How loyalty ecosystems can help brands better serve customers

Author: Daniel Smythe, Vice President, Retail & Hospitality Consulting, EPAM Continuum

Consumer loyalty is something businesses have long understood the importance of—and for good reason. By its very definition, customer loyalty increases the lifetime value of consumers, either by increasing the frequency with which they shop at a given retailer or by raising the amount that they spend per transaction with that retailer—hence leading to a boost in profitability and enabling growth. 

This realization is what’s led to the introduction of countless loyalty programs in the retail space, among others. Beyond the direct correlation to profits, these programs have helped businesses in a myriad of ways, from collecting valuable data on consumers to enabling targeted marketing initiatives. 

It’s important businesses have a loyalty program. This is something I look out for when buying something.

Krip – UK

This emphasis on loyalty hasn’t gone unnoticed by consumers. From earning free gifts with a makeup brand after spending a certain amount to getting regular discounts on movie tickets after joining a theatre rewards program, consumers have been overwhelmed by the plethora of rewards programs—and the nominal benefits that accompany them—that have entered the market in the recent decade. So, it’s no surprise that in EPAM Continuum‘s first Consumers Unmasked report customers expect to be rewarded for their devotion to brands. 

[Brands should] reward loyalty, offer discounts or incentives and reward schemes.

Isabella – UK

Now that consumers have become so accustomed to being offered tokens of appreciation for their allegiance, brands are grappling with how they can create loyalty programs that are truly different from their competitors. The answer may be simpler than companies think: listen to your customer—and add value to their lives.

So, how do businesses do that? By broadening their thinking from “loyalty programs” to “loyalty ecosystems.”

What are loyalty ecosystems?

We are all familiar with the aforementioned programs that offer rewards for spending money with a given business. Your local ice cream shop may give you a free scoop on your tenth cone. You may get more coupons at your hardware store by offering up your email address at checkout. While this may be a no-brainer to brands, for customers it may be another obstacle in getting what they want.

That’s why brands need to offer up services and goods that go beyond the expected and truly give customers wide-ranging benefits. Offering them access to a loyalty ecosystem may be just the way to do that.

Loyalty ecosystems are a new model for providing customers with services or products that may lie outside of a given brand’s scope. Falling into two sub-categories, loyalty ecosystems can be classified as either contained or open.

A contained ecosystem consists of companies operating under the same parent company. Take Amazon and Whole Foods, for example. When the retail giant bought the grocer several years ago, Whole Foods began giving Amazon Prime members a discount at checkout every time. Similarly, members could start ordering groceries from Whole Foods via their Prime accounts—something that many took advantage of in the early days of lockdown. Both of these initiatives had the effect of creating new entry points for customers as well as generally increasing brand affinity. 

On the other side of the spectrum are open ecosystems. These networks consist of several complementary organizations partnering together to give customers benefits in all areas of their lives. For instance, a hotel chain may want to partner with a restaurant chain in hopes that customers staying at a certain hotel brand may be encouraged to dine with the restaurant for a discounted rate. These two businesses may also choose to partner with a car rental agency, offering additional rewards points for using the agency.

From the consumer perspective, this new way of operating offers nothing but benefits. By shopping with one brand, they’re getting rewards with another. 

Why businesses need to get comfortable with co-opetition to create successful loyalty ecosystems

While the benefits are obvious to consumers, the drawbacks may feel threatening to retailers. Loyalty programs were originally created as a means to help businesses boost their bottom line—not to mention to collect precious data on their consumers. So, why would brands want to give up all that vital information to someone else, even if they’re not a direct competitor?

In the case of the Amazon-Whole Foods relationship—and contained loyalty ecosystems in general—this may not be as much of a concern. But, in the case of open ecosystems consisting of partnerships across unrelated businesses, this concern might be front and center.

First and foremost, companies need to humbly understand that these partnerships will serve a wide range of their customers’ needs better than one company alone could. Take the Home Depot’s new partnership with Walmart as an example. While the two could have easily forgone any deal out of fear of losing intellectual property to one another, the businesses chose to work together to ultimately provide their customers with a better experience than they could have done on their own. By even taking steps to forming this partnership, these two retailers have shown that the customer is the number-one priority, potentially increasing trust.

By working with co-opetitors to create loyalty ecosystems, a business can ultimately provide their customers with the services and products they need—improving retention in the process.

Read EPAM Continuum‘s latest consumer behavior research and register to follow the 12-month Consumers Unmasked study here.

Read the original article here.

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