To offer vouchers or not to offer vouchers. That is the question. Marketers recognise they must reward customer loyalty in some way but are split on whether to offer incentives, or simply keep prices down as low as they can. Simon Rines reports
The popularity of loyalty programmes as a marketing tool has made them one of the biggest growth areas in promotional spend in the Nineties. The biggest question for many marketing departments now is not whether to reward loyalty but how?
For some of the higher-profile schemes run by supermarkets or petrol retailers, the solution has been to issue cards on which the customer can accumulate points. Does this mean that the voucher, as a form of currency, has no place in loyalty schemes – or has it been written off too soon?
“Bits of paper are still liked by a lot of customers,” says Rob Purdie, director of business development at coupon and voucher handling house, NCH Promotional Services.
“People criticise coupons and vouchers saying ‘they just accumulate in glove compartments’ – the fact is that millions of people collect and redeem them. They are tangible, have a perceived value and a strong brand affinity.”
Purdie points to the fact that many of the card-based schemes lack some of the advantages of vouchers.
“Customers often do not know how many points they have saved on their card and find out only by visiting the issuing outlet. They are also unaware of what it is they qualify for. If they have a voucher they know exactly what its value is.”
One of the big arguments in favour of the use of cards is the ability to gather data on customers through electronic tracking at the point of purchase.
There is an assumption that this is not possible using bits of paper because they are not hi-tech.
“One of the strengths of using paper-based rewards is that the systems available for tracking are now much more advanced, which allows much greater management of liability,” says Purdie. “We can supply clients with a lot of data on how and when vouchers and coupons are used.”
There is a general recognition within the direct marketing industry of the value of using such data to better segment and target the audience with the right offer.
The main dangers with spending on loyalty are the risk of rewarding those who are already loyal, the possibility of encouraging promiscuity and the threat of creating loyalty to the reward rather than the brand. This can mean that when a scheme ends, the customer simply switches to a competitor’s scheme.
In petrol retailing, traditionally one of the most keenly fought areas in customer loyalty, the market leader, Esso, has recently dropped its Tiger Tokens scheme. This was partly in response to discounting from supermarket forecourts, but also because rewarding already loyal customers was no longer seen as the most cost-effective way of retaining core business and expanding market share.
“We undertook a detailed study to look at what customers really wanted and what would generate loyalty,” says Esso’s UK retail marketing manager Nigel Law.
“The overwhelming response was a heavy emphasis on price. We then did a trial in the North-east in which we withdrew the loyalty scheme and cut prices. This was a big decision but it was a resounding success, fuel volumes went up and it persuaded us to go national.”
One of the big perceived attractions of loyalty schemes to petrol retailers is the company car drivers who get fuel on expenses. Surely they are enticed more by the offer of free goodies, especially considering the number of miles some drive, than they are by a penny off a litre?
“This may be the case with some drivers,” says Law, “but by and large busy people go for the convenience of sites and few are not sensitive to price. We find senior people are conscious of the need to keep costs down and many others are paid a rate per mile expense so it is in their interest to keep down costs.”
The dropping of the loyalty scheme has meant that Esso has reduced its ability to build a customer database. This, however, does not unduly concern Law: “First, such databases don’t give us any information about customers who don’t visit our forecourts. More importantly, however, 25 million customers visit an Esso site every month. You’ve got to be pretty clever to be able to use such vast amounts of data in a cost-effective way. Most attempts I have seen have been pretty clumsy. At the moment, we cannot see a major benefit in capturing data in this way.”
Other retailers in the sector, however, are continuing with loyalty schemes. Total’s TOPS scheme, now over four years old, uses a magnetic stripe card to collect points. The participant earns ten points for every litre of petrol purchased. This is recorded on the card until 5,000 points have been accumulated. The card is then sent off and within a few days, depending on preference, a Boots or Marks & Spencer voucher worth 5, is issued.
“We are sticking with TOPS because we believe customers like it,” says Total Oil marketing manager Ray Redmond.
“If you ask someone to list what they want from a petrol retailer, cheaper petrol will always come top of the list. But we are competitive on price so TOPS gives them added value.”
One of the arguments in favour of catalogues rather than voucher schemes is that participants retain a warm feeling about the issuer because the reward is usually something special or long lasting – surely a Boots or M&S voucher might just be spent on shampoo or sandwiches?
“We have researched this by looking at what the coupons are used to redeem,” says Redmond.
“Participants tend to use them for special purchases that they might not normally make. Typically this would include wine, boxer shorts or, in the case of Boots, luxury toiletries.
“The scheme works because it’s simple, easy to understand and gives the participant a very wide choice – people are fed up with being limited to glasses, shavers and clocks. It has increased Total’s market share in the UK over the past four years and is still very popular.”
One of the benefits to Total of its link-up with M&S and Boots is that, despite the fact that it is not one of the top four petrol retailers in the UK, it has an association with two of the country’s biggest names on the high street. In the eyes of the consumer, the loyalty scheme has given Total a profile that would be very hard to achieve without that third-party link.
Arguably the most sophisticated programme run in petrol retailing is Shell’s Smart scheme.
Customers use a smart card to collect points that can be converted into Air Miles, redeemed against a catalogue or used as currency in John Menzies.
Shell has also been using the database to make special offers to high users and those who seem to have stopped collecting.
“We have been tailoring the offers according to the customer,” says Darran Messem, Shell UK marketing strategy manager.
“We have, for example, offered a period of double points to customers who have decreased points collection. We can then track how many points they have collected in the following month and send them a voucher for that amount. This is converted to points at the petrol station which gives them another reason to make a visit to a Shell site.”
Messem also believes the use of Air Miles has been of great benefit: “This has generated loyalty because there are a lot of people collecting Air Miles from more than one source. It helps bring those people to our sites as well as offering a wider choice of reward on the Shell Smart scheme.”
One of the criticisms Air Miles has suffered is that it has limited appeal. The public perceives the vouchers as being redeemable only against flights and they require several years of collecting to qualify for anything worthwhile.
“Over the past few years we have expanded the range of offers considerably,” says Judith Robinson, marketing director of Air Miles.
“There was a conception that the scheme was upmarket but now we have introduced a lot of offers that start at 100 miles. These include entrance to Madame Tussaud’s, a two for the price of one weekend break or discounts off holiday packages.”
Apart from providing a large number of customers pre-motivated to collect the currency, Air Miles can also supply useful data.
“We are doing more joint promotions with clients in which we analyse and segment the customer base,” says Robinson. “We can then undertake joint promotions with our clients in which good prospects, who are keen to collect Air Miles, are targeted. This can be a very efficient way of driving customers to a particular outlet who then remain loyal.”
Air Miles, although mostly now collected on cards, still retains the option of vouchers because many clients and customers like them.
Just as it would be foolish to predict that cash will be phased out in the near future, so vouchers may well still have a place as a loyalty