Online Brand Communities and Loyalty Intentions

Abstract

The previous chapter discussed customer participation and involvement in online brand communities (OBCs). In this chapter, we continue to explore contemporary viewpoints on OBCs and how customers’ participation and their level of involvement lead to different types of loyalty. The chapter offers a conceptual schema based on the work of Ozuem, Willis, Howell, Helal, et al. (2021a), which will enable us to discuss how different layers of customer participation will lead to different types of loyalty intentions.

In many ways a firm’s most valuable financial asset is its customer base, and, given our new and unfolding technological capabilities to recognise, measure, and manage relationships with each of those customers individually, a forward-thinking firm must focus on deliberately preserving and increasing the value of that customer base

—Don Peppers & Martha Rogers, 2011, p. 3

Case 3: Sephora and Its VIP Customers

Beauty and personal care brands have shifted communication to social media to reach consumers and build their global market share. Revenue in the beauty and personal care market is expected to grow annually by 5.54% (CAGR 2021–2025) and to reach US$518,146 million in 2021 (Statista, 2021). The reasons for this growth are swift advancements in digital channels and customers’ increasing willingness to invest more for higher quality. Although shopping preferences still differ across the globe, brands seek to attract a higher market share by following a customer-centric model that interconnects digital and physical characteristics into their channel.

As consumers turn their attention to e-commerce based purchasing, beauty and personal care brands have upgraded their digital channels to capture and convert the attention of their audience. At the searching and product purchasing stages, customers encounter artificial intelligence tools that are used to implement virtual testing, discovery and customisation trends in place of in-person consultations; these tools had a greater effect following the COVID-19 pandemic. With the closure of premium beauty product outlets due to the pandemic, approximately 30% of the beauty industry market was shut down (Gerstell et al., 2020), as opposed to brands already established online, which saw a rise in revenue of between 20 and 30%. Yet, digital resources and preparation were not the only forces behind these brands’ successful transition from offline stores to the digital marketspace, it was their consideration for human feelings and presence that assisted the journey. Without close friends, family, consultants or other sources of real-time emotional impressions, customers accustomed to social and conversational consumption sought brands that integrated emotionally driven experiences into their digital channels. Furthermore, the need to enhance customer loyalty programmes was more essential than ever. With many customers turning to online shopping, retail brands’ marketers, especially those of the beauty and personal care industry, had to amend their loyalty programmes to incorporate reward systems that went beyond the point-based programmes in which points were earned through frequent purchases.

One of the biggest players conducting this movement is the Paris-based, personal care and beauty chain Sephora. In addition to enabling their sites to be personalised for languages across Europe, and using Google Assistant to gather data on consumer preferences, Sephora integrates purchase-based channels with community-based channels, generating rich consumer experiences that help customers feel connected with their online community and Sephora’s product line. Their online member-based community, Beauty Insider, which in 2019 boasted some 25 million members (WARC, 2019), enables Sephora customers to exchange product ideas (Millington, 2021) and upload pictures of themselves wearing Sephora products. Potential consumers are able to witness real-time usage and demonstration of the products by Sephora’s beauty community members who post, like, share and tag different looks. These basic online activities give rise to organic traffic leads that attract consumers to Sephora’s OBCs, emphasising the ability of Sephora’s consumers to signal the quality of Sephora’s products and experiences without signalling any commercial intent behind the online engagement.

The most influential factor behind the behaviours of Sephora’s consumers, apart from the convenience of a digital presence, is Sephora’s loyalty reward programme. Compared to traditional customer loyalty programmes, which focused on transactional loyalty and rewarded purchases with points that could be redeemed for prizes and discounts, Sephora’s loyalty programme is associated with community and emotional incentives. Focusing on customers, Sephora provides birthday perks, exclusive members only offers and different membership options that enable personalised programme perks that give customers more control over the personal benefits they receive from the loyalty programme.

Sephora offers three loyalty programmes to their customers, referred to the three tiers of membership. Sephora’s membership tier system segments customers into individual loyalty programmes based on their level of engagement in the online community and their annual spending. Sephora’s basic tier is called Insider, and is free to anyone who signs up. Members who are highly engaged in the online community and spend more than US$350 a year are assigned to the “Very Important Beauty” tier. The “Rogue” tier was added for customers who spent US$1,000 or more each year giving them access to new products, limited edition products and invitations to special events (Krause, 2021). Although customers of all tiers obtain a surprise birthday gift, members of the higher tiers are offered more surprises, including the choice of monthly gifts and extra points to convert into purchases, further motivating customers to increase their spending to meet the criteria and move higher in the tier system.

With different tiers of membership, with varying benefits, members can aspire to move to a higher membership tier, practising a loyalty towards Sephora to get more exclusive rewards. Members do not face the disadvantage of being kept permanently on a specific loyalty programme. Unlike subscriptions, bundles and other digital marketing membership models, members are not required to conduct additional sign-ups to upgrade to any of the loyalty programmes, the move between the tiers is automatic. This strategy gifts members with experiences rather than products alone, which strengthens the connection between Sephora and its VIP customers, and encourages them to become potential advocates through the online communities.

The managers of Sephora’s loyalty programme allow their service team to segment members according to their real-time activity and tailor their loyalty programme to their customers’ personalised needs, ensuring the loyalty programme engages with customers in a way that is meaningful to the customer; the service team also maintains effective time and resource allocation to each community member. Identifying the loyalty status of customer segments is embedded in Sephora’s strategy; its analysis of customers’ loyalty status is not limited to past purchases, but also considers their online engagement and their level of investment in Sephora specifically. This strategy can ensure that brands do not target consumers with market offers and information that will not lead to a course of action, whether that be for purchasing products or engaging in online community activity.

Questions

• 1. Drawing on the characteristics of the IBIL model (Fig. 3.1), analyse how Sephora targets, segments and builds customer loyalty in their online marketspaces.

• 2. What are the benefits and challenges of having a loyalty programme such as Sephora’s?

• 3. Rank the four categorised loyalists of the IBIL model into those which Sephora would most desire. Which of the three loyalty tier programmes would Sephora offer to them?

• 4. Using any brand of your choice, conduct an IBIL analysis and discuss how the brand’s customers can be actively engaged and retained?

References

• Gerstell, E., Marchessou, S., Schmidt, J., & Spagnuolo, E. (2020). How COVID-19 is changing the world of beauty. McKinsey & Company. Retrieved October 31, 2021, from https://www.mckinsey.com/~/media/McKinsey/Industries/Consumer%20Packaged%20Goods/Our%20Insights/How%20COVID%2019%20is%20changing%20the%20world%20of%20beauty/How-COVID-19-is-changing-the-world-of-beauty-vF.pdf.

• Krause, A. (2021). 16 perks even Sephora’s most loyal customers might not know about. Insider. Retrieved October 31, 2021, from https://www.insider.com/how-to-get-sephora-perks-2019-3.

• Millington, R. (2021). The real value of your brand community. Harvard Business Review. Retrieved October 31, 2021, from https://hbr.org/2021/05/the-real-value-of-your-brand-community.

• Statista. (2021). Beauty & personal care. Retrieved October 31, 2021, from https://www.statista.com/outlook/cmo/beauty-personal-care/worldwide.

• WARC. (2019). Sephora uses experiences to build loyalty. Retrieved October 31, 2021, from https://www.warc.com/newsandopinion/news/sephora-uses-experiences-to-build-loyalty/42580.