It’s often claimed that customer loyalty is in decline, and there are many stats that back this up.
In a 2023 survey by the Data & Marketing Association, 61% of shoppers reported being “less loyal to brands than they were last year”. In 2022, that number had been just 41%.
The phenomenon seems to be particularly prevalent among younger customers: Morning Consult found that 77% of Gen Z are “willing to try new brands” — the highest proportion of any age group surveyed.
This drop in customer loyalty is affecting the bottom line of even the biggest brands. According to Catalina, 90 of the top 100 consumer packaged goods brands experienced share declines because of customer churn.
So far, so gloomy. But do these numbers paint an accurate picture of modern customer loyalty? And if so, what does it mean for loyalty marketing?
Is customer loyalty really in decline? In part, it depends on your industry
Like most sweeping statements, “loyalty is dead” is very simplistic. The effect is far from universal, and brands in many industries are enjoying greater loyalty than ever.
In a wide-ranging 2024 report on loyalty, Emarsys found that:
- 54% of customers are loyal to brands in the fashion industry, compared to 48% in 2023
- 42% are loyal to beauty and cosmetics brands, up from 32%
- 35% are loyal to food delivery brands, up from 21%
These broad trends are reflected in specific case studies. Fashion brands Astrid and Miyu, for example, used loyalty marketing to drive over 50,000 loyalty program signups within a nine-month period, driving a 40% increase in total revenue.
Sephora, long seen as the gold standard of beauty and cosmetics loyalty, has 17 million North Americans signed up for their loyalty program, and they estimate that 80% of all sales come from loyalty program customers.
Fickle shoppers or poor experiences? What’s the real cause of lower loyalty?
There are many theories for the apparent decline in customer loyalty.
Some commentators have blamed the impact on consumer behavior of the Covid-19 pandemic and the increasing willingness of shoppers to compare brands online.
Others point to increasing price consciousness in the wake of economic instability and the rampant inflation of 2021-23.
And there’s good evidence that these factors play a big part. Just last month, Okoone found that 60% of shoppers would switch brands if they hiked prices, and according to Emarsys, high pricing (just about) remains the biggest reason for consumers to make a switch.
But the decline in customer loyalty is nothing new. The Catalina study we cited earlier is from 2015, long before the seismic economic shocks many commentators like to blame.
The ever-greater prevalence of comparative research online is surely a longer-term factor. But another consideration — one less often talked about — is whether brands are less deserving of loyalty than they used to be.
The evidence suggests it’s not simply that customers are more fickle, more willing to switch brands to save a bit of cash, but instead that they get less value out of their loyalty.
According to a survey by Morning Consult, 44% of Gen Z shoppers are convinced that product quality is getting worse, and Cavell’s Voice of the Consumer Report 2024 found that the same proportion of consumers think customer service is going downhill.
Such considerations are major factors behind customer churn. Emarsys found that:
- 53% of consumers will switch brands over poor customer experience
- 56% over a perceived decline in quality
- 60% over price rises
That puts quality decline and customer service just behind price rises in the biggest reasons for brand switching.
TechSee found that 43% of customers switched brands in 2022 because of poor customer service — 10% more than in 2019, before Covid.
All of this suggests that customer loyalty needs to be earned and that brands are increasingly failing to earn it.
And when you consider the growth in loyalty seen in an industry like beauty, which is remarkably resilient during economic downturns, and the ever-increasing size of the market — between 2023 and 2030, it’s expected to get 4.2% bigger each year — it’s clear that some brands are offering markedly better service than others.
So, although the loyalty picture might look gloomy, for those brands who get it right, it’s a big opportunity.
Declining customer loyalty is all the more reason to invest in your loyalty program — and to think beyond points-for-discounts
So what does all of this mean for the loyalty program — the beating heart of many customer retention efforts? There seem to be two schools of thought.
The first is that if customers are no longer loyal, then loyalty programs must be useless, and brands would be better served if they put their efforts into acquisition.
We think this is a very bad idea. Customer acquisition is vastly more expensive than retention and vastly less profitable. And, as we’ve already seen, the decline in customer loyalty is not a universal phenomenon. Many industries and many brands are getting more value than ever out of loyalty marketing.
The second school of thought goes:
- customers are particularly price-conscious
- loyalty program discounts save customers’ money
Therefore, customers will be particularly interested in loyalty programs, so brands should invest in them.
There’s some truth in this, and it’s supported by survey data: last March, M&C Saatchi found that 81% of Australian customers would make greater use of loyalty programs to save money, and the Emarsys report found 70% think discounts are the most important thing in a loyalty program.
According to the Data & Marketing Association, just under half of shoppers would abandon their favorite brands if they stopped offering deals
But there’s a problem with this line of thinking: if your customers are only coming back because your loyalty program makes you the cheapest option, you’re not really building customer loyalty at all.
At best, you’re building “transactional loyalty”: you might retain your customers, but only for as long as you offer the best price. As soon as these customers can get a better deal elsewhere, they’re gone.
In the long term, this leads to a race to the bottom on price, and that means you’re missing out on the true value of loyalty marketing: building a more profitable customer base that will pay more for your product.
So, while using your loyalty program to offer attractive discounts works well as a short-term solution in price-sensitive times, the most successful brands will be those who can build more durable relationships. This is the big opportunity in an age of declining customer loyalty.
