Customer Experience – The New Loyalty | Report | Preview

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CUSTOMER EXPERIENCE – THE NEW LOYALTY

RETHINK LOYALTY DRIVERS

1. Customer loyalty in the digital age 3. Low switching barriers | The product selection on the market is large and switching between several providers is easy, fast and convenient. If customer satisfaction declines, the leap to the next provider with the same or similar products and services is quickly made.

The secret recipe for turning my customers into loyal repeat customers? “One download, please!” Loyalty is a key factor for companies and a constant companion when it comes to building active and strong customer relationships. And it‘s worth it: Loyal customers are not only more valuable for a company, but also more cost-effective than new customer acquisition. The costs for new customers are about six to seven times higher than for existing customers.2 The increasing relevance of personalization, communities, additional services and a holistic customer experience in e-commerce is changing loyalty approaches. There is a need for new and, above all, innovative ways to promote loyalty. This change in customer requirements arises from the numerous possibilities of e-commerce.

We see the following key challenges for customer loyalty:

4. High customer requirements | Competition leads to strong innovation and dynamic market developments, which are accompanied by high quality standards and high customer demands. E-commerce alone is not enough to reach the customer – having an online shop is no longer a unique selling point. It is a commodity, i.e. part of normality. 4 5. Changing customer needs I The Future Institute describes a fundamental change in values towards a sense of purpose, sustainability and a “we” culture. Society is changing and consumers are also increasingly looking for these values in companies. Therefore, a common value base is needed to create an emotional relationship between customer and brand. 5

1. Big sharks devour small fish | 40 percent of online sales in Germany in 2018 are attributable to just ten retailers. These include major players such as Otto, Amazon and Zalando.

This illustrates the fierce competition, especially for smaller companies, that is becoming steadily stronger due to the consistent growth of the top. 3

Companies all face the same challenges when it comes to loyal customers: Customer demands change.

Nowadays, individual approaches, personalized offers, special experiences, social commitment and the opportunity to actively contribute are factors that positively impact loyalty to a brand or a supplier. For millennials in particular, the choice of a brand or product is not only about the purchase, but also self-expression.6

2. Transparency about prices and offers | | Customers are becoming increasingly critical and have the opportunity to make comprehensive comparisons between products and companies with little effort.

KPMG, The truth about customer loyalty (2019) Gerrit Heinemann, Der neue Online-Handel (2020) 4 t3n, Die Kundenloyalität ist tot, was tun? (2017) 5 Zukunftsinstitut, Transforming Brands (2020) 2

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A look into the past

re collection of points within the framework of loyalty programs is no longer satisfactory and often of a short-lived nature. In reality, monetary incentive systems have extrinsic motivating factors and thus a high start-up curve in the first two phases, which, however, quickly fizzles out with the redemption of discounts and the receipt of the product or service (cf. curve progression in orange in Fig. 1).

In the “old” world, bonus programs were seen as loyalty drivers par excellence. As soon as the product is purchased, the loyalty program‘s account points increase. Using this strategy, Companies rely on financial incentives to retain customers and promote incentivised loyalty. Loyalty is bought in the form of vouchers, premiums or discounts, which can be designed and further promoted by the company itself. We see three essential aspects in this:

Ideally, it is important to address the user in a targeted manner during the product use phase and to keep customer engagement at a continuously high level (cf. curve in purple in Figure 1). So the question is: How do companies achieve this ideal? Which loyalty drivers are relevant today?

1. Customers receive a monetary incentive for a purchase (Rewards).

2. Customers are recognized for the purchase (Recognition).

3. An initial form of customer relationship is established (Relationship).

We believe: A persuasive customer experience can indirectly condition loyalty, bind customers in the long term and encourage repeat purchases – making customer experience the new loyalty.

For a long time, this was the preferred way for companies to directly build (or rather buy) customer loyalty. However, studies have shown that this direct attempt to influence loyalty is no longer effective and its crude notion of the connection between the program and a customer’s loyalty is outdated. Although many companies offer loyalty programs, their success is limited. According to a survey, 96 percent of the consumers questioned consider loyalty programs to be in need of improvement.7 The me-

John Bowen, Transitioning loyalty programs KPMG, The truth about customer loyalty (2019)

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2. The new drivers of customer loyalty The customer experience is not only a decisive purchasing argument, but also an increasingly a relevant driver of customer loyalty. This is shown by the current “Digital Trends 2021”. The study showed that 71 percent of companies that focus clearly on customer experience far outperform their industry counterparts.8 A holistic customer experience covers all contact points a customer has with a company along the customer journey: From the first contact in the awareness phase to the purchase and even beyond, when the customer makes repeat purchases and recommendations to others in the relationship cycle. Based on our experience with cross-industry clients and market analyses, we have investigated the versatility of customer experience and identified

six drivers that subconsciously generate and sustain loyalty by addressing changing customer demands. They contribute to a unique customer experience and to achieving a WOW effect with the customer.

