Episode 59
Paula Thomas, a customer loyalty expert and the podcast host of Let's Talk Loyalty, talks about the dos and don'ts when building loyalty programs, the latest Bond Loyalty Report, and practical tips for implementing your loyalty strategy.
Episode 59
According to Paula, there are two very different perspectives when it comes to adopting loyalty as a company. What most companies do is implement loyalty mechanics and programs, creating what is known as transactional loyalty.
However, it would be more beneficial if they focused on emotional loyalty, and building what Paula refers to as a 'loyalty mindset', which determines whether the company is willing to be loyal back to their customers. What she realized is that customers need to be treated first and foremost as human beings, and brands need to show their efforts and commitments early on, without waiting for them to be loyal first.
Although bribery is often mentioned when talking about loyalty, Paula highlights how it should never feel like that, as it is usually used when there is something immoral, illegal or abusive trust. Instead, there should be a balance between functional benefits and something she describes as ‘much softer, more emotional’ that feels like you are giving back to customers. Most companies are too focused on their own commercial agenda and taking care of their shareholders, without realizing they need to take care of their customers first.
Some tips mentioned by Paula to build a loyalty strategy are listed below:
Listen to the full episode to find out Paula’s loyalty programs in the UK and other best practices.
This article summarises podcast episode 59 ” How to Build Customer Loyalty" recorded by CX Insider. For more information, listen to the episode or contact Paula on her LinkedIn profile.
Written by Alessia Trabucco
Full episode transcript
Paula: And certainly my biggest revelation, I suppose, in all of my loyalty careers the Pareto principle absolutely holds true. Every loyalty manager I speak to says yes, 80 percent of my revenue comes from 20 percent of my customers. So at least take care of those customers. And then you have something, I suppose that's quite manageable and then you can optimize for mutual benefit.
Valentina: Hello, everybody, and welcome to another CX Insider podcast episode. Today's guest is Paula Thomas, a customer loyalty expert, and host of the Let's Talk Loyalty podcast. We will talk about the latest loyalty report published by Bond Brand Loyalty, what it means when a company is loyal to their customer, and Paula gives useful tips on building your own loyalty strategy. Enjoy the episode, and if you do, let us know on LinkedIn and on our newly created Instagram account, which you can find under CX Insider.
According to Neil Rackham, the author of Spin Selling during times of Uncertainty Like a Recession, the reason people purchase is safety and not price. They are even willing to pay a premium for the value and accordingly, brand loyalty increases as customers are risk-averse. The Great Recession was a time of such a disruption, and also a time when Paula saw a great opportunity and shifted her career to loyalty consulting.
Paula: The loyalty piece specifically started in 2010, when actually, as a direct result of the recession. At the time, I was brought in to consult on a loyalty program in Ireland, which is one that is very well known in the UK, which is the O2 Priority Loyalty Program, and I was brought in to really build and optimize that program, and it was extremely exciting. I have to say I don't know if you've ever worked in a loyalty program, but behind the scenes, it's very complex and very challenging. But what I really loved is it's a great opportunity to give back to customers and to build direct relationships with them. So, I spent about 10 years actually just consulting for various different sectors and offering, I suppose, operational expertise. But I always found I had a lot of questions around, you know, the strategic side, the technology, and exactly how to build the absolute best approach to increasing customer loyalty for as well as commercial benefit. So, a couple of years ago, I realized nobody was talking professionally about loyalty in podcast form, so I decided perhaps I could be the global voice of loyalty. And yes, set up my show and started in twenty. I think similar to yourselves. So, I launched Let's Talk Loyalty. And since then and now, twice a week, I interview leading professionals or talk about loyalty programs that I'm a huge fan of and share with loyalty professionals around the world.
Valentina: Paula believes that if you want to start building a powerful loyalty strategy, you need to first adopt your loyalty mindset. You may wonder why corporate employees should think in such terms. However, she points out one key differentiator. We will elaborate on this later in this episode, and that is being loyal back to the customer.
