After all the hand-wringing in the retail industry over the past year about the gap between customer expectations of personalized customer experience versus the industry’s ability to deliver said personalization, it’s both heartening and a little vexing to read Neiman Marcus VP of customer insight and analytics Jeff Rosenfeld telling CMO magazine that “personalization is the new loyalty.” There is no doubt that customers expect personalization, and that retailers who deliver on this promise will enjoy a competitive advantage over those retailers who don’t. Is personalization, however, the end game of retail relationships—or merely one leg of the stool?
By Rick Ferguson
Rosenfeld recently participated in CMO’s “Four Questions for Marketing Innovators” series, and his answers reveal a marketer with a deep understanding of how the virtuous cycle in marketing drives loyal relationships, as witnessed by this money quote:
“Great personalization helps drives a virtuous cycle of loyalty in which the customer is engaged, provides data that improves the personalization further, which increases customer engagement, and so on. As loyalty improves, revenue goes up. Generally speaking, marketing to loyal customers is more profitable than spending elsewhere.”
Rosenfeld is on the money here. He’s also right in describing the traditional model of “spend-and-earn” retail loyalty program as outdated in an era in which customers expect an experience tailored to them across every digital and physical channel:
“Traditional loyalty programs have gotten a bit stale. Personalization is the new loyalty… Personalization improves the experience by making the entire journey, from initial exploration through post purchase, much easier. We like to call it ‘friction reduction.’”
Friction reduction to improve the customer experience: yes please! Is it strictly true, however, to claim that “personalization is the new loyalty?” Without inferring too much from Rosenfeld’s quote, we could extrapolate this line of thinking to conclude that, once AI and machine learning are able to deliver personalization to every customer at scale, then there’s no longer a need for any sort of formal loyalty program. Time is the new loyalty currency, and providing that frictionless experience to everyone will build all the loyalty you need.
There are a few essential variables missing from this equation, however. To perceive a loyal relationship with a brand, customers must perceive three essential foundational emotions toward that brand. Those foundational relationship elements are:
- Trust: Customers must feel that the brand is acting in their best interests.
- Commitment: Customers must feel that the brand values the relationship.
- Reciprocity: Customers must feel that their increased investment in the brand is recognized and rewarded.
Personalization certainly engenders commitment; the more personalized the experience, the more customers will perceive that you value the relationship. Demonstrating data use in a way that benefits customers also helps build trust—although the continuing problem with retail data breaches often erodes that trust.
Personalization alone, however, does not foster reciprocity—the third foundational element of strong customer relationships. By providing the same level of personalization to every customer, you potentially make a costly error: You spread the cost of that personalization across your entire customer base, from your most valuable to your least valuable customers. If high-value or high-potential customers don’t perceive that they’re getting something “extra” for their loyal behavior, then there’s no incentive for them to change their behavior by buying more, shopping more often, and referring their friends—and all you’ve accomplished with your personalization efforts is to raise your cost of doing business.
For strong relationships to form, your best customers—those with the most current or potential value—must perceive reciprocity for their behavior in the form of economic rewards and recognition of their status as high-value customers. Absent that reciprocity, personalization alone is unlikely to cement those loyal behaviors—particularly once your retail competitors reach parity with you on the ability to personalize the experience.
That’s why personalization alone isn’t necessarily “the new loyalty.” It’s possible, of course, to demonstrate reciprocity without a formal, branded loyalty program—but you must demonstrate it somehow. Trust, Commitment, and Reciprocity together fuel the virtuous cycle; and in the case of personalization, it isn’t sufficient to say “two out of three ain’t bad.” All three emotions are essential to strong customer relationships. While personalization is an essential component of this foundation, it isn’t the end-game.
Rick Ferguson is Editor in Chief of the Wise Marketer Group and a Certified Loyalty Marketing Professional (CLMP).