The Loyalty Illusion: Are Your Customers Actually Loyal — Or Just Trained?

Hi, I'm Clare Bailey, founder of The Retail Champion.

Here's an uncomfortable truth I want to put on the table right at the start of this new series: most retailers think they've got loyal customers. But when you look more closely — at the apps, the points, the personalised offers, the data being harvested — you start to wonder: is that actually loyalty? Or is it just a very efficient system of behavioural compliance?

This is episode one of a three-part series — The Loyalty Illusion — and in this episode, I'm challenging what loyalty has become. Not what it used to be. What it is now. And the uncomfortable truth is that for most retailers, what they're calling loyalty is actually something quite different.

What We Cover

• Why repeat purchases and loyalty scheme usage doesn't mean your customers are actually loyal
• How the relationship between customer and retailer shifted from emotional to conditional
• The real reason supermarkets want you on their loyalty apps — hint: it's not about rewarding you
• Why modern loyalty programmes may actually be training disloyalty
• The coffee card test — and what it reveals about how shoppers really behave
• The Pret exception: what genuine brand affinity actually looks like
• Two models of loyalty in retail today, and which one actually builds something lasting
• The one question every retailer needs to answer about their own loyalty strategy

Key Takeaways

• More loyalty schemes than ever doesn't mean more loyalty
• Compliance and loyalty are not the same thing
• If your programme disappeared tomorrow and customers left, you never had loyalty
• Transactional programmes create dependency, not connection
• Real loyalty is emotional — and most businesses have stopped building it

Resources & Links

The Retail Champion: www.retailchampion.co.uk

Free Loyalty Illusion Mini Guide: retailreckoningpodcast.co.uk/retail-playbooks

All episodes: retailreckoningpodcast.co.uk

Subscribe to Retail Reckoning wherever you get your podcasts

Connect & Share

If this episode has made you question your own loyalty strategy, I'd love to know. Leave a review, share it with a fellow retailer, or come and find me on social media. And look out for episodes two and three — because this is just the beginning of a conversation that I think retail really needs to have.

Episode Transcript

(00:00):
We don't have loyal customers anymore.
We have systems that look like loyalty.
Most retailers think they've got loyalcustomers, but are they actually loyal?
Are they just responding to a systemthat you've trained them to use?

(00:24):
I'm Clare Bailey, the retail champion,and welcome to Retail Reckoning.
This episode, part one of a three-partseries, The Loyalty Illusion, will dig
a bit deeper into that and explore whatretailers can actually do about it.
Let me start with somethingthat's a little bit uncomfortable
'cause most retailers do thinkthey've got loyal customers.
They look at data.

(00:44):
They look at repeat purchases.
They look at frequency.
They analyse lifetime value.
On paper, it all looks quite reassuring.
Customers come back.
They engage.
They use the loyalty scheme.
But here's the question I want toput on the table right at the start.
Are they actually loyal customers, orare they just responding to a system

(01:05):
that you've trained them to use?
Because right now across retail,something quite fundamentally has shifted.
We have more loyaltyschemes than ever before.
There's apps, there's points, there'spersonalized offers, and if you actually
look at behaviour, customers are switchingmore, comparing more, and mixing up
where they shop more than ever before.
So you got the same customer, same weekacross completely different retailers.

(01:29):
So what on earth is itthat we call loyalty?
And why is it maybe not loyalty at all,just a behaviour that's been engineered?
So across this three-part series,we're gonna unpack that properly
because in this episode, I want tochallenge what loyalty has become.
In episode two, we'll look at thecustomer, particularly Gen Z, and why
they're exposing some of the biggestflaws in how retail still thinks.

(01:52):
And in episode three, we'regoing to answer the question
most businesses are avoiding.
If loyalty needs to be engineered,is it actually loyalty at all?
Alongside this, there'll be thefree Loyalty Illusion mini guide
that pulls this into somethingpractical for your business.
Link is in the show notes and also below.
Right then.

(02:12):
So what has loyalty become?
It used to be really quite simple.
You chose a retailer becauseI, I guess you trusted them.
You liked the experience.
It kind of felt familiar.
There was an emotional layer to it.
For example, you always went to oneparticular place because you knew
they were reliable, they knew youby name, the product always lived

(02:33):
up to expectations, and so on.
You didn't need prompting.
You didn't need rewardingevery time you shopped.
You just went back because you wanted to.
And now that's not really what loyaltylooks like today. There's a process today.
Download the app, scan at the till,activate an offer or get a special

(02:53):
price, and if you don't, you pay more.
I've talked about this at conferences.
I really don't like the way that sayTesco, Sainsbury's and others have made
it that almost if you don't have theirso-called loyalty scheme, then you
almost have a gun to your head to pay ahigher price, whereas if you've got the

(03:14):
loyalty scheme, you pay the price that wewould have been paying a year or so ago.
So it's almost like you're forced tohave a card or a app for so-called
loyalty, but it doesn't matter whetherit's Sainsbury's, Tesco's, Morrisons,
Asda, Aldi, Lidl or the corner shop.
If you want to pick somethingup for dinner, you go wherever's
nearest or wherever's convenient orwherever might be best value now,

(03:38):
and you watch and track offers.
So it's not really loyalty, is it?
The relationship shifted from Ichoose you because I know, and trust
you, you've got a reliable quality,a reliable experience, and it's a,
an atmosphere I feel comfortable in,to I comply because it benefits me.