Paula: I suppose, as I have spent so much time now, you know, really thinking so much about the industry. I really feel that there are two very different perspectives, and that's exactly why I use those terms. So, having a loyalty mindset is very different than having loyalty mechanics or a loyalty program and a structured way to recognize and reward customers. So, I fundamentally believe that you can have loyalty mechanics, but if you don't have a loyalty mindset, then absolutely you're not going to really achieve anything. All of the best companies that I look at or talk to and the single success factor that determines whether customers end up being loyal to them. The biggest one, particular industries, let's say, like an airline where there's, let's say, a perception that there's a lot of similarities, maybe between two particular airlines that are going to the same destination. It's when the company feels like it's trying to be loyal back to the customer that really the difference starts to emerge. So, to me, that mindset absolutely has to start at the very top of the company, at the C-suite. And then it's something that permeates all the way through the organization, through the employees, out to the customers themselves. So there's absolutely no point and particularly on the topic of six, there's no point building a loyalty program and putting all of those mechanics in place if you haven't first got them the basics, right? So, I'm a firm believer in the customer experience as a fundamental requirement and then a loyalty program and deciding what mechanics to use. You can layer in on top, but it's almost like the icing on the cake. It doesn't compensate for anything else that might be missing
Valentina: The most common form of customer loyalty that people hear about it's mostly transactional, but when it comes to emotional loyalty, that's something we would probably use within the realms of brand management. Listen, to how Paula approaches this concept.
Paula: I suppose transactional loyalty is probably the one that's best understood by customers because it's been around for a very long time. So if you think about airlines again, I suppose, as a favorite sector and category of mine, American Airlines was the first major program that was launched in the nineteen-eighties, and the whole idea was, I suppose, around like lots of relationships there should be given and take. So, if you are behaving in a way where you're choosing to fly with one particular airline, they started to give something back in return to their customers. So, I suppose the very simple part is, you know, we are logical in many ways. So, our brain is very. Earlier, if somebody feels like they're being fair to us, you know, they do something for us, we do something for them. So that, I suppose, is what we would think of as transactional loyalty. But then, for example, emotional loyalty is very different. So it might be, for example, if somebody just literally loves a product, so Apple is probably the most quoted example, a lot of people feel very emotionally connected to Apple, even though they don't have a consumer loyalty program. But also, I think there are good examples with brands like Patagonia. I always think is a very good one because they're very much seen as an activist brand, they stand for something, and there is very much a very large reflection of what customers care about, so people care about the environment, they want companies they do business with to also demonstrate that loyalty to a bigger cause. So that's when we start to say that there's an emotional loyalty because we value what that company is doing, and we will advocate for them as well. So, it's one thing to obviously say that you're going to do something. It's another thing to say to your friend. You should absolutely shop with these guys. So that's usually coming from a place of emotional loyalty.
Valentina: Have you ever been in a situation where you were about to cancel a membership? And right before you confirm the cancellation, you get offered an extra free month or extra credit in the case of Audible. While it may work short-term and you might use the perk of service for a while, it won't change your attitude. And that's one of the main differences between loyalty and bribery.
Paula: Bribery is more used, I suppose, when something is certainly immoral or even illegal, perhaps, and is sometimes used if there's like abuse of trust, so somebody in a position of power. And what I think companies are doing is I think they're overly focused on their own agenda and that is a commercial agenda. Then, you know, taking care of the interests of stakeholders. But very interesting, Greg. I just, for example, interviewed Fred Reichelt on Let US Talk Loyalty on my show and your listeners may or may not know his name, but certainly, he's a real guru. He's called the high priest of loyalty in our industry, and that's the economist who called him that. But he's just released a new book, and actually what he talks about is a company's primary purpose is not to create profits for its shareholders. The primary purpose of a company is to take care of its customers first and foremost, and by taking care of your customers, you then take care of your shareholders. So, I really think that there has to be that level of integrity, the mindset we talked about earlier. It should never feel like bribery. It should never feel like it's all about the company. And again, that's why certainly when I was advising on loyalty programs, we always wanted to get the balance right between these kinds of functional benefits and something that is much softer, more emotional, and really feels like we're genuinely giving back to our customers.
