienced from Bath and Body, and then let’s chat about whether we think that’s going to disrupt loyalty.

Kristin:
So what I’ve experienced, their shipping is expensive. Their shipping is 5.99 plus if you don’t order a certain amount it’s…. Oh, I think it’s over $10. You don’t go over $10 and they add a surcharge. Free shipping is offered in limited spots and typically with a high spend minimum that you have to hit. There’s also no buy online pick-up in-store available, and so you always get into a tough spot when you have a customer survey of, one, which is me right in this minute, but as a working mother of two, buy online pick-up in-store has been a huge lifesaver, especially in 2020, where getting everybody out of the car with their masks and making sure that the safety precautions are up to the standards to keep us safe, the shopping experience safe has been challenging. And so this market leading brand is only testing curbside and buy online pick-up in-store at this point.

Kristin:
I also experienced on Black Friday weekend, there were some offers that were only available in store, which makes me go, “Well, is that the right approach for 2020?” And then today, by the time you guys hear this, this will be in the past, but today is the 9.99 Candle Day on Black Friday. And so I was online and the website was down, because I’m sure it’s a high class problem that there’s so many people trying to transact on the website today, but it just makes you go, “Okay, well, is this digital experience and is this customer experience set up for 2021, and is that going to impact the loyalty that their customers have been showing them for the last decade?”

Joe:
And I think it’s to not say, “Hey Beth, they’re not doing it wrong. They’ve won since 2009.” It is to very much say the time to start focusing on your consumers experience, on the user’s experience, on making these, and we’ve talked about it this entire time, making those connections between the digital space and the retail, that live space is necessary and do it now. Do it when there’s not a pandemic. And the brands that did it and focused and put that investment there, which is tough, Kristin and I both understand that these things that we’re talking about are easy to talk about. They’re really different conversations in the boardroom. So we understand those complexities when you’re dealing with loyalty. But the truth is that customers don’t care about how your plumbing works.

Joe:
I am fascinated with our conversations because I’ve learned so much every single time about all the things that I didn’t know that were going on in the background like magic, because you don’t want the consumer to… they’re not worried about that, nor should they be. But whenever this is in our face every single day, I think we have to remind ourselves that they just don’t care about that plumbing. They want an easier experience that fulfills more on their needs and the values that they have. So what we ask again, as we wrap up the podcast is, have you asked these questions whenever you’re thinking about loyalty and it all begins with these questions, why were your consumers loyal to you in the first place? Why did they leave you? So whenever we’re looking at that data, when we see people fall off, why is that occurring? What are they valuing now?

Joe:
It might be as we’re seeing in 2020, and I don’t think this is going to be going away. With or without pandemic is, what is their value set now? And how does that hold up against what we’re providing them? And then how are we going to measure success? Is it going to be measuring success how we did it in 2002, or do we need to start measuring success differently on what we will want to become tomorrow? So I would say that customer loyalty, I think, we can both agree it can be tricky, because it’s different for everyone based on specific needs and values of your consumer. That’s why, to me it’s like the closer you study and invest on your consumer, the clearer that path to loyalty is going to become.

Kristin:
I think the statement around, should we launch social media and personalization, to your point, it all comes back to, what do they value now and the loyalty? And if you want to do it in the right way, that’s effective, you got to first address those questions.

Joe:
What’s right for you. Be weary anytime somebody says, “Hey, the answer for everyone in every business and everything in retail, no matter what your store is, if it’s candles, or if it’s tools or in hardware, it’s all going to be X.” That’s a tough pill to swallow because it’s going to be up to understanding your customer and those specific needs. So with that, I love the conversation a lot for people to think about as we go into the holiday break. And thank you once again for joining us on Uncovering Aha and from Kristin and myself here at Callahan, we look forward to talking holiday retail again with you soon and happy holidays from everyone and to everyone and stay safe out there. Thanks Kristin.

You’ve been listening to the Uncovering Aha! podcast. Callahan provides data savvy strategy and inspired creativity for national consumer brands. Visit us at callahan.agency to learn more.