By Grace Sinclair, VP Engagement & Loyalty Strategy at dentsu
Earlier this year the CMA released it’s latest recommendation for the highly regulated formula milk category. Amongst other points, they recommended increased standardisation of labelling and a move to permit the spend of retailer loyalty points and vouchers on infant formula.
The recommendation aims to further reweight decision making factors within the infant nutrition category towards price and accessibility over marketing and promotions, with an ultimate goal of delivering better outcomes for parents.
The news will force both manufacturers and retailers to re-evaluate their approach to brand, consumer relationships and loyalty within the category and, whilst this CMA recommendation is directly related to the particularly highly-regulated infant formula category, the re-imagination of loyalty in FMCG is a much wider trend that speaks to the changing dynamic between consumer, manufacturer and retailer.
The new loyalty paradigm – both transactional and relational
Engagement with loyalty programmes has increased over recent years as consumers are faced with ongoing cost of living pressures and businesses look to differentiate against increased competition whilst building up a valuable first-party data asset. The updated guidance on the use of loyalty rewards against infant formula highlights just how important accessible transactional rewards are for many consumers’ retail experiences and will be a welcome move for many.
That said, consumer and industry research consistently shows that transactional rewards alone are no longer considered sufficient to drive lasting loyalty. Leading brands are building loyalty by crafting propositions that deliver against a holistic set of loyalty drivers – from the transactional to the relational – often via hybrid mechanics, with a core focus on those drivers most aligned to their brand identity and purpose. Consider Apple, Amazon and Nike: each has built a brand that offers differentiated products or services, is well trusted to deliver against the needs of their consumers and leverages data and insights effectively to build lasting consumer relationships.
The importance of a clear value proposition
According to Merkle’s 2024 Loyalty Barometer Report, 77% of UK consumers participate in up to 5 loyalty programmes. In the midst of this strong competition, it’s critical brands have a clear value offering and route to market in order to acquire valuable first-party data and build deep relationships with consumers. Thanks to the recent CMA updates, this will now be particularly prevalent in the infant nutrition category with the relaxation on restrictions for retailer loyalty programmes coinciding with increased regulations around brand level marketing.
Having a clear, compelling value proposition that goes beyond transactional mechanics to include broader relational mechanics becomes critical when brands are faced with business or regulatory restrictions as it offers the opportunity to maintain a level of consistency innovating against challenge areas.
In the infant nutrition category, for example, the ability to differentiate their formula milk offering becomes limited within the context of product and so focus must shift to service differentiation. Building brand salience and trust through packaging, advertising and promotions is constrained by regulation and so focus shifts to relational experiences – pre and post birth. Building trust and fostering retention via non-transactional mechanics that nurture deeper customer relationships, that result in word-of-mouth advocacy, becomes a clear imperative to maintain and grow market share.
End-to-end customer experiences provide opportunity
This then in turn opens opportunity for a repositioning of the role of digital engagement channels, moving from a primarily post-purchase journey state to play a greater role in pre-purchase and even purchase state. Challenges have long been an instigator of innovation and we could well see this inspiring change across categories if such a shift leads to increased incrementality of loyalty programmes and initiatives.
The move towards more connected customer experiences across media and CRM is not a new one for brands but for CPGs the complexity of interactions through retailers, partners and care contexts makes delivering this more challenging. The ability to identify customers in some cases before they even make their first purchase is critical to building deep relationships and delivering a connected experience across touchpoints.
In a world where they are competing with both large retailers and a vast repertoire of CPG brands for 1PD engagement, many CPG brands rely on connected packaging solutions and in-store assets as the primary entry points for their digital value offerings. We’ve been seeing continuous innovation within this space in recent years, for example with Kellogg’s and Pringles launching always-on gamified connected pack solutions as an important, integrated part of the brand touchpoint ecosystem.
However, with the CMA recommendation introducing new restrictions on pack branding for infant nutrition, these tactics could be limited, with the 1:1 relationship with consumers needing to be built firmly away from directly purchasing (or promotional) environments. Infant formula brands therefore need to be clear on how and where they deliver meaningful experiences across parents’ journeys both pre- and post-first purchase to acquire and grow first-party data and foster trusted dialogue with consumers.
A redefinition of loyalty
CPG brands are redefining what loyalty means, as they look to harness value from the first-party data they have been racing to acquire in previous years. The infant nutrition category faces particular challenges and a likely need to pivot towards relational experiences to boost brand and sales outcomes in the coming years. Across FMCG, it’s never been a more exciting time to explore loyalty and build experiences to connect with consumers.
