The Mismanagement of (Covid) Customer Loyalty

“I don’t want to belong to any club that would have me as a member.” ¹

During Covid lock-downs loyalty programs grew in membership. A disciplined but different marketing approach to this customer ‘windfall’ is required if programs are to benefit, not suffer.

There is a fascinating 'blip' in the retail loyalty programs we help manage with our clients. Membership numbers have really ticked up in the last 2 years. We have seen them grow triple the rate expected for mature programs.

All of them.

We all have thoughts on why this occurred:

• customers had more time trapped at home, so they signed up to random programs,
• lockdowns forced them to buy online where enrolling is easier,
• they had nothing else to do,
• customers had more money to spend in lock-down…

Plenty of theories to occupy us in our frequent coffee breaks.

You may think that like good luck, you cannot have too many members, but that is not true of course.

The programs that have seen a ‘spike’ in membership (the vanity metric) have also seen an uptick in member churn since Covid restrictions were eased. Headline customer attrition rates have increased, and it is predominantly new members that have stopped buying. And these same new members have been spending less than we expected.

These results are so consistent we swear we could align the scale on multiple retail client dashboards and the graphs would merge.

In short, our clients had an inundation of new, less valuable and less loyal members in the last 2-3 years.
Our marketing passions are aroused by this. All those new customers, surely, we should invest and lure them back? Bounce-back offers, chances to win, higher status tiers, vouchers… we can convert these new members to good customers, it is what marketing does, right?

But then we remembered the seminal work of Weinartz and Kumar² who challenged the notion that Customer Loyalty always generates more profit. They convincingly demonstrated… ‘It depends’.

They identify ‘butterflies’, customers who fly in, spend, look attractive but then move on. They may even spend up big initially, making themselves very attractive in RFM targeting models you may be using.

Chasing butterflies can be an expensive and joyless exercise, it is in their nature to flit from flower to flower. They contrast with new ‘True Friend’ customers that do deliver high lifetime but are scattered among the new enrolments, customers who came for the brand, not because of boredom. You can spend a lot of energy chasing butterflies just to end up with an empty net.

The challenge: which of the new customers are future True Friends? We don’t want these good customers to leave because we ignore them or do nothing different. But the opportunity for waste is higher than usual.

Time is running short to win this challenge. Butterflies will move on, but so could a good number of True Friends if you ignore them.

The answer? Do something disciplined

A test-and-learn program to test new member’s responsiveness, samples used to profile butterflies/true friends and focus conversion investment on those that will produce a positive return.

Initiatives to understand the nature of these new members, contrast their behaviour to the existing member base, measure their responses and improve results.

Not easy but better than wondering where they all went a couple of years from now.

Ellipsis can help if you have also been blessed with an influx of new members and feel uncomfortable pretending that a global pandemic had nothing to do with your successful recruiting.

We are Ellipsis, the Customer Loyalty Experts. We help businesses thrive through solving complex customer problems. Please get in touch, we’d love to talk.

Our mission is to be the world’s best Customer Loyalty Company.

References:

1. “My Life with Groucho: A Son’s Eye View” Arthur Marx, 1988
2. With apologies to Weinartz & Kumar https://hbr.org/2002/07/the-mismanagement-of-customer-loyalty