(03:59):
But that's not the same, is it?
One's emotional, oneis sort of conditional.
Like I say, it's like havinga gun against your head.
It's like being blackmailed.
If you don't have a club card,you're going to pay more.
If you don't have a Nectarcard, you're going to pay more.
That doesn't feelparticularly encouraging.
And we all know that the reason theywant us to have the cards is actually to

(04:19):
collect data on us all and our shoppingbehaviours, anonymise it and sell it
on to other brands and other agencies.
So it's kind of like a bargaining chip.
If you take our card and pay less, wecan make more money out of selling your
data to various other people thanwe lose by discounting the product.

(04:40):
So I think that for really any kindof so-called conditional loyalty is
actually not really loyalty at all.
Is it really loyalty or just compliancewith the process that we know we have
to go through to get the best value?
And I think that modern loyaltyprogrammes are doing the opposite of
building loyalty because if they tookthose programmes away, you then might

(05:04):
choose on best value or convenience.
So actually all the retailers who'vegot these particular programmes, whether
it's a surprise reward on checkout orwhether it's vouchers that spit out
the EPOS system when you scan your cardor whether it's a better price, for
instance, they're just training behaviour.
They're making uscompliant to their systems.

(05:26):
They're rewarding our participationin the scheme and capturing our data
They're very good at it though, butit's not pleasant, and they've created
a dependency on their systems, butwith no real attachment to their brand.
And that's, I think, where a lot ofbusinesses get caught out because
dependency disappears the momentsomething better comes along.

(05:49):
If there's a better offer, a betterdiscount, or a more convenient option,
suddenly that so-called loyal customerisn't loyal after all. In fact, I often
talk again at events about disloyaltyand saying, "I've used to have, back
in the day, five, six, maybe more ofthose coffee cards in my wallet," and
whichever coffee shop I was walkingpast at the time, I have a quick

(06:13):
flick through my loyalty cards andgo, "Okay, I can get a stamp there."
And then I would redeem my six...You know when you get six stamps, you
get free coffee or whatever it was.
But I had them for Caffe Nero,M&S, Costa, Starbucks, the
list was relatively endless.
And I, I say, you know, in the, inthe room I'd say, "How many people
have got five or six different loyaltycards or loyalty apps depending on

(06:36):
where you decide to shop today?"And, probably 95% hands go up.
Pret's actually a littlebit different actually.
They didn't have the card.
What they did have was a policy ofallowing the store staff to tell you
your coffee's on the house today.
And when it happened to me, I waslike, "Oh my goodness, that is so
cool." And then what I did do was goon social media and talked about it,

(07:01):
which of course is beneficial totheir brand, and I decided to walk
past other coffee shops where I'dgot my little paper card to go to
Pret just in case I got lucky again.
So that did create an affinity to thebrand, and that was quite a clever system.
But apart from that, it's disloyaltybecause not one of those coffee shops was
I particularly choosing, apart from thenearest, and I had a card for all of them.

(07:26):
Anyway, moving on.
I want to talk about what I see as twomodels of loyalty, and it's playing out
really clearly in retail at the moment.
There's one model that says, "Ifyou don't join the system, you don't
get the benefit," and the othermodel says, "Engage with us, and
we'll make it worth your while."
Obviously, the first ismore transactional, and the
other is more experiential.

(07:47):
The first is driven by kinda necessity,keep your costs down and everything else.
The other is driven by engagement.
Of course, both are influencing consumerbehaviour, but only the second has
the potential to build something thatlasts beyond the next offer, and this
is where the real tension is sittingright now because most businesses think

(08:07):
they're building loyalty when actuallythey're just building very efficient
systems to keep people coming back.
So here's a question I'dlike to leave you with.
If you had a loyalty programme, as someof these bigger retailers have, and
that loyalty programme vanished overnight,would the customers still choose you?
Not occasionally, but consistently, aswe used to do back in the day before

(08:32):
all this loyalty explosion happened.
If the answer is no, they wouldn'tactually, then you don't have any loyalty.
You have a system that obviouslyworks very hard to keep people
held in a behavioural place,but not in an emotional place.
In the next episode, we're gonna takethis one step further because if loyalty's

(08:52):
changed, then the obvious next questionis, have customers changed as well?
And that's probably nowhere morevisible or perhaps more misunderstood
by middle-aged management and, like,executive leadership than with Gen
Z. In the final episode, we'll bringit all together and tackle the big
issue about is loyalty engineered, sowhat actually builds connection now?

(09:14):
If you want to get ahead ofthose, then you can download
the Loyalty Illusion Report.
It'll be in the show notes,but it will also be on
retailchampion.co.uk/retail-playbooks.
It's a free download, andit's available to all.
So I've been Clare Bailey,the Retail Champion.

(09:35):
This is Retail Reckoning, andhopefully you'll join me again
for episode two of this series.
Thank you for listening