Today it’s easier than ever to start a business selling products. Internet retailers are turning up every day and pop-up stores are on the rise.
People can start e-commerce stores in their bedrooms. Things like drop shipping make fulfillment much easier and mitigate a lot of the risk that used to be required to open a physical store.
What’s more difficult, however, is building true loyalty with customers.
Having a unique product is no longer a critical point of differentiation. Product differentiation isn’t enough. Products are easy to replicate and consumers have unlimited choices on where to purchase them.
Today, consumers are loyal to the brands that they have an emotional connection to.
So, what can retailers do to differentiate at a deeper level?
Why Product Differentiation Isn’t Enough
When most people think of differentiation, they think of it at the product level. What does one brand sell that another doesn’t? Or what is it about your widget that’s different from the competition?
Things like assortment, inventory, price and even physical location used to be enough to differentiate. There may be some instances where brands operate in a unique niche. Maybe consumers simply can’t get the products anywhere else.
But for most retailers, the concern is that consumers can easily find the best selection, price, and availability at their fingertips.
Even in niche markets, though, product differentiation is short-lived. Products are easy to duplicate.
In the Age of the Customer, when product differentiation isn’t enough, retailers must build emotional connections with consumers to create true loyalty. It’s all about offering a unique experience.
That’s why retailers must differentiate at the brand level. You must win on customer experience, quality, and value alignment.
Retailers need to provide an attractive value proposition for their customers.
Creating a compelling value proposition that is reinforced at every moment will produce repeat purchasers. A seamless customer experience will seal the loyalty deal.
A loyalty program can serve as a deep level differentiator, when done right.
Brand Differentiation is Key, but Most Loyalty Programs Feel Similar
Every moment that your customers interact with your brand is an opportunity to build momentum on the road to loyalty.
Finding the correct path along that road, though, can be challenging.
It leads to many loyalty programs that feel the same. For retailers, these programs just feel like an opportunity to collect email addresses. For consumers, the rewards take too long to realize.
And they usually include points for purchases, free shipping, and discounts.
Transactional benefits like these are still important and make consumers feel smart. But the problem is they feel smart at every retailer because these types of loyalty programs train people to wait for promotions.
That’s why it’s nearly impossible to differentiate purely on transactional elements. These loyalty programs miss the opportunity to create deeper, more meaningful relationships.
For example, we often see this in the grocery industry. 83 percent of consumers say that they visit between four and nine different grocery chains.
With traditional programs, customers simply gravitate toward the greatest discounts or don’t use them at all.
What’s missing are the experiential benefits.
Great Loyalty Programs Create Deep Level Differentiation
While the points, discounts, cashback, and transactional benefits still elicit emotional responses, experiential benefits drive deeper differentiation and emotional loyalty.
See why retailers need to mix transactional and experiential benefits in their loyalty programs.
There are retailers out there that are making their loyalty members feel smart and special.
For example, the RH Membership Program offers Restoration Hardware customers discounts and exclusive services.
For $100 annually, members enjoy 25% savings on all regularly priced items all the time. They also save an additional 20% on sale items.
Those are the transactional benefits that make members feel smart.
But membership also include experiential benefits like complimentary interior design services and one-on-one consultations with members of its experienced design team.
A concierge service to manage orders and direct access to a concierge who will assist with order support and product information are also included.
It’s those benefits that make members feel special. They know that regular consumers don’t have access to the best of the brand.
See how the RH Membership Program has been a huge success.
Lululemon is also making waves with its new premium loyalty program.
For $128 annually, members receive a free pair of pants or shorts. Since most of those articles cost over $100 anyway, it makes sense to join the program if you’re planning on mailing one purchase per year.
Simple value proposition. Smart transactional benefit.
However, just like RH, Lululemon takes it a step further. Also included are curated events and workout classes for members. Special experiential benefits.
That’s why the Lululemon premium loyalty test program is doing so well.
Instead of putting the brand first, put the customer first. Understand their expectations, emotions, and behavior.
Consumers want to feel special and buy from companies that are relevant to them. They aren’t getting those benefits anywhere else so that drives engagement and brand advocacy.
Loyalty as a Differentiator
In an intensely competitive retail environment, there are still ways to stand out in the crowd and one of those is through your loyalty program.
Product differentiation isn’t enough. Location, assortment, and price are no longer relevant enough factors. Neither is the same old loyalty program.
Traditional loyalty program that focus purely on transactional benefits won’t cut it in the Age of the Customer. These programs are not unique drivers of loyalty.
But if you really know your customers and engage with them on a regular basis, you can build a loyalty program that connects with them on an emotional level. And that creates true loyalty.
Isn’t it time your brand finds a deeper differentiation?
Paul Wolfer
Paul is our Senior Manager, B2B Marketing. He works closely with the leadership team on strategic positioning, messaging and branding. When he's not posting on LinkedIn or working on the newest data study, he can usually be found adventuring to breweries or attempting to learn a new song on his guitar.