LOYALTY IN THE AGE OF THE CONNECTED CONSUMER
Consumers today have more choices than ever whether they re shopping for a cup of coffee, browsing movies to stream or buying a new car. And as major brands like Starbucks and Amazon drive up customer expectations by offering easier and more convenient customer journeys, cultivating a loyal customer base has never been more important. On top of this increased competition, there are now more customer touchpoints than ever giving rise to a complex and fragmented customer journey. Where consumers shop, why they purchase and how they receive information impacts their experience and resulting purchase behaviors. This report examines the state of loyalty among US consumers. We surveyed more than 1,000 shoppers evenly across ages to identify the preferences that characterize Generation Z (ages 19 21), Millennials (22 37), Generation X (38 52), Baby Boomers (53 71) and the Silent Generation (72+), and to gauge the role that timing, information and delivery channels play in their overall decision journey. Armed with these findings, marketers can better tailor their loyalty strategies to drive a strong customer experience and enable loyal relationships, regardless of age. 1
CUSTOMERS ARE LOYAL, BUT SELECTIVE ABOUT PROGRAMS 75 percent of consumers actively earn and redeem rewards in three or fewer programs, suggesting that customers tend to limit their program participation. To make it into a customer s top three, a program needs to prove its value and reflect customers desire for simplicity. KEY FINDINGS THE STATE OF LOYALTY A bird s-eye view of the state of loyalty across generations reveals insights that are actionable for marketers regardless of whether they re aiming to reach a new college student, her mother or her grandfather. While each generation may have unique preferences, they are united by an affinity for simplicity and convenience. Loyalty programs that are not only easy to use themselves, but make life easier for customers, win. The survey illuminated the following insights into the state of loyalty. MARKETERS MUST ADAPT TO GENERATIONAL DIFFERENCES Each generation prefers different elements in a loyalty program, especially in relation to program design and accessibility, use of technology, the cadence and channels for brand communications, and more. To stay competitive, loyalty marketers need to adapt to these nuances and variation. For example, Gen Zers and Millennials are more likely to join points-based mobile app programs than their Baby Boomer and Silent Generation counterparts. The generational cohorts are united, however, in their preference for simplicity and convenience: two-thirds (67 percent) of all consumers ranked loyalty swipe cards as one of the three programs they re most likely to join. GETTING THE CADENCE RIGHT IS KEY TO WINNING OVER CONSUMERS Past research has shown that marketers struggle to get the cadence right for brand communications. The bright spot: almost 90 percent of consumers say their favorite brands are communicating with them the right amount. For marketers getting the right frequency, they should now focus on perfecting content and context of those messages. CONSUMERS ARE IMPATIENT WHEN IT COMES TO LOYALTY PROGRAMS When asked what barriers prevent them from joining loyalty programs, 26 percent reported that the brand asks for too much information or the enrollment process takes too long, while 22 percent reported they won t join if it takes too long to earn and redeem points. Customers want convenient experiences from programs from the beginning, or they won t bother joining them. 2
THE POINT OF SALE IS THE BRAND S BEST WAY IN When it comes to signing people on to loyalty programs, almost four out of 10 (38 percent) prefer being asked to join as they check out. Very few want to be asked upon arriving at a store (14 percent), and only one in five prefer to be asked in a follow-up email. And, Millennials have less patience than older generations. One in three Millennials say the process takes too long, compared to one in four Gen Xers and one in five Boomers. DISCOUNTS MAY DOMINATE, BUT POINTS PREVAIL Price has an outsized influence on brand loyalty, with 34 percent of consumers ranking it as the most significant factor that influences whether they d return to a brand. And customers join programs primarily to collect and redeem points for prizes and discounts 38 percent report it as the biggest draw. However, 86 percent of all respondents prioritized earning points for rewards while these rewards may be discounts, customers also appreciate redeeming points in creative, engaging ways. The fact that earning points is a stronger draw than earning discounts shows the faith that members have in these types of loyalty programs because the survey didn t specify the type of reward or difficulty in redeeming points. 3