Paula: And so, yeah, I definitely think that companies do get it wrong, and I think we've all been spammed relentlessly. I think you know, the cookies on Google, for example, are going to be discontinued. I'm sure many of your listeners are aware of that, but certainly come 2023, I think, is the current date for that, you won't be able to follow people around the internet anymore, for example, to try and stalk them and see what they're looking at and then try and sell to them. You'll have to genuinely, I think, try and understand what your customers need and want, and I do believe that's the right way to do business. So yeah, it's very easy to do it wrong and very easy for me to sit around and say, you know, companies are bad, but I think we're all under pressure and I totally get that. But and customers know exactly what's going on. They do feel it. So, I don't think we should kid ourselves that we're getting away with this if we're just sending, you know, coupons all the time.
Valentina: The emergence of social media revolutionized relationship building with customers and enabled brands to create two-way communication. Nowadays, it is much easier to have an emotional bond with the company when brand managers reply to our content. Follow us, engage with us, send us emails. How does that reflect in real consumption?
Paula: I think one social media emerged. I think the first thing that happened was that the vast majority of brands were utterly terrified because you know, the visibility, the potential for embarrassment. How do you manage again with the level of integrity where you invite feedback, but you don't allow lines to be crossed? I suppose in terms of, you know, really something becoming toxic or out of control. So, all brands did and still do, I think, worry about that. And I think it's a small price to pay for the opportunity to be transparent and to be open and receptive, like the last thing I want to do and actually where I live here in Dubai, for example, it's actually illegal. To do that, so, you know, it would be considered libel. And I do know people who have been, you know, you know, just it's been a difficult situation if they had named and shamed a brand on a social media platform. So, I think people have to be careful about that as well. But no, I think there's a lot more to driving loyalty. I think the pandemic has made us all maybe stop and re-evaluate exactly also who do we want to do business with? Like what type of operations and organizations so.
Paula: So I think there's a lot more in the mix than ever once beforehand. So it's much bigger than social media that's only going to get more important. But I think more and more customers value when there is a relevant relationship where we are genuinely trying to give them things that they're interested in and take care of their needs and interests. Because, for example, when I think about fashion and the brands that I'm loyal to, I love when they let me know when things are going on. So, whether it's on Twitter or Facebook, or email, I welcome those communications. But if I do feel like it is something that's just again very commercial and coming from a brand that I'm not really that bothered by, then it just doesn't drive any loyalty or even any commercial behavior. And certainly, my biggest revelation, I suppose, in all of my loyalty career is the parental principle absolutely holds true. Every loyalty manager I speak to says yes, 80 percent of my revenue comes from 20 percent of my customers. So at least take care of those customers. And then you have something, I suppose that's quite manageable and then you can optimize for mutual benefit.
Valentina: In July, Bond published a report on customer loyalty in which they introduced a new variable based on reciprocity that can help predict customer spending, which is how the brand is loyal to me. I remember when Paula was talking about the importance of management, adopting the loyalty mindset without putting the customer in the center. Brands would not be able to reciprocate the relationship they have with their customer.
Paula: It came to my attention, I would say, maybe about a year ago, and again it was quite a dramatic idea because again, from the client-side or from the brand side, we would tend to be advising about loyalty programs as a way to shift consumer behavior. Like that's the fundamental objective of why we invest in loyalty programs, and that makes perfect sense and again drives profitability. So, I'm a firm believer that it's a good thing to do, but I think what we've realized is customers have to be treated first and foremost as human beings. And again if we say to them, you know, why don't you buy more? Why don't you behave this way? That's really just fundamentally not a healthy relationship with your customer. And if you think about our personal relationships, if we're always waiting for somebody else to act first and to be the nice person and to be nice and loving and caring, then everybody will be left wanting. So I think what the Bond brand loyalty report really illustrated is, first and foremost, most brands think well. Forty-six percent was the number that they quoted that actually, we are being loyal to our customers.
