Is loyalty dead or can customer experience revive it?

The past five years has been seismic for the retail and FMCG sectors. The pandemic followed by an economic downturn has put the screws to the traditional idea of brand loyalty. According to a McKinsey report last year brand loyalty is fading across all demographics. The supply chain disruptions of the pandemic that forced product switching and then the subsequent tightening of belts in a cost of living crisis has created an environment where consumers are more open to try alternatives. While this trend is being seen across markets, regions, and demographics, in retail and FMCG where a middle class is being squeezed, a cultural narrative of frugality is taking precedent over other considerations such as sustainability which was becoming dominant before 2020.

Many brands are looking to adjust to this environment. Some are launching diffusion lines, others might be reaching across the socio-economic divide to collaborate with partner brands with traditionally lower price points. For many FMCG retailers the approach has been to changes in loyalty card strategy. 

In many of the big supermarkets only those with loyalty cards can take advantage of discounts and promotions. Unsurprisingly now 92% of us have at least one supermarket loyalty card. It’s given supermarkets a huge amount of shopping data to analyse, but it does have a downside. A study from the Competition and Markets Authority (CMA) found that more than 40% of shoppers felt this strategy of loyalty card member only discounts was unfair to consumers, and 55% of those surveyed actively distrusted the discounts on offer, thinking that usual prices are increased to make promotions seem more appealing. What’s more, the loyalty card has little influence on where more than three quarters of us actually shop.

These cards may also be impacting brand loyalty for FMCG products. I don’t know about you but the Nectar Card purple lives in my head rent free. When buying in a category with a lot of close competitors, that certain shade of purple has hijacked the brand narrative - it’s become the first thing I see at the shelf and more often than not significantly influences my purchase decision. The loyalty card strategy is a double edge sword. It pushes consumers to sign up and provide a better and larger data set of purchase behaviours supermarkets have ever had access to. But it potentially fragments brand loyalty and ultimately, judging by the CMA study, might have a negative impact on customer experience.

Customer experience is another route brands can take in an effort to improve brand loyalty, and we know from our discussions with clients across categories that a lot of research budgets for 2025 are now being funnelled to CX to try and reinforce brand loyalty.

It may well be the right decision. Experience is a key part of the decision making narrative process. In System 3 decision making our inner narrative of how we predict the experience of a product is a key influential piece in the jigsaw. But experience also has broader connotations; personalisation, ease of transaction, post-purchase customer support, tribe identification. The aim with CX in the current environment is to reengage with customers, reforge connections that have been lost in the economic disruption of the last few years.

From a behavioural perspective it’s a fine strategy, but one that relies on creating consistently good experiences for customers. How you reward customers will enhance or degrade their feelings of a product or brand, these feed into the internal narratives customers have about their experience. Reinforcement psychology is strong here, create a consistently good experience and the anticipated experience will begin to shape the actual experience. The narrative will be subject to confirmation bias and a consumer, expecting a good experience, will then tend to focus only on the good things and filter out the less satisfactory elements of the experience.

This of course can work in the opposite direction. A consistently bad experience could lead to consumers unconsciously focusing only on the unsatisfactory elements of the experience and embedding those into any brand narrative they hold. This is an area where supermarkets and big retailers could be at risk. The experience provided by some current loyalty strategies are not satisfactory for the majority of users, and influence on loyalty is not that impactful. It’s not an overly positive customer experience, this may not be a problem when most of the big retailers offer similar programs, but it might only take one to break the mould and gain a huge competitive advantage if it can approach loyalty programs with a better customer experience in mind.

Brand’s biggest challenge right now is in customer experience research. Traditional research methods such as NPS and customer satisfaction has been supplemented by the CX industry’s heavy lean on data analytics and customer behaviour data. However, the way people report their brand experiences in surveys is subject to huge behavioural biases, and articulating how and why an experience resonates with us and our positive associations is a challenge. Research needs more depth and a way of accessing what can’t be articulated to provide impactful insights.

Methods such as behavioural conjoint, which closer replicates the buying journey, can help you better understand new point of sale experiences, and how the brand narrative can influence purchase decisions. Live intercepts during the experience itself, ethnography, and narrative qualitative approaches can also get round the tricky issues of past-recollection and help access the unconscious under pinning of value that experience adds to decision-making.

What many of the traditional research and CX methods used to approach loyalty and experience have in common is their limited ability to give brands the “why” and the “what next” because they cannot unlock the underlying emotional and unconscious motivations and biases that influence our behaviour. Traditional methods like NPS or customer satisfaction rely on the recollection of our System 2 conscious decision making, while data analytics might be great and identifying patterns in purchase decisions and understanding behaviour in order to limit churn. But it can’t give you the why underpinning irrational purchase behaviour. These methods are either too binary or too lack the depth to give any useful direction. Research, product and marketing teams can be stuck in a cycle of trial and error that wastes budgets and stakeholder patience.

There is potential for a customer experience renaissance to improve loyalty in retail and FMCG, but the customer mindset when it comes to loyalty has been changed and in ways consumers cannot fully articulate themselves. To really understand the full conscious and unconscious drivers of loyalty and the positive customer experiences that can foster new pathways to loyalty, only behavioural science can unlock the full picture.