Decoding customer loyalty today

Customer loyalty has been the Holy Grail of organisations and the loyal profitable customer has been wooed and taken care of for years. However, the entire paradigm of loyalty and the switching behaviour has been changing across industries. This is enabled by greater access and lesser information asymmetry because of digital.

Besides, customer loyalty is costing more than many business leaders realise. Organisations spend billions each year on non-cash loyalty incentives. Once activated, they are difficult to shut down. Globally, members of loyalty programmes typically generate between 12 and 18 per cent incremental revenue growth per year compared to non-members.

However, there are several indications that loyalty investments, in their current form, are not generating all the value they could.

This year in its Global Consumer Pulse Research (GCPR), Accenture focused on this consumer facet. GCPR 2017 was conducted across 33 countries including India and with over 25,000 customers across industries.

Loyalty is fundamentally hard to link with underlying buyer values and hence just increasing spending to drive loyalty may not necessarily result in desired benefits. Even if they do, it may well be short-lived. While the key underlying factor driving loyalty consumer satisfaction was intuitive, organisations seem to not be doing a great job here. Nearly 70 per cent of Indian consumers surveyed perceived little differentiation between providers, 50 per cent were not satisfied and 25 per cent were awaiting a competition trigger to switch.

For example, Air Vistara in India is luring away the profitable frequent flyers of competition by automatically allocating Elite Tier status for people with similar status on rival airlines. Suddenly, the one lever which flyers valued, having taken years to earn, stopped being a differentiator. At the other end of the spectrum however, one of India’s oldest loyalty programmes – Shoppers Stop First Citizen launched in 1994 – today by some estimates drives more than 70 per cent of business and provides two decades of loyalty data for analytical interventions.

Traditional customer journey maps are a thing of the past as customers surf through online sources for product information and evaluation. Hence, customer advocates who drive loyalty need to be engaged at various touch points. For example, automotive third party websites such as Carwale and hospitality sites such as TripAdvisor are places where non-traditional engagement is needed.

Additionally, in a value-conscious market such as India 50 per cent of customers still believe “a good deal” is reason enough to switch beyond other considerations such as brand and innovation.

The fast growth markets are driven by young customers, especially in India where 64 per cent of the population in the working age group is in the range of 20-35. They embrace technology wholeheartedly and hence provide an avenue for disruption. In one of the world’s largest telecommunication markets such as India, the transition from 2G to 4G, almost skipping the 3G stage, has enabled India’s recent telecom startup to take on entrenched rivals who had built up the customer base over years.

Many old customer frustrations, especially poor customer service, remain unaddressed even with new-age organisations. People are unwilling to travel a large distance and wait for after-sales services. In such cases, companies have to develop an engagement model which is feasible for the customers or risk losing customers. The research suggests that 60 per cent of respondents in India prefer a mobile platform as the primary after-sales engagement medium and companies which ignore this trend leave open a potential entry point for competition.

India is third in the list of countries most affected by online banking malware and in 2016 alone registered over 10,000 cybercrimes. This led to respondents raising concerns about their data being stored by organisations to create customised loyalty interventions (interestingly a separate Accenture research has identified hyperpersonalisation as one of the key tech trends for 2017 globally). This creates a duality of a customer need along with a concern and the winner is someone who can address both. While still nascent in India, this trend will pick up in the coming years and provide an avenue for competitive differentiation and first-mover advantage among players.

In today’s digital world where ‘experimentals’ are the most dominant profile, historical demographic stereotyping may need another look. The traditional middle-aged Indian woman who makes most of the consumer category purchase decisions is also using the internet to access information overcoming societal boundaries.

As Indian consumers mature, loyalty will first provide a profitability driver and then, as micro-markets start saturating, will also become a growth driver. Organisations which prepare for this in advance and use digital channels to drive disruptive customer loyalty will create competitive advantage finally driving EBITDA growth.

Vineet Ahuja is Managing Director and Lead, and Abilin Mukherjee Senior Manager, Advanced Customer Strategy, Accenture Strategy.

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