Paula: So there are plenty of examples where all of the investment is very well-intentioned, but perhaps not cutting through and what consumers are saying. So like less than half, I think it was 20 percent in that this year's report, which is literally coming out in July 2021 where literally, you know, customers saying, no, the brand is not loyal to me. So, so there's a fundamental confusion, first of all, about the purpose of a loyalty program, secondly about the effectiveness of a loyalty program. And I think Bond, for example, surveyed like 25,000 people in North America. So, it's probably seen as the, you know, the state of the art in terms of research scale and nationally representative in terms of perspectives on a small niche topic. So, I really think that anybody who's thinking about running their business needs to be honest with themselves and say, Well, actually, are we being loyal to our customers? Because if we don't start with that intention, then fundamentally there's no point building a loyalty program and expecting customers to be loyal to you.
Valentina: For all coffee lovers, Greg and Paula share examples of two loyalty strategies, both being implemented in chain coffee shops in the UK.
Greg: Here in the UK, I don't know actually device I can't remember. But do you have Cafe Nero? Is that one of the coffee grounds that
Paula: you know we do not have Cafe Nero here
Greg: Ok. Here in the U.K., just over the last year and a half, I don't interact much with like loyalty programs myself personally, but it's one that I have over the last, especially been, you know, when you're locked up at home and the only thing you can do is go and buy a coffee. Like my wife and I, we would go regularly to a cafe near it, and they released about a couple of years ago, an app for loyalty. Yeah, and it's honestly one of the best, most simple things. But like you said, I was thinking about why do I like it? Because I understand it like if I buy X number of coffees, I get one free. I also get I like the thing with the app where you don't always quite know what you're going to get because with random transactions, they give you gifts nice and it compels you to go in and think, I wonder if I'm going to get a gift a day, right? And you scan your app and you might get a free pass on or you might get a free flapjack or something. And actually, that element of surprise, I quite like that. And this is very simple. I don't know if you do, you have any great examples of other brands that you've seen, especially over the last year or so in COVID because it's been super difficult for brands to innovate. You know, maybe talk about any examples that jump to mind.
Paula: I will. And it's in exactly the same industry and it's in the U.K. and I'll be interested to see if you've noticed it because first of all, on your Cafe Nero example, it may be here in the UAE, by the way, and I just haven't seen it. Certainly, there's none in the area where I live. But we would just call that a surprise and delight strategy. So that is very much a mindset from the company to go, what can we do? That's, you know, not just the same boring points and prizes and whatever. Let's do something that Greg's not expecting, whether it's his birthday or his wife's birthday or whatever. So, there's an element of, you know, I think we do get a bit bored with predictability. And so, yeah, so that's a whole other topic. But anyway, we won't get into that now. But the other one I really like and I believe it has thrived, it was certainly launched before the pandemic but has thrived because of it, and it's the idea of subscription loyalty or paid loyalty programs, as we call them. So certainly in February 2020 in the US market, there's a huge brand there called Panera Bread, which is like a lunch café style retailer, a quick-service restaurant, and they launched an 8.99 unlimited coffee proposition based on a really big insight, which I loved because they shared this and they said the research they did with customers was that there's an awful lot of guilt associated with the price of coffee and that they reckon they could save the average person in the United States about a thousand dollars by just subscribing to this paid loyalty program.
Paula: But of course, what happens is people come in for their coffee and then what they do is they buy their lunch or they buy a cookie or a croissant. So, there was incredible cross-sell and upsell, and the sister company of Panera Bread in the UK is Pret a Manger, and Pret a Manger have done exactly the same. And I can see you nodding there. So Pret a Manger, and I do think probably in times of extraordinary challenge like now, it's the perfect proposition when people are nervous and uncertain if you can give them something like a fixed guaranteed proposition and I believe it's £15 for the pressure mortgage on limited coffee. And I'm pretty sure like if you buy a coffee, as you said, you go out a couple of times a week even to get a nice latte or whatever from your local Pret store are pretty sure £15 is extremely good value for a month. And I do believe they had an unlimited month free actually when you first sign up, so a really compelling way to get people to say, OK, let's try this, and let's just kind of get that recurring revenue. So yeah, if there was one top of mind, it would definitely be Pret a Manger.
Valentina: One of the challenges loyalty professionals can deal with is the problem of delayed gratification in a world where customers are used to immediate rewards.