A LOOK AT LOYALTY ACROSS GENERATIONS When it comes to loyalty, it s clear that one size does not fit all. While broader trends span the generational cohorts, key differences and nuances characterize these distinct age groups, and marketers must take these factors into account when designing customer loyalty programs. GENERATION Z THE EVOLVING ENIGMA Though younger Gen Zers are still not active buyers, those older than 18 (born between 1996 1999) are coming into their own and they ve remained an enigma to marketers. The generation who learned to use smartphones before they could talk is more tech savvy than other generations, but also more skeptical of brand interactions and more guarded when interacting with brands. And while they re the most likely to espouse brand loyalty as a purchase driver, they also tend to be indifferent to loyalty programs. Despite Gen Zers being the most likely to cite brand loyalty as the primary reason they make repeat purchases 4
from a brand, they belong to fewer loyalty programs than older generations. Members of Gen Z are least likely to belong to three or more loyalty programs (only a third report this level of participation), and only 15 percent report they are active in three or more programs. HOW MANY LOYALTY PROGRAMS DO GEN ZERS BELONG TO? 6% 30% What s stopping them? When asked what prevents them from joining loyalty programs, 28 percent report that giving up too much personal information is a barrier (more than any other generation). But marketers must consider that this is a factor of lifestage. 0 1 1 http://www.adweek.com/digital/infographic-50-of-gen-z-cant-live-without-youtube-and-other-stats-that-will-make-you-feel-old/ That isn t to say Gen Z won t give up any data. While Gen Z may be cautious about giving away personal information, they re willing to share with brands who use it well. In fact, Gen Z is the only generation who prioritizes technology that understands their preferences and behaviors over less invasive and annoying technology. So while intrusive mobile push notifications or excessive emails will turn Gen Z off, they ll give up their information to those that use it to provide personalized shopping experiences or birthday discounts. Additionally, Gen Z is much more open to receiving information from brands through YouTube than other generations (20 percent vs. less than 6 percent for all other generations). This isn t surprising they ve grown up watching online celebrities on the platform, and 50 percent admit that they can t live without it. 1 They are also more likely than any other generation to use a search engine like Google to find products to purchase, rather than going straight to a retailer or brand (with 60 percent reporting they used it for their last purchase). 2 4 6 10 31% 3 8% 4% 5 3% 1% 11+ 18% 5
WHAT PREVENTS GEN ZERS FROM JOINING LOYALTY PROGRAMS? It requires too many purchases to earn rewards or redeem points 40% There is a cost associated with joining 33% The brand asks for too much information 28% The enrollment process takes too long 28% I don t see what the benefits are 25% TAKEAWAY I m worried about hurting my credit score 10% Gen Zers can be fiercely loyal if you earn their trust. Earning their loyalty is a balancing act: they expect 2 http://www.bbc.com/news/technology-42323366 I belong to too many loyalty programs already I ve belonged to a similar program before and didn t like it Other 11% 10% 1% personalized, sophisticated experiences from brands across channels, but they re protective of their personal information and shy away from invasive technology. Brands that can provide these intimate experiences (without being creepy) will win over this generation. For example, Netflix should use customer data to personalize private movie recommendations but maybe should tread lightly when it comes to using personal data in public social media posts. 2 6
MILLENNIALS THE SAVVY CONVENIENCE SEEKERS 3 https://www.credible.com/blog/millennials-credit-cards-survey/ As Millennials (born between 1980 and 1995) gain more spending power, their preferences will continue to play a pivotal role in marketing and loyalty programs. As a generation, they prioritize convenience, low prices and perks like free shipping and birthday freebies. Millennials motivations for joining loyalty programs reflect these priorities. They value convenience (28 percent) and access to discounts (78 percent), higher than any other generation: only 16 and 65 percent of all respondents report the same, respectively. What turns Millennials off? Compared to other generations, Millennials are the most concerned about how joining a program could impact their credit score (18 percent), a reflection of Millennials reluctance to use credit cards. 3 They are also the most impatient 34 percent report that they won t join if the enrollment process is too long. Another thing to keep in mind: as Millennials age and begin buying homes and cars, they are more price conscious. Price is the most significant factor for 35 percent of Millennials when it comes to which brands they are loyal to, and they value free shipping more than other generations. Millennials are also more influenced by product reviews than older counterparts, and prefer points-based mobile app programs as their ideal loyalty model. Perks like birthday freebies and member-only events motivate Millennials more than any other generation in fact, Millennials value the birthday benefit more than twice as much as their Baby Boomer counterparts. And contrary to popular belief, Millennials aren t solely on their phones in fact, more than 72 percent use laptops to research products, while 69 percent purchase products on laptops. 7
