Industry Insights

Are The Most Effective Rewards Monetary?

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I recently talked about loyalty with a Retail client. They immediately mentioned their “rewards program” (which was based almost entirely on points and discounts). I asked whether their competitors had similar programs, and they confirmed that they did. But, when I asked whether they thought that dueling discounts created the kind of brand relationship that weathers pricing pressures and creates long-term loyalty, they said, “Not particularly.”

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And, so, our discussion turned to alternative ways of viewing—and strengthening—loyalty. Consider that 91% of consumers say that they like to share views about their brand experiences with other consumers. 81% of consumers have received advice about an upcoming purchase (e.g., what to buy and where to buy it) via a social site. And, 74% of those admitted that the advice actually influenced their final purchase decision. To further this point, 90% of consumers trust recommendations from friends and family. And, 70% trust the recommendations of other consumers. But, only 10% trust the recommendations of retailers or manufacturers.

So, in a world where consumers (1) like to express themselves, (2) have multiple means of doing so, (3) have an attentive audience, and (4) trust the recommendations of other consumers 7 times more than they trust recommendations from retailers, building loyalty is less about offering monetary rewards that incent only short-term allegiance. Increasingly, it is more about creating the kind of brand relationship that rises above superficial price sensitivity and creates the kind of brand loyalists who will advocate the retailer to other consumers…thus growing the business through customer retention and acquisition.

The importance of brand advocacy is borne out by findings from a fall 2012 overlay study of 1,200 U.S. consumers conducted by IBM’s Institute for Business Value (IBV). It showed that 76% of those ages 13-29 and 56% of those 30 and above will choose to shop at a retailer for the first time based primarily on recommendations from other consumers. The IBV also found that advocates remain loyal to a retailer even when rivals start offering comparable products or services. And, they spend more with their primary retailer when it expands its assortment.

All of this begs the question, “What conditions and which brand interactions have the biggest impact on brand loyalty and advocacy?” Might the reward of a consistently-positive brand experience be more important for loyalty than financial rewards?

It’s here that results from the IBV’s latest Global Consumer Study give us insight. Of the top 10 reasons (out of 38 choices) cited for choosing “to shop one retailer over another,” not one dealt with giving discounts or promotions…which implies that the most powerful influencers over loyalty are not monetary.

But, what about advocacy? The fall IBV overlay study—mentioned earlier—provides useful insights into which phases of a consumer’s brand interaction with a retailer (i.e., pre-purchase, purchase, or post-purchase) has the greatest potential influence over whether the consumer is willing to promote the retailer to other consumers. The findings show that the post-purchase experience (e.g., tracking the shipment/delivery status of an online purchase, the in-store pickup or return experience associated with a purchase that was made online, etc.) has—by far—the greatest potential to mold the brand relationship that the consumer has with the retailer and that consumer’s proclivity to promote that retailer to other consumers. And, with online sales on Black Friday and Cyber Monday being up 19% and 20.6% respectively over 2012 (as reported in our 2013 IBM Digital Analytics Holiday Benchmark Study), consumers are increasingly being exposed to a protracted post-purchase experience that can include shipping delays, order inaccuracies, delivery difficulties, damaged merchandise, returns, etc.

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Our IBV overlay study confirms this is significant because 86% more consumers said the post-purchase brand experience had the greatest potential to mold their lasting opinion of a retailer than the pre-purchase experience. And, 76% of consumers (and 86% of those 13-19) said that the post-purchase brand experience was important for determining whether they’d recommend a retailer to other consumers. Consumers agreed that the post-purchase phase had the greatest potential to damage the relationship they had with a retailer (46% for post-purchase, 38% for purchase, but only 16% for pre-purchase). And, the majority of respondents (52% on average and 67% of those 13-19) felt that a positive post-purchase experience was “likely” to “very likely” to be able to recover from a poor pre-purchase experience.

The study went on to emphasize that the retailer traits most important for promoting brand advocacy understandably include elements related to perceived value (e.g., “sells quality merchandise” (94%) and “offers fair/competitive prices” (91%)). But, the first discount-related trait (i.e., “Is running a sale or promotion”) ranked a distant 18th in the list of traits most likely to cause consumers to promote a retailer to others.

From all of this, we can derive several takeaways. For all the effort that retailers invest in their pre-purchase selling and their rewards programs, consumers remind them that the post-purchase brand experience remains significantly (78%) more important for creating and maintaining brand loyalty and creating brand advocates than the pre-purchase experience. And, so, while retailers will often think first of the “rewards” they offer being tied to consumer savings, consumers emphasize the fact that a consistent positive brand experience at all brand touchpoints across all three phases of brand interaction (particularly during the post-purchase phase) is the “reward” that will most deepen their loyalty and incline them to recommend that retailer to other consumers.

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To hear more insights from the IBM IBV Global Consumer Study, attend the “Greater Expectations: What Consumers Want from Omni-Channel Retailing” Big !deas Session, Monday, Jan. 13, from 1:00-1:45 p.m. at the 103rd NRF Big Show in NYC. While you’re there, visit us at the IBM booth (#1818) to see the kind of retail capabilities that redefine the customer experience and deepen the brand relationship.

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