Challenges of Building Emotional Loyalty in Changing Customer Landscape

Many businesses are incorporating emotional loyalty plans into their customer loyalty strategies; however, with the ever-fluctuating changes in consumer behaviors, it is challenging for brands to know the best approach to building the relationship.

Loyalty360 spoke with supplier members to discuss the topic of emotional loyalty, how changing customer behaviors have affected emotional loyalty, and the best ways brands can create emotional connections with their customers.

Pandemic Emphasizes Desire for Personalized Experiences
The pandemic dramatically changed the ways brands and consumers interact and communicate, and loyalty programs were not immune to the changes. In fact, several brands saw an increase in the reliance of emotional loyalty to keep connected in the days of disconnect.

Dan Jurek, VP, Strategic Services at Lacek, agrees, saying, “Since the start of the COVID-19 pandemic, loyalty programs have been emphasizing emotional connections with members. And that resonates with the results of our recent global loyalty survey, in which eight in ten consumers surveyed indicated that emotional benefits help maintain loyalty program engagement. These are the type of loyalty experiences that drive positive customer emotions. Maya Angelou summed it up best: People will forget what you said, people will forget what you did, but people will never forget how you made them feel.”

The Lacek team has observed a distinct competitive advantage for brands that are providing one-of-a-kind experiences consumers can’t buy—e.g., offering a behind-the-scenes interaction with the brand and even allowing members to meet with product designers.

“Pre-pandemic, emotional loyalty was typically associated with consumer, lifestyle, and fashion brands,” says Vinay Tanna, Director, Corporate and B2B Marketing at Tenerity. “To some extent, it had been easier for these brands to build strong psychological preferences and affective attachment with customers through shared brand values and highly desirable products that weave into the customer's lifestyle and identity.

“On the other side of the coin, brands considered commodities or transactional, such as banking, insurance, and utilities, tended to focus and rely on rational loyalty based on features, function, and price with little perceived differentiation in the eyes of the customer.”

At Antavo, it sees brands putting more emphasis on personalized and experiential rewards, such as early access, members-only events, and priority customer service.

Says CEO and Co-Founder Attila Kecsmar, “Based on our research, the Global Customer Loyalty Report 2022, current loyalty programs still tend to follow the transactional model. However, interestingly, the majority of programs in the planning phase seem to be putting a greater emphasis on emotional engagement. 53.6% of respondents planning a loyalty program specified that their program will be more emotional than rational.”

Tanna states that the pandemic brought about changes in consumer expectations of brands, including those traditionally relying on transactional loyalty, and describes three key trends that emerged from the pandemic and have been the catalyst for "commodity" brands to focus on emotional loyalty:  

1. Consumers gravitate towards companies that demonstrate how well they understand the consumer as an individual and create relevant and contextual ways of engaging them. Personalization has become critical to winning loyalty.
2. Consumers want brands to solve their problems rather than "sell to them." People aren't just shopping for products – they are looking for solutions. Brands that serve a purpose are the ones that will ultimately win the consumer.
3. Finally, consumers expect brands to commit to social values to contribute to a broader purpose that helps society. Brands that commit to this will win their customers' "hearts and minds" and form a stronger connection.
Sue Frech, CEO, and Co-Founder of Vesta, says, “One of the biggest advantages of embracing emotional rewards is the lasting impact it can have on customer lifetime value,” citing a study done by Harvard Business Review that showed emotionally-connected consumers are more valuable.

She continues, stating that when brands attune to emotional motivations and shared values, consumers are more inclined to stay, but also to try new products within the brand’s portfolio, be less sensitive to competitive promotions, and are more willing to advocate for the brand in their social circles. Transactional rewards have many quantifiable metrics that make measurement more straightforward than emotional loyalty and scaling a transaction loyalty program can seem a lot less complex. Still, today’s consumers need more and will quickly lose interest if they don’t feel like the brand understands them as a person.

“Within the ecosystem of loyalty programs, we believe travel has the most significant emotional connection with customers than any other kind of reward or offering,” says Travis Markel, Chief Experience Officer, Arrivia.

“Destination weddings, bucket-list trips, journeys to visit relatives... these are highly emotional experiences. When a loyalty or rewards program can help make these possible, it resonates in a way that no other product or service can. Over the last two years, the want and need to travel hasn’t gone away; if anything, we believe there is such pent-up emotional need that loyalty programs have an opportunity to contribute to participants’ well-being like never before.” 