These six factors can be bundled in the „Experience-Centric Loyalty Model“, as they all contribute to the customer experience and positively impact loyalty:

Today: 6 factors for a better CX Former: direct Rewards

Relationship

Recognition

Incentivisation

Convenience

Personalisation

Humanity

Empowerment

Customer Experience = Loyalty

Community

Fig. 2: The evolution of customer loyalty through the Experience-Centric Loyalty Model

Adobe Digital Trends, Neuer digitaler Kundentyp stellt Marken vor Herausforderungen (2021)

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3. The Experience-Centric Loyalty Model The six identified loyalty drivers for promoting holistic customer experience are as follows: Incentivization, personalization, customer empowerment, community, humanity and user-friendliness (cf. Figure 3). In the Experience-Centric Loyalty Model, customers are not

brought into an impact relationship, which is why no dependencies can be identified. Nevertheless, current trends and studies suggest that these are essential fields of action:

Reward the customer with discounts / vouchers (monetary) or exclusive VIP access, e.g. to events (non-monetary)

User-friendliness through good UX / UI, flexibilisation of the purchase or self-service activities

Personalization through tailored recommendations or individualization of products

Incentivization

Convenience

Personalization

Humanity

Empowerment

Shared values, e.g. through corporate purpose, sustainability or social commitment

Community

Evoking a sense of community through the provision of community platforms or bringing customers together through events

Fig. 3: Experience-Centric Loyalty Model

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Customer involvement through surveys, feedback and ratings or co-creation with the customer

4. Insights from the field – marketplaces vs. brands Using the Experience-Centric Loyalty Model, differences in the design of individual loyalty drivers are highlighted. In the process, both marketplaces and brands were selected with a view

to a particularly successful implementation.

The examples were examined per factor, which is why the evaluation should be considered in relation.

4.1 Marketplaces 1. Amazon IIncentivization

With Amazon Prime, a premium customer receives free next-day delivery and access to Prime Video and Prime Music. In addition, there are discount campaigns such as Prime Day.

Personalization

With the help of segmentation and artificial intelligence, individual products are suggested to the customer that could suit them and their respective buying behavior.

Empowerment

The customer is involved by being asked to write product reviews and actively contributes to maximum transparency through the extensive feedback.

Community

No special activities

Humanity

No special activities

Convenience

Product recommendations, detailed reviews from other customers, 1-click ordering and money-saving subscriptions make the shopping experience as convenient as possible. And on top of this is an excellent customer service.

Incentivisation

Convenience

Personalization

Humanity

Empowerment

Community

Fig. 4: Experience-Centric Loyalty Model using the example of Amazon

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Customer loyalty to Amazon can be attributed to two main factors: Convenience and personalization. Amazon has even made it its mission to continuously improve the customer experience and become the world‘s most customer-centric company.

time. In addition, there are other means to make the purchase process convenient for the customer, e.g. the 1-click order introduced by Amazon. 14 This function is automatically activated after the delivery address and payment method have been entered for the first time. A single click leads directly to the checkout, lengthy processes are no longer required to complete the purchase.

Our mission is to continually raise the bar of the customer experience by using the internet and technology to help consumers find, discover and buy anything.

Shopping at Amazon is even more convenient and easy when you take out a savings subscription.

With over 1,000 products, especially in the drugstore and food sector, for which the quantity and the desired delivery interval can be set individually. 15

Through AI-controlled personalization, individual products are suggested to the customer and thus a pre-selection is already made, making the product search simpler and faster for the customer.

This also promotes convenience at the same

2. Zalando Incentivization

With Zalando Plus, the online mail order company offers a loyalty program in which the customer receives faster delivery, exclusive deals and can also contact a personal style advisor.

Personalization

Through data-driven marketing, the customer is addressed more effectively and receives suitable product suggestions.

Empowerment

The customer can write product reviews, otherwise there are no special activities in this category.

Community

With the Zalando Zircle App, customers can sell clothes, as well as find and share inspiration. In this way, the App functions as a digital community for customers who are looking for new style inspiration, for example.

Humanity

With the do.MORE strategy, Zalando wants to become a sustainable fashion platform. CO2 targets and measures for a circular economy are part of this.

