The changing rules of customer loyalty

From commanding absolute loyalty to seeking a dynamic place in the Active Consideration Set, the rules of customer loyalty have changed. Which also means that brand strategies must suitably evolve, starting with the structured organic growth programs.

Loyalty, in a unique sense, was possible in the era of multiple constraints.  In the 1990’s for instance, the following was the scenario - a solitary serious private airline (Jet), Taj, ITC and Oberoi the only scalable luxury hotels, Shoppers Stop, one of just two or three such entities and a similar small pond for beauty salons. Also, customer retention was top priority as our prolific consumer economy had not kicked off. Thus loyalty programs, conventionally, made sense for both user and brand - an assurance of rewards and continuity being the suitable motivation. Importantly, abundant choice was not a valid expectation in our mindset, emerging gingerly from decades of imposed limitations.

Therefore, the early loyalty programmes were designed for quick redemption, led by the hotels. Oberoi and ITC offered lavish discounts for dining, embellished by generous coupons and free cakes. Jet Airways ensured that flights were purchased before points were issued, but softer perks like lounge access and upgrades were common. Such initiatives ensured multiple moments of truth, compelling customers to often select the perquisite over the main course in terms of experience. But with the onset of the abundance economy, all of this was set to change, accelerated unexpectedly by the Covid dynamics.

The India Luxury Hotel Market size is expected to grow from USD 2.47 billion in 2023 to USD 3.99 billion by 2028, at a CAGR of 10.06% during the forecast period (2023-2028). India's retail industry is projected to expand to $4.5 trillion by the end of the decade, according to Deloitte India and the Shopping Centre Association of India (SCAI). The Food Tech market in India was valued at Rs 289.36 Billion in 2019 and is expected to reach Rs 1,868.19 Billion by 2025, expanding at a compound annual growth rate (CAGR) of 39% during the 2021-2025 period.

Fashion startups account for the largest share in the D2C segment as the country’s fashion industry has the highest potential and is expected to grow to $43.2 Bn by 2025. All of the above directly means that many more brands will enter the customer mindspace, using the same media vehicles. Interestingly, the largest aviation player Indigo does not have a loyalty programme, a telling evidence of new age dynamics.

E-commerce market share of tier 3 cities grew from 34.2% in 2021 to 41.5% in 2022, while tier 2 cities rose from 19.4% to 21.4% during the period. Significantly, most such customers have not been recipients of the first generation metro centric loyalty initiatives.

A recent Mintel study highlighted that 50% of Indian shoppers are choosing to enjoy life now rather than focus on long-term financial planning, with millennial urban males (68%) leading the trend in indulgence, particularly in clothing and accessories. According to EY, 53% of consumers tried a new brand during the pandemic and 35% liked the new brand and stayed with it. Indians are thus becoming more experimental than ever before and trying new things.

Thus, there is sufficient evidence for initiating the Active Consideration Set in consumers - home to a set of brands, a few fixed and a few possibly rotating. Where decision making is increasingly a function of choice, convenience and cost - traditional loyalty parameters exist only as routine immediacy drivers like cashback and discounts. Modern travellers often choose the all day flexibility of Indigo over the limited frequency of Vistara, points be damned. Fashion buyers thrive on relentless variety and conversation currency, driven by peer recommendations. Experience obsessed travellers love to experiment, including Airbnb and the same is true for diners.

To earn a place in the Active Consideration Set, our approach to analytics and rewards must change. Greater focus on switching behaviour, understanding the specific drivers of preference. Focussing equally on the point of difference and points of parity, so that one is totally competitive. Unleashing a culture of constant innovation in all parts of the mix. Building a rewards mechanism that acknowledges the necessary inevitability of multiple preferences. Finally, operating strictly on experience building, the product or service subservient to the larger human value.

When unquestioned allegiance was the objective, a healthy mix of carrot ( rational ) and stick ( notional) was the recipe. When the new task is sustainable membership in advanced consideration, the prescription insists on measurable experience enhancement, constantly attracting new audiences while holding on to the current. The customers, thankfully, will be the ultimate winners.

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