HOW MANY LOYALTY PROGRAMS DO MILLENNIALS BELONG TO? WHY DO MILLENNIALS JOIN LOYALTY PROGRAMS? 22% To collect and redeem points for rewards 86% 0 1 Access to discounts 78% 22% 20% Other perks, such as birthday freebies 50% 2 3 For the convenience (e.g. skipping the line at Starbucks) 28% For the status of being a loyalty member 19% 10% 6% 4 5 To help a program, school or other community cause 14% 16% 3% 6 10 11+ 8
WHAT PREVENTS MILLENNIALS FROM JOINING LOYALTY PROGRAMS? It requires too many purchases to earn rewards or redeem points 45% There is a cost associated with joining 39% The enrollment process takes too long 34% I don t see what the benefits are 27% The brand asks for too much information 25% I m worried about hurting my credit score 18% I belong to too many loyalty programs already 12% I ve belonged to a similar program before and didn t like it 6% Other 2% 9
WHAT MAKES MILLENNIALS RETURN TO BRANDS? Price 35% Quality 27% Free Shipping 9% Ease and convenience of the shopping experience 9% I feel committed/loyal to the brand 9% I m a member of the loyalty program 7% They employ the right technology to communicate with me They send me the right information 1% 1% TAKEAWAY Quicker shipping 1% Status or reputation of brand name 0% My social circle purchases from the same brands 0% More than other age groups, Millennials value convenience and perks (28 percent of Millennials selected this). Millennials say they want status, but even more, they want perks like cutting wait times. They re the ones skipping the line at Starbucks because they ve already ordered ahead via Starbucks Rewards and they ll be first to claim their free birthday Frappuccino. Show Millennials you care by offering them exclusive perks such as early access to sales or member-exclusive deals. 10
HOW MANY LOYALTY PROGRAMS DO GEN XERS BELONG TO? 1% 11% 0 1 26% 27% GENERATION X THE FORGOTTEN BRAND LOYALISTS 2 3 Gen X (born between 1965 and 1979) is often the forgotten generation for marketers, who tend to ignore or underestimate this group s spending power. But Gen Xers not only possess the most disposable income they re also the biggest fans of loyalty programs. 4 17% 5 8% In fact, 62 percent of Gen Xers belong to at least three or more loyalty programs, while more than half (51 percent) are actively engaged with at least three or more, compared to 41 percent across all ages. But they re not just in it for the points. While Gen Xers are price conscious, they re most loyal to brands with quality products. Along with Baby Boomers, 6 10 10% 2% 11+ 11
WHAT MAKES GEN XERS RETURN TO BRANDS? Quality 31% Price 30% I feel committed/loyal to the brand 10% Ease and convenience of the shopping experience 10% they value quality more than other generations, with 31 percent of Gen X reporting it as the most significant factor when it comes to brand loyalty. As loyalty fans through and through, Gen Xers are openminded when it comes to the type of programs they will join. But they are most excited about traditional options. The three most popular types of loyalty programs for Gen X include: loyalty swipe card (74 percent), store credit card (45 percent) and points-based mobile programs (38 percent). When it comes to shopping technology, Gen Xers are interested in features that are less invasive and annoying (like repetitive emails or irrelevant notifications), with 48 percent of respondents ranking that as most desirable. I m a member of the loyalty program 8% Free shipping 7% They employ the right technology to communicate with me They send me the right information My social circle purchases from the same brands 1% Status or reputation of brand name 1% 1% 1% Quicker shipping 1% 12
LOYALTY PROGRAM FORMAT PREFERENCES GENERATION X WHAT DOES GEN X WANT FROM SHOPPING TECHNOLOGY? Loyalty swipe card (e.g. CVS or Kroger) 74% 48% Technology that is less invasive and annoying Store credit card (e.g. Kohl s card, Target REDcard) 45% 25% Technology that makes the shopping experience easier Points-based mobile app programs (e.g. Starbucks) 38% 23% Technology that understands my preferences and behavior Co-branded credit card (e.g. Amazon Rewards Visa Signature card) 34% 3% Technology that makes shopping decisions for me Paid programs (e.g. Amazon Prime, Restoration Hardware) 27% 2% Other Physical punch card (e.g. Corner Bakery) 21% Coalition programs that earn points redeemable with multiple brands (e.g. Plenti, Belly) 20% Tender-neutral programs, in which you can accumulate rewards regardless of payment method (e.g. Nordstrom, Walgreens) 20% Cardless, online-only programs 16% Tiered-status/VIP programs (e.g. Sephora) 7% TAKEAWAY These are your most underappreciated customers, but they re also the most likely to engage with your loyalty program. Up the ante, and play up quality when talking to these folks. They re comfortable in-store, online and on mobile, so give them options when it comes to how they can engage with your loyalty program. 13