Survey data supports this. Emarsys’s excellent Customer Loyalty Index 2024 identifies five types of customer loyalty:
- Incentivized: Purely financial value — deals and discounts
- Inherited: Large-scale brand awareness and associations with other popular brands
- Silent: Repeat custom that isn’t matched by advocacy or word-of-mouth promotion
- Ethical: Built on alignment with values and shared social values
- True: Unwavering and unshakeable — almost unconditional and vanishingly rare
They found that most forms of loyalty had fluctuated over time. Incentivized loyalty, for example, went from 45% (2021) to 56% (2022) to 48% (2023) to 50% (2024).
But ethical loyalty has increased steadily year-on-year, from 24% (2021) to 26% (2022) to 28% (2023) to 30% (2024).
The same report found that 34% of shoppers have switched to a different brand because of their sustainability practices — up from 21% just a year ago.
So, while price remains the biggest factor in customer retention — and likely will for some time — there’s a clear trend towards shoppers sticking with brands for non-financial incentives.
This is likely driven by the increasing purchasing power of younger generations, who consistently place a higher value on non-price factors than their elders.
In April 2021, Sitecore found that 80% of Gen Z customers highly value delivery within 24 hours, and 71% expect personalized experiences. They’re also more likely to spend their money with small businesses.
This doesn’t mean younger shoppers spend frivolously, but that they’d rather spend more on high-quality, ethical products — and with the ever-quickening rise of social media, they have more ways to evaluate potential purchases.
In fact, a 2023 McKinsey report found that Gen Z is the only generation for whom price isn’t, on average, the most important consideration: while 40% of respondents rated price highest, 42% said product quality was the most important thing.
Amongst every other generation, at least two-thirds of respondents ranked price as the most important.
Brands who do lose customer loyalty will miss out on enormous benefits
In the coming years, the brands that succeed with loyalty marketing will be those who respond to the challenges and opportunities presented by the current state of customer loyalty.
They will adapt their loyalty programs to suit. They’ll focus on:
- value-based loyalty, offering rewards that go beyond the financial in favor of the ethical
- loyalty tiers, which so often combine financial incentives with non-financial rewards, such as early or exclusive access to new products
- rewarding customers for actions other than purchases, such as invaluable word-of-mouth promotion like reviews, social media amplification, and referrals
Those that fail to respond to these challenges and jump on these opportunities will miss out on the many benefits of loyalty programs, including:
- non-price differentiation
- higher retention rates, lower churn rates
- improved customer lifetime value
- brand advocacy
- increased purchase frequency
- higher average order values
- more — and better quality — customer data
- steady revenue, with fewer seasonal fluctuations
- better customer communication, and a stronger brand
If you want to know if lost loyalty is harming your bottom line, there are lots of metrics you can track
If you’re concerned about declining customer loyalty affecting your own bottom line, there are many useful metrics you can track.
The most directly illustrative are financial — such as:
- customer lifetime value (CLV)
- repeat purchase rate (RPR)
- average order value (AOV)
- customer acquisition cost (CAC)
- revenue churn rate
Engagement metrics can help you predict where there’s a risk of churn based on customer behavior. Such metrics can help you improve your customer experience, and might include:
- Net Promoter Score (NPS)
- customer satisfaction score (CSAT)
- customer engagement score (CES)
- social media engagement (likes, comments, conversion rates)
- website traffic and engagement (time on site, number of pages visited, conversion rates)
- referral rate
Finally, customer service metrics, though secondary, give you a useful idea of the overall experience you’re providing:
- customer effort score (CES)
- first contact resolution rate (FCR)
- number of complaints, or % of customers who complain
If you’re seeing lower customer loyalty, all is not lost — here’s how you can regain it
If your customers are churning, it’s not too late to crunch the numbers, figure out why and turn things around.
The changes you need to make will be specific to your brand and customer base, but here are some of the broader factors that tend to affect customer loyalty.
Improving them is often easier said than done — but the list below should give you some idea of where to start looking.
- Product quality
- Sustainability
- Multi-channel options for customer inquiries
- Clear value proposition, communicated consistently in your marketing
- Word-of-mouth referrals
- Personalized customer experiences
- Seamless customer journeys
- Customer communities
- Social proof
- User-generated content
- Aligned values
Many of these things can be addressed through an effective loyalty program. You can offer points for referrals, reviews, and social media engagement to build social proof.
And through creative use of rewards, you can show your customers that your values match theirs.
REI, for example, gives loyalty program members the opportunity to have their say on who’s elected to the board.
Find out how LoyaltyLion can help your ecommerce brand
The brands that most succeed with loyalty marketing will recognize that, in financially difficult times, customer loyalty can’t be taken for granted.
They’ll also resist the temptation to use loyalty marketing purely as a discounting tool, knowing that kind of customer retention is superficial. Instead, they’ll focus on longer-term, more durable forms of loyalty, and adapt their loyalty programs to the changing needs and values of their target audience.
The benefits will be huge: better profit margins, higher revenue per customer, and less reliance on expensive acquisition channels.
And it all starts with finding the right loyalty partner. If you’d like to find out how LoyaltyLion can help you, book a demo.