Paula: Well, it's funny because we talk about instant gratification, delayed gratification, and constant gratification. So it's almost like, you know, where do you draw the line? And I will credit it to a colleague of mine here in the UAE, who's another loyalty professional, he kind of came up with this inside, certainly in this country where constant gratification, so customers are pretty insatiable. But, you know, certainly from a financial perspective, it's of course important that the investment and the loyalty program is measured and is attributable so that we can start to, first of all, justify the investment and see exactly why we're spending this money. It's a very, very difficult thing to do, but we always, you know, say, for example, that, you know, you don't ask, you know, how much should I pay the CEO to get a return on that investment like you, you invest in your CEO because it's the right thing to do and the right person for the job. So, I fundamentally believe it's very hard to attribute to a loyalty program. Exactly. That's why Gregg came into Cafe Nero, for example. This time because you might just be passing by tomorrow and then you might go to Pret a Manger. So, the causation and correlation is a very difficult discussion with most finance people, but we're getting better at this and absolutely we can see that our top-tier customers tend to respond. So, if you do invest in them, they will absolutely spend more. So for me, my favorite kind of idea is the share of wallet. So, if we say that in a month, Greg is going to spend this much money on coffee, then my goal as a coffee shop owner is to get all of your money that you're spending on coffee and not think, well, half is going to Cafe Nero and half is going to Pret a Manger. So, so yeah, it really is around the share of wallet, I think is the ideal objective. So that's the kind of thing that we're looking at.
Valentina: Last but not least, we asked Paula to give you practical tips on building a powerful loyalty strategy to use as inspiration.
Paula: There's very often a situation where a senior person might say, ‘Well, tell me why I should have a loyalty program’ and I really find that a very difficult question to answer because it's not my role to tell anybody they should have a loyalty program. It's my role to help them understand how to build it and what to expect if they build it in different ways. But I think what there often is an underestimation of how complex it is to build something that is, I suppose, three things clear, consistent, and compelling. They tend to be my, you know, absolute required elements for a successful loyalty program. If it's not clear if it's not consistent and it's not compelling, then absolutely you're wasting your time. So, I really think that that takes an awful lot of expertise. And it's why certainly in my consulting career, we would always advocate to bring in external experts, you know, rather than trying to figure it out by copying what your competitors are doing. I think that's a very common mistake. And I suppose on the flip side of that, no matter how complex it is on the inside, it should be super simple on the outside. So, one thing consumers increasingly are looking for is simplicity and transparency, and again, integrity. So, unless they can, this is exactly why I talk about clear, consistent, and compelling. If they don't get it, they don't understand it and they don't know why.
Paula: Well, then again, you're kind of wasting your time. So, I think to invest all of the time and resources internally, but then make sure to make it very easy for the customer, easy to join and easy to decide to join, and then easy to actually earn a reward. Because probably the single biggest mistake that we've seen over the years is where we allocate perhaps rewards for our members. And then perhaps a finance person might say, ‘Well, look, if nobody ever claims great, then it can just expire and we get to keep the money. And that's a very short-sighted perspective in this day and age because then you haven't closed the loop, you haven't let the customer actually enjoy the reward, and if anything, you've probably upset them. So, I definitely think there's increasing importance on making sure, particularly the first reward is something that the member gets to enjoy and then they trust you. And one fabulous statistic that I saw on a franchise website, actually when I was doing some work with 7-Eleven was, they said once the first redemption happened, the next basket was thirty-three percent more than the previous average basket spends. So, it's almost like they needed to prove that it worked and then they're happy to spend more and again earn more. So, there's something in it for everyone.
Valentina: I hope you enjoy this episode, and if you did, please let us know what you think on our LinkedIn and Instagram profiles and make sure you subscribe to the podcast on one of your preferred channels. If you're interested to find out more about what Paula does, listen to her podcast, Let's Talk Loyalty. On behalf of the entire CX Insider team, we wish all our US-based listeners amazing Thanksgiving, and hopefully, you will get to reunite with your friends and family after almost 20 months. Is it since the borders were closed? I have a fun time and I'll see you next time.