Digitalization has spawned a golden age of consumer sovereignty. Customers are better informed and have more choice than ever. eCommerce has also facilitated innovative business models and a role for aggregators that help companies come online and extend their reach. While third parties are helping business find new avenues of growth online, this has sometimes come at a cost to brand owners who can struggle to build a dialogue directly with consumers. With this digital intermediation, one wonders: what happens to brand loyalty in the digital age?
Brands Mean Business
A brand is one of a company’s most valuable assets. It’s what makes a company instantly recognizable and often the reason customers return again and again. Customers perceive a brand as a hallmark of trust, which creates a sense of loyalty that can last a lifetime.
Digitalization empowers brand owners to reach new markets, either directly or through aggregators, often at low or no incremental cost. Consumers are spoiled with choices in ways to shop and can choose to buy directly from the business or through an intermediary marketplace like GrubHub or even Amazon. Aggregation models have appeared in almost every sector, from food to financial services. While intermediaries can generate new revenue streams for brand owners, they can also make it difficult to build loyalty. The food delivery market in particular illustrates these complex market dynamics.
Food Delivery – Boosting Efficiency or Eating into Margin?
Early adopters of food delivery apps were demographically young and tech-savvy, but the pandemic changed all that and ordering at restaurants from your phone has become mainstream. Over 50% of U.S. consumers have placed a food order online while 38% have used an online order aggregating service, such as Uber Eats, Grubhub or DoorDash.
In this post-pandemic world, the restaurant and aggregator vie to “own” the customer. And there is growing evidence that customers are platform-loyal. Why? Aggregators offer customers a choice of menus and a low-friction one-stop-shop for dining at home. And many offer their own loyalty programs, such as the Grubhub Pay Card, which allows employees working for companies that have a Grubhub corporate account to order on and off the Grubhub Marketplace.
Smaller restaurants must consider the costs and benefits of third-party delivery partners. Aggregators charge hefty fees — often as high as 30% — that can hurt restaurants’ bottom lines. But an app or aggregator may also offer marketing tools and broader online reach. Presence on a food delivery app may be a way to reach customers who wouldn't normally dine in. Research indicates that 3 out of 4 restaurants say that DoorDash has allowed them to reach new customers. But larger restaurants are fighting back with their own apps and delivery services.
Big Brands Hit Back
Many large restaurant chains are turning to loyalty programs to boost customer acquisition and encourage existing consumers to up their spending. Last year, McDonald’s new U.S. loyalty program enrolled 30 million members within six months and has generated a 10% increase in digital customer frequency. But there are other reasons to invest in a loyalty program.
Customer Loyalty Is Priceless
Loyalty programs enable restaurant chains (and other businesses) to become data driven. By tracking information such as what items customers purchase, which locations and at a what time they visit, restaurants can offer targeted promotions and rewards to increase retention, visits, and order size.
Restaurants (or brand owners) can incentivize sign-ups by offering lower prices or exclusive offers to members. And by encouraging people to order directly, suppliers can avoid paying extra fees and commission, which can fund extra benefits for customers. But in some cases, customers are actually willing to pay to join loyalty schemes.
Should Customers Pay for Their Loyalty?
Amazon is the world’s largest aggregator through its online marketplace for third parties and has a brand value estimated at $345 billion. For an annual fee Amazon initially promised its loyal customers free shipping through its Amazon Prime subscription. But the benefits of membership expand continually as does the Amazon service portfolio. Charging members an annual or monthly fee allows Amazon to offer its best benefits to customers who will get the most value out of its loyalty program. The Amazon Prime premium loyalty program is arguably the most successful of all time - over 60% of all U.S. householders are subscribers.
The success of Amazon shows how digital technologies can simultaneously disrupt market dynamics and create new business models. For many consumers, Amazon is a trusted brand and the ultimate department store where they can browse and buy almost anything. For many small suppliers, the Amazon Marketplace is a new route to markets that would otherwise be beyond reach. But a loss of direct customer connectivity may decrease the opportunity to build a dialogue, cross sell or upsell.
Online retailers and aggregators have created a dynamic market structure that’s continually redefined by innovation, collaboration and competition. Many brand owners use multiple channels, including social media to increase brand awareness and promise customers a superior experience, more choice or simply a better deal if they buy direct.
Brand owners in all sectors are free to choose whether they partner with aggregators, go it alone or do both. These choices are not irreversible and strategies can be modified in the light of experience. In this new order, there are many unknowns, but the consumer is certainly the winner.