Customer Loyalty: Overcoming 4 Key Challenges

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Inflation is one of the driving forces in declining customer loyalty, with a recent McKinsey report noting more U.S. consumers switched brands and retailers in 2022 than at any time since the pandemic began. And most shoppers say they intend to keep switching, with price at the top of their priority list.

As prices continue to rise, more consumers are looking for the most value for their money vs. sticking with a particular brand. Among those who said they have switched brands, slightly more than a third said they opted to buy private-brand products as opposed to name brands they would purchase more regularly. Merchants who sell products not unique to their brand can also find themselves in a precarious position as they’re also hit with higher costs, increased competition and spiraling margins.

Clearly, many retailers and brands are facing a difficult environment, with four key areas presenting challenges. Nevertheless, there are still solid opportunities to be creative and maximize marketing budgets, despite demanding conditions, that will encourage and keep customers loyal to your brand.

Data Collection and Privacy

First, sensitivity to customer data privacy will have a large impact on future marketing strategies and efficacy. Many organizations and services, including Apple’s iOS 14.5, Safari and Chrome are implementing aggressive privacy and data protection policies including blocking third-party cookies. This means brands and merchants are losing a significant marketing channel, unable to target consumers with specific brand conquest or “win back” offers using third-party data.

But all is not lost. They can access customers in a whole new way through ad placements on marketplaces like Walmart, Amazon and Target, aka Retail Media Networks. The beauty of Retail Media Networks is that they allow advertisers to reach customers in contextually-relevant spaces (for example, running ads on related products) or relying on RMN first-party data to target new or existing consumers with more relevant and effective offers.

The Amazon Effect

The continued consumer domination by Amazon is a second challenge to customer loyalty for brands and merchants. As Amazon enters new verticals, brands find it difficult. It’s a combination of their scale and ability to recognize profitable niches, quickly launching products to their highly engaged, captive audience. Since they own the marketplace, Amazon is often accused of leveraging this advantage to unfairly surface their own products and rank them higher for shoppers.

However, opportunity exists for brands to compete, especially as Amazon faces increased antitrust scrutiny from regulators. Since Amazon has scaled back its private label products, brands and retailers can turn consumer attention back to their own products when shoppers are in market.

You can do this by employing creative, limited-time pricing adjustments to make products temporarily more attractive than Amazon’s. You can also work with cashback loyalty platforms, incenting consumers by increasing their purchasing power. These tactics will enable you to gradually rebuild customer loyalty over time and divert consumers back to shopping with you directly.

Complicated Checkout

Another challenge to winning over and retaining customers is the increased number of payment tenders available on most ecommerce websites.  But is having more choices good or bad for consumers?

As it is, checkout already takes a couple of steps. In a recent PayPal/IDC research paper, 22% of respondents said their top frustration was “too many clicks to make a purchase.” While it may seem that offering more tender types is a positive, counterintuitively, too much choice can lead to cart abandonment.

When you try to chase the latest shiny object — in this case, payment types — you can actually increase friction within the shopping cart. The old adage proves true: providing too much choice can lead to a shopper making no choice at all. To combat this increased friction and frustration, we always recommend fully testing the addition of a new payment tender to a small subset of your audience. If it’s adopted by fewer than 5% of the test group, or if it actually decreases checkout completion rates, think twice about rolling it out to your full audience.

Rewards and Incentives

Because of the increase in cost of living and basic necessities, consumers are especially sensitive to price and are therefore heavily influenced by incentives. But without resorting to permanent markdowns or hefty coupon codes offering steep discounts, you can instead offer other incentives such as cashback on purchases.

Consumers know this well, given the widespread popularity of cashback credit cards. Capital One Shopping is an example of an extremely successful program offering cashback for online shopping and has become a popular and important tool in customers’ arsenal of inflation fighters.

In fact, these programs can stack on top of credit card cashback, as well as any online coupons applied to a purchase, allowing shoppers to maximize value and savings. Most brands aren’t able to offer cashback rewards directly to customers, instead offering loyalty points or discounts on future purchases. Still, you can still take advantage of this burgeoning shopping rewards trend and add one more lever to influence conversions.

Here’s how this works. An affiliate marketing program ensures you’re allowing loyalty publishers who facilitate these kinds of cashback rewards to participate in your affiliate program. The cashback reward to the consumer comes from your affiliate program budget and promises baked-in ROI since it’s based on a percentage of sales. This approach offers a win-win for both shoppers and your brand.

For retailers, it’s not all about the discount to drive consumer behavior. Despite challenges and a demanding, highly competitive market with value-seeking consumers, take a closer look at these four key challenges impacting customer loyalty and address the factors impacting your success.

Michelle Wood is VP of Merchant Development at Wildfire Systems