BABY BOOMERS AND THE SILENT GENERATION THE PRICE CONSCIOUS PRAGMATISTS HOW MANY LOYALTY PROGRAMS DO BABY BOOMERS AND THE SILENT GENERATION BELONG TO? 1% 15% Baby Boomers (born between 1946 and 1964) and their parents, the Silent Generation (born in 1945 or prior), share many preferences when it comes to loyalty. They are practical and more concerned with quality than other generations, but also price conscious. While most are comfortable shopping online, they are less likely to use smartphones to interact with loyalty programs. Cautious of artificial intelligence, 54 percent would most prefer technology that is simpler and less invasive. 0 2 30% 1 3 24% Their affinity for tradition is reflected in their favorite loyalty programs. When given the option to choose three loyalty models, both generations preferred the following: loyalty swipe cards (72 percent), store credit cards (52 percent) and co-branded credit cards (41 percent). Unsurprisingly, they are the least likely to join a mobile points-based program, with only 17 percent reporting that as a favorite (compared to 32 percent of all respondents). Also, this generation is most likely to join a tender-neutral option (like Nordstrom or Walgreens), with 36 percent ranking it among the top three. 4 12% 8% 5 2% 8% 6 10 11+ 14
DEVICE USAGE BY AGE Gen Z Millennial Gen X Boomer Silent Generation 88% 82% 89% 85% 81% 87% 85% 85% 84% 88% 91% 96% 76% 48% 21% 50% 55% 47% 41% 30% 18% 16% 7% 3% 0% 22% 24% 9% 11% 4% In-store Laptop Smartphone Tablet Dash Button Digital Assistant That makes sense since more than half of Baby Boomers (52 percent) and 79 percent of the Silent Generation do not use smartphones to make purchases. Additionally, more than any other generation, Baby Boomers (50 percent) and the Silent Generation (58 percent) want to see less invasive and annoying technology incorporated into their shopping experiences. And half of Baby Boomers are less likely to purchase from a brand that uses artificial intelligence-driven technologies. 15
LOYALTY PROGRAM FORMAT PREFERENCES BABY BOOMERS AND THE SILENT GENERATION Loyalty swipe card (e.g. CVS or Kroger) 72% Store credit card (e.g. Kohl s card, Target REDcard) 52% Co-branded credit card (e.g. Amazon Rewards Visa Signature card) 41% Tender-neutral programs, in which you can accumulate rewards regardless of payment method (e.g. Nordstrom, Walgreens) 36% Paid programs (e.g. Amazon Prime, Restoration Hardware) 23% Physical punch card (e.g. Corner Bakery) 20% Coalition programs that earn points redeemable with multiple brands (e.g. Plenti, Belly) 17% So what works? Unlike other generations, they are most influenced by researching and comparing prices, with 40 percent of Boomers and 37 percent of the Silent Generation reporting it as the most significant factor influencing whether they purchase from a brand. With Boomers and the Silent Generation, it s about tradition and practicality. Points-based mobile app programs (e.g. Starbucks) 17% Cardless, online-only programs 15% Tiered-status/VIP programs (e.g. Sephora) 7% 16
WHAT MAKES BABY BOOMERS AND THE SILENT GENERATION RETURN TO BRANDS? Price 32% Quality 28% I m a member of the loyalty program 13% Ease and convenience of the shopping experience 10% Free shipping 8% I feel committed/loyal to the brand 5% Status or reputation of brand name 1% Quicker shipping 1% They employ the right technology to communicate with me They send me the right information My social circle purchases from the same brands 0% 1% 1% TAKEAWAY For these generations, it s best to simplify your loyalty strategies. While neither generation fears technology, they d prefer traditional loyalty options like credit card reward programs. And when it comes to technology, they would prefer a less invasive approach that allays privacy concerns and doesn t require them to give up personal information excessively. Artificial intelligence-driven technologies (like chatbots and personalized product recommendations) might not win this generation over, but reasonable prices and consistent, easy shopping experiences will. 17