Convenience

The shop meets all requirements in terms of convenience. A large product range means customers can find what they are looking for in every category.

Wharton, Why Amazon’s 1-Click Ordering Was a Game Changer (2017) Amazon Spar Abo

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Apple as the revolutionary of the smartphone world, is known for its lock-in effect that traps customers into the Apple ecosystem on the product and system side. Unlike the players listed above, Apple has not developed a loyalty program, but has created a strong customer pull by way of a unique customer experience. Former Apple manager Steve Jobs put the customer at the heart of the business:

volution, Apple created a new benchmark in the mobile customer experience. The success factor for this step is none other than the end customer themselves. Apple continuously analyzed the behavior of Smartphone users to gain new insights into device usage and possible product improvements. Apple is also a role model in terms of “increase share of wallet”. So, what is behind all this?

Every company wants to increase a customer’s average purchase amount as much as possible.

Apple achieves this by offering a wide range of products. The key thing here: Apple services, such as Apple Music, TV+, iCloud, Arcade, Fitness+, News+, are accessible via a customer access / account and linked through this. Connected Services offer the customer an extremely high level of convenience in operation.

You‘ve got to start with the customer experience and working back toward to the technology, not the other way around.

What does this look like in practice? Apple scores points for building a customer relationship and implementing excellent customer service across the entire Apple ecosystem. With the Smartphone re-

6. The nu company Incentivization

Newsletter subscribers receive benefits when there are new products. An additional Pioneer Newsletter with exclusive insights and 30% discount off product launches rewards customer loyalty.

Personalization

The nu company has said goodbye to standard order confirmations and turned instead to personalization and storytelling to put the customer in the foreground.

Empowerment

The community is regularly invited to test new products and thus get involved in product development.

It is also actively involved in campaigns related to the vision.

Community

No special activities

Humanity

One for One: A tree is planted for every product. In the meantime, this has already amounted to more than 3 million. One billion trees will have been planted by 2030. In addition, there is a focus on healthy ingredients.

Convenience

When the stock of the last order is presumed to be used up, you will receive a reminder with a voucher code for reordering. Increasing availability in food retail outlets also improves convenience.

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Incentivization

Convenience

Personalization

Humanity

Empowerment

Community

Fig. 9: Experience-Centric Loyalty Model using the example of The nu company

The nu company is an example of how even a start-up can secure a place in the competitive FM-CG market by way of a successful customer experience. The factor of humanity, which we consider very important for the millennial generation, is particularly well served here.

With their mission statement and the plan to plant 1 billion trees by 2030 through the sale of their products, they are right on the pulse of the times. Purchasing from the nu company promotes sustainability throughout the entire supply chain. In addition, customers are involved in product development and in very personalized and appealing communication. The example of the nu company makes it clear: shared values can have an enormous influence on whether a customer is loyal or not.

We want every beep at the checkout to be the herald of a healthier and greener world.

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Contact Daniel Olesen-Fett principal specialist daniel.olesen-fett@diconium.com +49 173 8620 227 diconium strategy GmbH Große Elbstraße 61 22767 Hamburg www.diconium.com

Ines Tochatschek associate management consultant ines.tochatschek@diconium.com +49 173 3193 843 diconium strategy GmbH Rommelstraße 11 70376 Stuttgart www.diconium.com

Mai Vu management consultant mai.vu@diconium.com +49 151 1965 0976 diconium strategy GmbH Rommelstraße 11 70376 Stuttgart www.diconium.com

Lena Weigand associate management consultant lena.weigand@diconium.com +49 174 1992 164 diconium strategy GmbH Rommelstraße 11 70376 Stuttgart www.diconium.com

Verena Simon associate management consultant verena.simon@diconium.com +49 173 3408 911 diconium strategy GmbH Rommelstraße 11 70376 Stuttgart www.diconium.com

About diconium Since 1995, we have been helping industry leaders such as VW, Bosch, Kodak Alaris and Sick to harness the potential of digital transformation and deliver exceptional experiences to millions of customers. customers with exceptional experiences. As a strong partner, we accompany companies through the entire process of digitalization: from Innovation & Strategy, UX, Data & AI, Commerce and Technology to to the establishment of digital units.

One for all, all for one! Around 1,000 colleagues support our customers from thirteen locations worldwide: Stuttgart, Berlin, Hamburg, Munich, Wolfsburg and Karlsruhe, as well as Bangalore, Detroit, Beijing, Lisbon, London, San José and VaE. What unites us? The courage to break new ground, mutual attentiveness, teamwork and the will to make a lasting difference. diconium is a 100 percent subsidiary of the Volkswagen Group.

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