Brand loyalty pays off - but loyalty programs are outdated

Retailers who are able to retain their customers with emotion can increase their annual revenue by up to five percent. The study shows clear differences between managers and consumers when it comes to how well companies build emotional connections: While 80 percent of executives think that their brand is aware of customers' needs and desires, just 15 percent of consumers confirm this. "Customers are now immune to the old, transaction-based loyalty programs. The bond between retailer and customer must become more emotional," affirms Martin Arnoldy, Head of Consumer Goods, Retail and Transportation at Capgemini in Germany.

Loyalty is not for sale

Today's approaches to customer loyalty are outdated: A British study (Colloquy Customer Loyalty Census 2017) found that 28 percent of consumers drop out of loyalty programs without redeeming their points and more than half (54 percent) of all memberships are dormant. A key reason is that many loyalty programs are currently just trying to buy customer loyalty. However, today's study shows that emotions have the strongest influence on loyalty, more so than rational factors or brand values. In particular, honesty and trust have the greatest influence on brand loyalty. However, reason is not left out of the equation: Customers with a close relationship with their brand are convinced that hard facts and brand values form the foundation for their loyalty.

Clear advantages for retailers

The report found that 82% of customers with a strong emotional connection also buy the brand they are loyal to, twice as many as those without a connection (38%). 81 percent of brand loyal customers are not only happy to recommend the brand to family and friends, they also spend more on it - up to twice as much (70 percent). In return, they expect brands to be committed to them and their loyalty to be reciprocated (86%). They even enjoy giving something back to the brand in return (81%). Customers also want a differentiated shopping experience, both online (75 percent) and in-store (73 percent).

"If retailers decode the emotional lives of their customers, this is the best prerequisite for deep-rooted, long-term brand loyalty. If they don't, they not only run the risk of losing customers to the competition, they also lose up to five percent of their sales. Who can afford that today?" says Arnoldy.

The vanguard of the emotionally engaged customer base are city dwellers and millennials

Italians (65%) and Brazilians are among the most emotional consumers worldwide. The study identifies a new subgroup of consumers with a highly emotional relationship to the brands they regularly use or visit. German men (52%) are more loyal than women (43%), while millennials (53%) aged between 22 and 36 and consumers in urban residential areas (49%) stand out in the study.

How to create an emotional relationship?

Retailers need to rethink their customer relationships, moving away from closing the deal at any cost towards retention and trust. The study identifies four areas that drive human loyalty and literally make customers feel good so that they trust and remain loyal to the retailer.

• Respect: Fulfill your commitments with an emphasis on honesty, trust and integrity
• Reciprocity: Create a relationship that works both ways
• Recognize: Make the effort to find out what makes your customer tick and what is important to them in order to create lasting memories
• Reward: Offer timely and appropriate rewards in return for long-term loyalty

About the study

Study commissioned by: Capgemini, one of the world's leading providers of management and IT consulting, technology services and digital transformation.

Study conducted by: Digital Transformation Institute. The Digital Transformation Institute is Capgemini's in-house think tank on digital matters. The Institute publishes research on the impact of digital technologies on large traditional companies. The team draws on Capgemini's global network of experts and works closely with academic and technology partners.

The Capgemini Digital Transformation Institute surveyed 548 senior-level managers at large companies, 80 percent of whom were at companies with more than 1 billion dollars in revenue in the 2016 financial year. In addition, 9213 consumers over the age of 18 were surveyed. Both surveys took place from August to September 2017 in nine countries worldwide, including Brazil, France, Germany, Italy, the Netherlands, Spain, Sweden, the UK and the USA. Four industries were represented: the financial sector, retail, telecommunications and the automotive industry.

Capgemini also conducted 17 in-depth interviews with a range of senior customer experience, marketing and strategy executives, including Chief Marketing Officers, Chief Customer Experience Officers, Marketing/Branding Directors, Heads of Strategy and Heads of Customer Loyalty Programs. Interviews were also conducted with senior customer experience and brand loyalty experts and academics. This helped Capgemini understand how companies defined loyalty and how they build relationships with customers. There were two virtual focus groups with consumers. One was with UK consumers aged between 22 and 36, the second with US consumers aged between 37 and 52.