January 10, 2024 | 4 min read
Julianne is a Senior Principal on PMG’s Strategy Team with over 15 years of experience in the industry. While often tapped for her expertise in Loyalty and CRM, Julianne focuses on tailoring strategies to the constantly evolving consumer and has a passion for driving business results through compelling, full-funnel engagement strategies across channels and lifecycle phases.
Recent shifts in consumer behavior have had notable downstream effects on brand loyalty programs and any brand seeking a deeper connection with its consumers. Against a backdrop of ever-changing buying trends and economic uncertainty throughout much of 2023, the concept of brand loyalty is seeing significant disruption, requiring brands to recalibrate their strategies in order to scale successfully.
That’s not to mention how the consumer journey continues to evolve. People are now accustomed to shopping around to maximize value, making them less inclined to default to their preferred brands. Over the past year, a third of consumers (33 percent) have switched away from or have become less loyal to a previously favored brand, marking a six percent increase from brand loyalty trends in the year prior, according to the Marigold Consumer Trends Index.
Our own research found that the number one reason consumers switch brands is “better value for the money.” Further, we saw that younger customers are more and uniquely drawn to novelty, with more than 40 percent of those surveyed wanting to “try something new,” 13pp higher than average.
The factors that influence where consumers shop have varied in recent years, ranging from inventory availability, the store and ecommerce customer experience, perceived product value, a desire for deep discounts, social media trends, and so on. In tandem with the growth of brand switching (which was further accelerated during the pandemic), marketers are looking to increase demand contribution from owned channels, requiring an active evaluation of the most persuasive value propositions that lead customers to return to the brand or spend more.
“The number one reason consumers switch brands is ‘better value for the money,’ according to PMG research.”
How can marketers plan to increase demand while reducing brand switching? In the coming months, brands are presented with a unique opportunity to strategically balance customer growth via expanding their overall customer population by nurturing a base of loyal customers at scale.
Successful brands that achieve both objectives (demand increases with declines in brand switching among customers) employ a full-funnel, integrated marketing mix, building authentic connections, delivering meaningful personalization across touchpoints and experiences, and aligning with the right trends to amplify both advocacy and discoverability.
Successfully scaling brand loyalty is through adaptation. First, brands should calibrate acquisition and retention goals to align with business priorities, financial targets, recent trends, and anticipated market conditions based on product and brand positioning.
For example, let’s say a company is introducing a new mobile app and suite of rewards in the same year as they plan to expand their investment into a new product category. Marketers should be particularly thoughtful as to how both initiatives—each providing distinct value—can appeal to existing and potential customers (or loyalty members) within the current landscape.
Proactive considerations within planning not only empower brands to stay ahead of shifting trends but also foster greater agility and a more resilient foundation for strengthening brand loyalty in the face of an ever-shifting business environment.
Second, marketers should work to establish partnerships with customers and creators on social media, recognizing its importance as a key source of product inspiration and catalyst for driving brand preference across diverse market segments. Almost a quarter of social media users report purchasing a product based on an influencer’s recommendation within the past three months, a 33 percent increase from the year prior, according to Hubspot research.
By actively engaging with and leveraging the influence of loyal customers and creators, brands amplify their reach and cultivate more authentic connections on the platforms customers engage with most, laying the groundwork for sustained loyalty and brand advocacy.
Third, marketers striving to meet these heightened consumer expectations can find success with initiatives like actively building brand preference across channels, optimizing rewards and benefits structures, utilizing data models or AI for hyper-personalized connections, offering exclusive access to innovative collaborations, or even strengthening engagement with gamification.
“Proactive considerations within planning not only empower brands to stay ahead of shifting trends but also foster greater agility and a more resilient foundation for strengthening brand loyalty in the face of an ever-shifting business environment.”
Sephora is a best-in-class example of a brand that continues to adapt its brand loyalty program amid market pressures, category trends, and consumers’ ever-evolving preferences. The beauty retailer boasts 34 million loyalty program members as of 2023, up 30 percent from 2020 figures.
Consistent growth requires intentional investment to appeal to and build loyalty with younger generations, and Sephora continues to do just that. To generate greater awareness of exclusive offerings and design a new way to engage with the beauty community, Sephora recently launched in-app gamified experiences known as “Beauty Insider Challenges,” offering rewards for both transactional and non-transactional activities.
Note that exclusive access can extend beyond gamified experiences. Our analysis of retail promotional activity throughout the 2023 holiday season showed that a significant majority (63 percent) of brands with loyalty programs offered their customers exclusive access to sales or promotions, making up an impressive 25 percent of their total promotional activity during the period.
The frequency of these ‘gated promotions’ rose among nearly 75 percent of brands year-over-year. The growing popularity of this tactic across categories shows that exclusive experiences are gaining traction as a means for brands to offer value, drive excitement, and ultimately, encourage repeat engagement and purchases.
As retailers look to finetune their promotional strategy in 2024 and beyond, brands with more mature programs and martech infrastructures will experiment with hyper-personalized offers to maximize profitability and sales. Messaging that meets a minimum threshold of value for the customer is now table stakes, with leading brands touting high value and convenience in their messaging, such as Sephora offering ‘price drop’ messaging based on previously browsed or saved items.
Research shows that consumers welcome greater personalization, with 56 percent of adults worldwide stating they anticipate becoming repeat buyers after a personalized experience—up from 49 percent in 2022.
A data-driven, personalized offer strategy provides benefits for brands and consumers, given that the top challenges cited by loyalty program professionals include maintaining margins while offering enticing discounts, as well as the ability to offer discounts attractive enough to sway customers.
Exacting the right approach will vary by business positioning, the brand, and customer strategy, yet success in continuing to scale brand loyalty will lie in adaptability as change remains the only constant in our industry.