BEST PRACTICES FOR MARKETERS IN THE AGE OF THE CONNECTED CONSUMER KEEP IT SIMPLE AND CONVENIENT Smart companies take their loyalty strategies to the next level discounts alone won t cut it. It s about creating a convenient experience for the customer that actually makes their lives easier. One in four shoppers won t join a loyalty program if it requires too many purchases to earn and redeem points. Loyalty programs should have tiered rewards with earlier, smaller redemption opportunities to keep users engaged. Twenty-six percent of customers won t join a loyalty program if it asks for too much information or takes too long to register. Encourage simple sign ups in the beginning, and gather more information as shoppers engage with the loyalty program. Almost half (45 percent) of shoppers don t want technology that they perceive as invasive and annoying. Programs that require customers to give up sensitive information or pester potential shoppers are doomed to fail, so don t over-communicate. 18
UNDERSTAND CUSTOMER PREFERENCES MASTER THE IN-STORE EXPERIENCE Whatever I want whenever, wherever, however I want it. That s what loyalty looks like now. To make loyalty engagement a habit and create advocates out of repeat shoppers, you need to understand exactly what they expect from a loyalty program. Loyalty isn t all about the app. Shoppers still crave the in-store experience. An exciting, immersive in-store strategy (that seamlessly blends with your mobile app and website) can cement strong customer relationships. Classic loyalty swipe cards are the most popular type of program, with 22 percent of total respondents selecting the option as one they d be most likely to join. The next most popular program is the store credit card (16 percent). Loyalty programs should emphasize traditional discounts and rewards; price is the most significant factor when it comes to brand loyalty, with 35 percent of all respondents ranking it as most important. Brands can be creative with this: instead of always offering simple discounts, consider offering free products that shoppers get to pick themselves. Two-thirds (66 percent) of consumers report being most likely to make impulse purchases in-store. That said, don t neglect your store associates. In our experience, programs in which associates enroll customers in-person tend to have program penetration between 50 and 90 percent compared to programs where the associates tell customers to enroll online. There is value in educating in-store associates about the value of loyalty, the rewards program and the overall customer experience. For example, cashiers could encourage purchases that can help nudge customers along to the next reward. Forty percent of consumers want to be asked about loyalty programs as they check out. Highlight loyalty programs throughout the store to educate customers before they re in the line then make it easy for them to sign up at the point of sale. 19
With the stakes for customer retention higher than ever, a strong loyalty program remains a foundation on which brands and retailers can compete beyond price point alone. It s also one of the most effective ways to better understand your customers by gathering more accurate data about their shopping behaviors and preferences. Whether through a traditional swipe card, a mobile app or other model, brands need loyalty programs to deliver the most memorable experiences to returning shoppers. With that in mind, perfecting the loyalty strategy for your brand is easier said than done. What might be the most compelling, personalized program for one customer might be alienating and invasive for another. A deeper understanding of consumer behavior and customer preferences around brand experiences and shopping technology paves the way for a more informed and successful strategy. Ultimately, it s the overall experience with a brand not the discounts or dollars-off rewards that customers will remember. Truly engaging loyalty programs transcend the transactional and tap into the experiential, making customers lives easier and meeting them when, where and how they prefer. 20
METHODOLOGY ABOUT KOBIE This report was conducted by Kobie Marketing in partnership with Walker Sands Communications, based on a survey of 1,023 U.S. consumers administered in Q4 2017. Respondents reported that they had participated in a loyalty program (e.g. a mobile app or retail rewards card that allows members to redeem points, discounts or other benefits) within the past year. The survey included a representative sample evenly split by gender and age among five consumer demographics, including Generation Z (born between 1996 1999), Millennials (born between 1980 1995), Generation X (born between 1965 1979), Baby Boomers (born between 1946 1964) and The Silent Generation (born 1945 or prior). Kobie is a loyalty marketing company that designs, builds, supports and optimizes customer experiences for many of the world s most successful brands. Kobie believes in building relationships by deepening the emotional and behavioral connections brands have with their customers. Their integrated and innovative loyalty solutions deliver the most impactful results for their clients bottom line. To learn more, visit kobie.com or email us at info@kobie.com.