A recent article in Direct Marketing News declared “Brands turn to loyalty efforts as recovery remains sluggish.” The article goes on to describe the various efforts a series of high profile companies have recently started doing to win more business from loyal customers, and points to the recent recession as the reason they are doing this. This got me wondering … are we experiencing a major change in the way marketing in retail will work? In my view – yes!

The premise of the DMN article – and others like it – is that loyalty marketing offers very good ROI relative to other marketing activities. With a weak economy, every marketer has to pay even more attention to the bottom line and so more money is being spent on keeping your existing customers happy. As the article concludes, “Loyalty members provide a strong revenue foundation.”

All these statements are true, and the logic is unassailable. But it also begs the question of why wouldn’t a retailer focus their attention on their existing customers all the time, irrespective of the economy’s health? The usual answer is that you can only keep marketing to your own base for so long. “At some point,” marketers will tell you, “you need to grow.” In other words, growth comes from new customers not your existing customers.

Maybe that was true before 2008, but not anymore. For two reasons:

1. The Death of Consumerism

Before 2008, retail growth was driven by consumerism, defined by Merriam Webster as “the theory that an increasing consumption of goods is economically desirable.” The crash of 2008 showed how unsustainable that kind of growth really is.  Since then, consumers have been de-leveraging from the debt caused by consumerism and have become far more frugal with their purchasing. Governments will soon take their turn at de-leveraging – a process that will go on for years. I suspect this public spending contraction will mean that consumer frugality is here to stay.

At the very least, the consumerism model of growth is not going to provide any answers to retailers over the next 5+ years. There will be still be shopping, obviously, but instead of all retailers benefiting from the same rising tide of shopping it will be a share game between competing retailers with winners and losers. And the best way to win a share game is to increase the share of wallet with the customers you already have. Which means “loyalty efforts” will be a major part of retail marketing.

2. Social Media changes everything

The other big change that has happened since 2008 is the rise of social media as a major media force. For retailers, social media changes the nature of communication with consumers. Instead of a retailer artfully crafting a message and then broadcasting it out to be consumed, consumers now listen more to what other consumers say and often dismiss a retailer’s messages as too self serving to be reliable.

What is a retailer marketer to do in this environment? If consumers listen most to their friends, than it follows that the best marketing you can do to attract new customers is to make the customers you already have as happy as possible and hope/encourage them to tell their friends. After all, social media amplifies the happy voices as much as the unhappy ones. Take a look at the Facebook pages of many retailers. Even though you will find some shoppers complaining, you will also see many posts from happy shoppers and in some case happy shoppers will jump in to defend the retailer against the occasional critic.

Instead of being a defensive move to prevent customer loss, then, loyalty marketing may be the best – and most authentic – way to attract new customers.

 

Both these reasons point to more time and money being focused on existing customers vs. on targeting new ones. I think this will be a big change in retail – particularly outside of grocery. Which retailers do you think will manage this change better than others?