At Arrivia, they have witnessed how customers leverage the value they get from their loyalty programs has become more fluid. Demand hasn’t diminished, but circumstances may have made some aspirations more difficult. For example, as we have seen specific travel categories grow more costly (average airfare has increased by 40% since the beginning of 2022), customers are using their loyalty benefits on the portions of their vacation that might otherwise be cost-prohibitive.

“Emotional, or ‘soft’ benefits have always been part of the consideration set when considering program tiering, or value proposition management,” says Cassie Preston, Director of Client Services, CRM & Loyalty, at Baesman. “They’ve just become more prevalent as customers seek out experiences with brands that help them live the lifestyle they want.” 

She goes on to say that when brands connect with their customers, it means to connect to their whole selves, including the person they aspire to be. They are seeing more brands adopt emotional loyalty to build that deeper connection with their customers. 

“The increase is likely due to the increased pressure American consumers have been facing – between the pandemic, pervasive inflation, and other economic and global events, there’s no shortage of consumer behavior influences in today’s world,” Preston continues.

A brand’s vision must be palatable and must provide the ideals their customers are attracted to – whether those ideals are altruistic in nature, or reminders of life’s simple pleasures, consumers want to know how a brand’s products and services are going to fit into their lifestyles.

Gone are the days when brands could stimulate sales by offering a rotation of promotional deals. While a deal is still important for many consumers (especially in the current macroeconomic environment), it’s not enough to engender lasting loyalty. Brands must understand and relate to their customers more than ever before to secure wallet share.

“The pandemic provided an impetus for many people to reexamine their lives- their goals, values, where they work, and who they do business with,” explains Padmashwini Raghunathan - Product Manager at TCS. “It became increasingly important to align themselves with brands whose vision, goals, and beliefs align with their own. As a result, we are seeing an increase in the demand for loyalty solutions that drive emotional loyalty based on a deep understanding of customer needs and shared values.”

At TCS, its clients see the limitations of transactional loyalty alone and the need to augment those programs with hyper-personalized, differentiated loyalty programs that drive emotional loyalty.

Raghunathan stresses, “Each interaction for the customer has to be a rewarding, engaging, and personalized experience.”

In early 2022, Kobie surveyed over ten thousand consumers to better understand their loyalty program preferences as the nation emerged from the pandemic. One of the key indications from the findings was that people are fatigued with the notion of togetherness that was on full blast throughout the pandemic. Kobie dubbed it, “the rise of me, the fall of we.”

Says JR Slubowski, AVP of Strategic Consulting at Kobie, “From an emotional loyalty perspective, brands should be doubling down on value propositions that formally highlight what's in it for the consumer by focusing on individual choice, optionality, and freedom.”

Data from Kobie’s 2022 Consumer Research Study shows that consumers are less likely to highly rate things like charitable contributions and community social channels. With those benefits and features quickly dropping in priority, others have risen in importance and Kobie’s research helps brands uncover what their customers want most out of their loyalty programs.

Pros and cons of emotional versus transactional rewards
Kobie’s 2022 Consumer Research Study indicates that emotional loyalty creates a much stronger bond between the customer and the brand versus a bond that is simply transactional. But that is not the full picture.

“If you’re only looking at transactions, you’re missing the full view of your customer and what motivates them,” says Slubowski. “However, it's important to recognize that without transactional loyalty, a lot of times we wouldn't be able to have the relationship with the consumer at all as part of the loyalty program structure.”

Cassie Preston at Baesman adds, “As my fellow marketers know, psychology plays an important role in meeting a customer where they are with the solutions that help them live their best lives. The same is true when creating lasting loyalty; a benefit that pulls at the heartstrings or encourages a stronger relationship between a brand and its customers can be much more effective than a once in a while discount.”

Without the trust of consumers in today’s environment, brands won’t be given the time of day. Building benefits that connect on a deeper, more personal level will build trust, which in turn brings a brand’s customers back again and again.

