Unlocking the power of customer loyalty

High levels of volatility in the retail landscape continue to test consumer loyalty in the fashion and beauty sectors. Customers are grappling with uncertainty, especially with prices going up, affecting how much they spend and how they shop. In this environment, fashion and beauty brands need to find new ways to keep customers coming back.

The evolution of loyalty programs

Loyalty programs are nothing new. A recent study by global data and insights company Pureprofile and retail advisory firm, Retail Doctor Group found an 18 per cent lift in Australians using loyalty programs over 2023.

Loyalty cards have long been commonplace. However, the points system, where customers earn discounts based on their spending, is no longer enough. Today, shoppers seek genuine connections, expecting personally tailored experiences and rewards. This pushes brands to identify new, innovative ways to unlock customer loyalty. Shoppers are willing to write an online review, download an app, share the brand on social media or check into a store to earn rewards.

Many fashion and beauty brands have been refreshing their loyalty programs to increase customer lifetime value. We are seeing more personalised loyalty benefits emerging as the cost of acquiring customers rises.

Just look at how Australian women’s brand Fella Hamilton created a tiered loyalty program with increasing rewards points and perks. The fifth tier (Platinum) includes the most valuable Fella Hamilton customers, who receive invitations to private VIP events, previews of new collections and products, and benefit from steeper discounts than the ones offered to the general public.

Engaging customers through gamification

Gamification is another avenue brands are developing to infuse a sense of adventure and competition and engage customers at a deeper level. Retail gamification is becoming a trend, from challenges and missions to badges, achievements, and leaderboards. Several brands have succeeded in utilising gamification to enhance their market presence and client relationships. For example, Sephora has used quizzes as part of its loyalty program, including a makeup quiz, a skincare routine builder quiz, and its lipstick shade quiz, all of which ask members to answer a few questions about themselves, their beauty routines, and their physical traits to then provide them with insights about what products would suit them best.

Some beauty brands have pushed their focus on customer loyalty to an extreme. KIKI World, a beauty startup launched last year, wants consumers to co-create products and co-own the company with the help of web3 technology. KIKI flips that model by enabling its community members to vote on the features they want before the beauty products are made. As a reward, voters earn points toward free products and receive digital tokens in the company.

This loyalty depends on companies creating two-way conversations with customers, incentivising them with rewards and promoting the feeling that they have a stake in the business.

The role of AI in loyalty program design

Mature data and analytics capability is essential to a reinvented loyalty strategy. This is where Artificial Intelligence (AI) can help brands design their new loyalty program strategy. Predictive AI can analyse customer data to create segments based on consumers’ preferences, needs, and values. Then, generative AI can find patterns and connections in the data to recommend offers, rewards, and communications.

However, while technology is critical, human interaction remains just as important. Retail staff are essential in translating a brand’s values into tangible experiences.

Innovative loyalty programs can overcome declining consumer sentiment by improving customer experience, encouraging engagement and rewarding customers beyond the purchase transaction. Loyal customers have kept many brands afloat throughout Covid when stores were closed; therefore, customer retention should remain a priority for fashion and beauty brands.

How BDO can help

Download our Fashion & Beauty Report 2024, presented in partnership with Ragtrader, which shares critical knowledge and trends for retailers seeking to stay ahead of the evolving landscape of fashion and beauty in 2024.

Get in touch with our retail advisory team to uncover how the right guidance can make adapting to new customer trends effortless in the fast-paced retail sector.

Our team of expert advisers can help your retail business address challenges and capture opportunities through:

New technology available to support your retail business
Operational performance improvement
Evolution of traditional retail business models
Cutting-edge daily data and analytics
Fraud and loss prevention
Acquisitions, disposals and initial public offers

Maximising changes in indirect and direct tax legislation.