Loyalty to retailers has gone down and has deeply affected stores’ revenues. The following posts explore the effects of a decrease in loyalty, and discuss ways to combat this and to boost revenues.
These articles were written by our friends who did research in the field of loyalty. The research showed some surprising facts about loyalty – we present them in three parts:
1 – Why loyalty becomes the pain of retailers
2 – How loyalty programs can improve your business
3 – What is the future of loyalty programs?
Part 2 and 3 will be published in the following weeks – stay tuned!
Loyalty has become a problem for retailers mainly due to the increase in options for consumers because of the rise of online shopping and because consumers have access to a large variety of stores and are no longer confined to specific geographical locations. This is a serious problem for retailers since 80% of the revenue can be generated by a loyal 20% core group of customers (Clutch Holdings, 2016). Therefore, a decrease in customer loyalty can heavily impact a business.
Retailers that have physical shops are suffering the most and are exhibiting the largest amount of pain. The rise of online shopping has taken a lot of traffic away from physical shops. Online shops operate with very low overhead costs due to not having any physical space to run and therefore they can significantly lower their prices in comparison with physical shops. In addition to being able to offer items at lower costs, online shops are able to offer a lot of practical value such as allowing their customers to order and receive their items without ever having to leave their home. These factors have contributed to the rise of online shopping at the expense of physical retailers.
The figure by McKinsey & Company shows the decline in foot traffic and the rise of vacancy rates of retailers in the Netherlands.
Related article: Going to organize in-store sale? Get help from Retail Security.
We did some research among Dutch retailers and asked them whether they experienced a decrease in customers due to the rise in eCommerce. 75% of them told us that they felt the impact of eCommerce A decrease in repeat customers can lead to huge decrease in profit and put store owners out of business. Bain and Company report that an increase in the retention rate of customers by 5% can lead up to an increase in profits of up to 40% (Clutch Holdings, 2015).
Retailers also find it hard to attract new customers, they invest a lot of their budget on marketing without being able to attain new customers. The average digital marketing budget still allots upward of 80% to customer acquisition initiatives, with typically less than 20% going towards existing customers. Marketing metrics say the probability of converting an existing customer is 65% on average, while the probability of converting a new customer is only 10%. Brands are simply not investing in the resources, expertise, technology, support, or strategy to back their customer-centric mantra (Clutch Holdings, 2015).
About the authors:
George Jreig and Jelmer Ten Wolde both completed a Masters in Innovation and Entrepreneurship at Antwerp Management School. They are currently working together on developing a universal cash back loyalty program and have done extensive research in the field of loyalty. They have a partnership with open loyalty and are working together on developing products.