Preston continues, “If you’re considering emotional loyalty or benefits that provide your customers with the opportunity to know and connect deeper with your brand, it’s important to listen to them. Be a steward of the information that customer is giving you and make sure you validate your hunches before rolling something out. New benefits are exciting and can be valuable for customers and brands alike.”
“Transactional rewards can increase short-term sales and will always be a part of a revenue modeling mix because sometimes that’s exactly what an organization needs to drive,” says Rob Fagnani, co-founder of Formation. “However, over-relying on or only providing transactional discounts or rewards dilutes pricing power and trains customers to never pay full price.”

He states that while emotional rewards may not generate sales immediately, brands that invest in memorable experiences for customers that foster trust, recognition, and affinity lead to deeper connections over time. These experiences can help boost customer lifetime value while decreasing reliance on short-term discounts to generate repeat purchases.

Dan Jurek states, “Emotional rewards are memorable and have a brand halo effect for all members. Knowing the reward is possible can provide a kind of aspirational glow to those who don’t directly benefit from it. However, in-person experiences that really land emotional benefits are far less scalable—largely due to limited availability and logistical challenges.”

For example, Jurek explains that exclusive digital experiences can help overcome this challenge by offering remote access to concerts and classes. Something like a personalized invitation to a limited online event can be a middle ground between a transactional reward, like a discount, and an in-person emotional one, like a meet and greet with a popular entertainer, sports figure, or chef.

According to TCS, emotional loyalty is the strongest, most enduring form of customer loyalty. It is earned when brands deliver hyper-personalized experiences, products, and services that align with their members’ needs, preferences, and values. Emotional loyalty has been proven to benefit brands in many ways including increases in customer spend, store visits, referrals, and customer feedback.

“One of the pros is strengthening the bond with customers, creating a deeper connection with them. It is important that every communication, action, and input customers receive from a brand makes them feel recognized and important,” states Kecsmar. “Customers who are attached to a brand are less likely to leave and are more inclined to engage with the brand on a frequent basis, therefore increasing customer lifetime value. They also tend to buy from their favorite brand when they need a specific item, instead of searching for the best deal, and they’re more likely to refer the brand to their family and friends and review products.”

But Kecsmar also warns against pitting emotional loyalty exclusively. “Emotionally-engaged customers tend to expect more from the brands; they expect companies to anticipate their needs and make more relevant product suggestions. It’s a common mistake and brands should keep in mind that making a loyalty program more emotional doesn’t necessarily mean leaving all transactional rewards behind. The best way is to have both rational and emotional elements in a loyalty program because customers will expect to have coupons, discounts, and such.”

Jeff Zotara, Chief Marketing Officer at Arrivia, says, “You can’t favor one over the other — they work together. Ultimately, you need to be delivering value to your customer, but that value isn’t strictly monetary. It’s like the relationship between product and service; if you offer a well-priced product but terrible customer service, your customer will only stick with you as long as they are price sensitive. It’s the same for loyalty programs: you can offer excellent customer service and plenty of status-based emotional rewards. However, if your core loyalty product doesn't provide tangible value, customers will feel they aren’t deriving much from your program.”

Zotara also says it’s not all about everyday discounts. “While loyalty providers used to put a lot of emphasis on transactional rewards, we know that younger generations especially put a premium on experiences. But overall, people today are looking to connect with a brand and use their hearts and heads to make decisions. Brands that can successfully tap into this center of decision-making will stand out from those that don’t. This means personalizing your offer to each customer so that they feel like an individual and not just another number in your customer database.”

Tenerity suggests that for brands to create Emotional Loyalty effectively, they need to deliver hyper-personalized rewards and offers to their customers using both transactional and emotional rewards.

Rewards must be delivered intelligently to engage customers to create emotional engagement. Brands need to consider the rewards' timing, tone, and treatment. In other words, the rewards, either transactional or emotional, must be delivered to the customer at the right time, on the customer's preferred channel, and communicated in a highly personal and contextual manner. Even a transactional reward can have an emotional impact on the customer. Similarly, an emotional reward delivered out of context or on the wrong channel will, at best, be ignored and, at worst, will disengage the customer.

Says Tanna, “An important challenge for brands is the sourcing of emotional rewards. While transactional rewards, such as in-kind exclusive access, discounts, and free delivery, are easily provided by the brand from within their reward catalog, emotional rewards need to be sourced and managed effectively. Brands need to identify partners that can offer, manage and personalize an extensive catalog of emotional rewards.”

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