At the turn of the 20th century, the U.S.-born British retail magnate Harry Gordon Selfridge opened up the London-based department store Selfridges that would go on to change the way the world viewed retail and the notion of "shopping for pleasure". Selfridge popularized many department store conventions that still exist today such as beauty and fragrances on the entrance floor and ready to wear sizing. He believed that shopping should be entertaining, experiential, and complemented by exceptional customer service. His "radical" ideas, or so they seemed, are the same philosophies that drive successful retail organizations today. The sheer novelty, combined with the store's unique product mix kept customers coming back.
Fast forward to 2015: delightful experiences and great products are still the keys to the kingdom in retail. The mediocrity created by legacy systems and a "This is how we've always done things" mentality has many traditional retailers staring in the face of imminent failure. Many complacent and stagnant brands won't be able to compete in an age of constant change, where new, digitally-led organizations are storming in to steal their thunder (think the new kids on the block – Warby Parker, Uber, Trunk Club, etc.) The common thread among thriving retailers is a laser focus on the customer experience; they strive relentlessly for excitement, simplification and a delightful shopping journey. Innovation is a core skill in cultivating new-age loyalty.
So how might retailers foster loyalty when the points-based model is dead? Here are five hallmarks of a lasting loyalty strategy that won't eat your margins.
Brands with loyal fans provide compelling reasons for shoppers to visit their stores. Where people spend time is where they spend their money. Burberry hosts live concerts in its Regent St flagship, Apple hosts summer camps to help students with their digital projects, and Whole Foods entices urbanites with its Bar Lamar concept. Even e-comm giant Amazon is creating brick-and-mortar pop-ups in NYC and San Francisco to drive interest in AWS (Amazon's cloud computing platform). The spaces will feature an ‘Ask an Architect Bar', daily AWS education sessions, co-working areas and free snacks. The best brands move beyond treating the store as a purely transactional space, and have transformed it into a place to learn, experience and build community.
In a world where shoes and toothbrushes can talk to you, the Internet of Things is reshaping the art of the possible when it comes to customer relationships. For example, brands can delay a beacon notification to reach customers an hour after their store visit, to ask how the experience was or offer items to complement their new purchase. Brands have more data and possibilities available than ever before. With new possibilities comes new responsibility. Loyalty leans on privacy and shopper data security. Data should be used to offer relevant suggestions and engage with the customer in interesting ways. Don't be creepy, make data security a priority. Target's data fiasco in 2013 has cost the company more than $162 million.
Loyalty begins with employees. Think of the makeup mavens at Sephora, the techies at Apple and the omm-loving yogis of LuluLemon. Creating a legion of brand fans begins with employees that live and breathe the brand ethos. Aman Bhutani, SVP of worldwide engineering for Expedia recently gave a talk where he posed the question, "Can a company inspire loyalty from customers if it does not inspire loyalty from employees?" Richard Branson famously goes against conventional wisdom with an ‘employees first' philosophy, believing that happy employees equal happy customers.
Co-creation builds engagement and community. San Francisco-based apparel company ModCloth famously launched its "Be the Buyer" section on its website, allowing customers to vote on their favorite pieces. When an item received enough votes, ModCloth ordered that product for the website. This kind of co-creation enhances product differentiation, engagement and provides a unique value proposition. The takeaway? Engage customers to increase spend instead of defaulting to a discount strategy.
The points-for-purchase model is often a cost center that eats margins. It's a short-sighted fix that doesn't create lasting relationships. Apparel retailers should consider ditching the formal loyalty program, and instead focus on strong brand values and an exceptional mix of product, price, store atmosphere and shared values to keep customers coming back. Rather than conjuring up new discounts and price promotions, retailers should pose the question; how can I fit into the customer's lifestyle? How can I help them lead the life they want to lead?
Harry Gordon Selfridge was a savvy retailer. He knew (more than 100 years ago) that it is necessary to constantly reinvent the store and excite shoppers to keep them coming back.
The key takeaway: Current loyalty cards and programs are dead and customer experience and exceptional products have risen in their ashes.
An earlier version of this article first appeared in Apparel.
Disclaimer: The statements and opinions expressed in this article are those of the author(s) and do not necessarily reflect the positions of Thoughtworks.