By Brad Hanna
Achieving brand loyalty is an ongoing challenge for marketers, especially when it comes to the notoriously elusive Gen Z demographic. While brand loyalty is highly coveted, this generation is known for its skepticism, making the task of securing their allegiance even more difficult. Gen Z’s short attention spans and high expectations demand innovative approaches to loyalty programs that can simultaneously drive performance and build long-term trust.
A recent report from McKinsey has shed light on how performance-based loyalty programs are becoming a key strategy to navigating these challenges, presenting a new opportunity for brands to appeal to Gen Z while delivering measurable results
Key Insights
Gen Z has brand trust issues, which poses a significant hurdle for marketers. In a recent study of 1,700 brands, Gen Z adults reported the lowest trust scores compared to other age groups.
- 62% of Gen Z said they would explore other brand options, even if they have a favorite.
- 50%+ of Gen Zers with a favorite brand would switch if another brand were cheaper or of higher quality.
Despite these trust issues, some brands — such as Dove, Amazon, Nike, Apple, Netflix, YouTube, TikTok, Chick-fil-A, and Goldfish — have successfully cultivated deep connections with Gen Z. These brands understand that Gen Z grew up with digital-first experiences, and they have made strategic moves to create seamless, engaging online and offline experiences.
A major insight is that the blurring of the lines between the online and offline shopping experience is crucial. This hybrid model of engagement is where performance-based loyalty programs shine, offering immediate value while building long-term relationships.
Why it Matters
Recent articles have reopened the debate between driving short-term performance vs. long-term brand loyalty. Marketers understand the value of loyalty, including:
- Higher lifetime value
- Reduced acquisition costs
- Increased market share
- Greater brand advocacy
- Greater price elasticity
- Greater brand resilience
But marketers are also being challenged to prove the effectiveness of every marketing dollar spent. This is where a fresh approach to performance-based loyalty programs can work to bridge this gap.
How to Win
As brands work to create a more seamless offline and online experience, performance-based loyalty programs can become a powerful addition. Performance-based loyalty programs have two key components:
- Loyalty-based pricing — Introducing pricing programs that provide pricing benefits or unique experiences with tiered purchasing. This can work to drive performance and long-term engagement at the same time. Loyalty-based pricing offers members access to price-based promotions, such as member pricing or percent-off discounts. This approach works to expand your customer base. Amazon Prime Day is a great example of price-based loyalty. Prime Day deals are offered only to Prime members. This program drove $13 billion in sales in 2023, which included an incremental $5 billion in revenue for Amazon.
- Loyalty-based offers — Introducing a point program where customers gain points for purchasing. While this is a traditional model of building loyalty, it is surprising how few businesses and brands use this tactic to drive sales. These programs have been shown to be more effective than traditional approaches in driving incremental sales. Status tiers aligned with additional benefits can also be incorporated to drive greater loyalty.
While performance-based loyalty programs offer significant potential, brands need to evaluate a few critical factors before jumping in:
- Profit Margins: Do your margins allow for additional offers or discounts without harming profitability? Loyalty programs must be sustainable in the long run.
- Cross-Functional Coordination: Implementing such a program requires tight coordination between different departments — marketing, customer service, product managers, pricing, IT and operations — so be sure your brand has the infrastructure for smooth execution.
- Seamless Online/Offline Experience: Is your online and offline customer experience well integrated? For Gen Z, the seamless blend of the digital and physical worlds is non-negotiable.
- Data-Driven Foundation: To maximize the performance of your loyalty program, you’ll need strong data analytics and CRM systems in place to track customer behavior, identify trends, and personalize offers.
- AI and Automation: AI-driven solutions can help automate the decision-making process, offering personalized rewards and offers at the right time, based on customer behavior.
- Simplicity: Gen Z values simplicity — don’t overcomplicate your loyalty program. Customers need to understand how they can earn and redeem rewards easily.
Brands need to take a fresh look at performance-based loyalty programs. Gen Z may be difficult to win over, but brands that are able to balance short-term performance with long-term loyalty can break through their skepticism. By leveraging performance-based loyalty programs, brands can offer immediate value while simultaneously building trust and fostering engagement over time.