THE PRIZE IS RIGHT

Retailers are having second thoughts about costly, hi-tech loyalty schemes but building loyalty is still the big objective. A combination of old-fashioned sales promotion techniques and new technology – with free gifts that are actually worth

Do you get the performance you want from your loyalty scheme? Are points-for-prizes leaving customers cold when what you want is a warm relationship? Then try new, improved incentive schemes. It’s the low-cost solution to your everyday marketing needs – and they don’t leave piles of product behind like the older versions used to.

That pitch might just work, given the second thoughts surfacing around hi-tech loyalty programmes. While any first-in-market scheme is bound to deliver an uplift, competitor matching actions soon erode the benefits. What is left is an expensive overhead with a structural discount that further erodes margins.

As Philippe Gayton, general manager of Argos Business Solutions, says: “Incentives are of great appeal for people at the moment. Free gifts or merchandise they can choose for themselves are the favourite. In research, people have said they particularly like being able to pick an item of value for themselves. They see other collection opportunities as a straightforward discount which they are tied in to.”

What could resolve this dilemma is the convergence of old-fashioned sales promotion techniques with new technology – the two-for-one approach. It is no longer the mechanism which matters, but the way it is targeted at desirable consumer groups. And that extends to the choice of merchandise on offer.

Make no mistake, the need to reduce attrition and build loyalty is not going away. What is under review is how to achieve that goal. As Ben Jason, brand manager superstores at the Co-operative, says: “In the research we’ve done, no loyalty activity will affect the customers’ long-term perceptions of the product offer, but those perceptions will affect their long-term purchasing.”

Two types of collection card are used by the Co-op, one on which stamps are added for every 25 spent, redeemable against a voucher, the other using stickers to collect for kitchen merchandise. Both are low-cost, reward loyalty and are easy to maintain, but they don’t give massive sales uplifts.

A newer technique is the instant- win scratchcard. The Co-op has a 10m prize fund in play, but the main reward is money-off coupons for co-sponsor brands. This helps the budget, ensures return shopping, but has the disadvantage of requiring free entry as well. The latest device is a Plus Points card, now in nine superstores after a successful trial in one.

Its holders and the rewards they get are divided into four groups. Petrol-only shoppers get a money-off voucher and have increased their spend by 43 per cent.

Lapsed shoppers rose by 241 per cent, but from a low base. High-value regulars are offered a box of chocolates as a thank you, while low-value regulars had their points doubled to allow them to redeem against a gift voucher. Their average increase in spend value was 32 per cent.

Jason says: “Among those with a high degree of loyalty, we are unable to stretch their spend beyond where it is, but among the less loyal, we have seen big increases.”

The Co-op’s rewards make an interesting contrast with Tesco, which has been offering its most loyal customers a 3 voucher against every 15 spent, double the normal 1.50 offered and an effective 20 per cent discount. It is an endless debate for marketers – do you reward those people who are most loyal and valuable, but who will probably shop with you anyway, or do you focus on potential switchers to encourage them to increase their activity in your store?

Mairi Wilson, board account director at IMP which holds the Texaco account, says: “Texaco would rather not distribute its marketing budget to people who will never be loyal. It prefers to use it to build a more appealing environment.” When the company’s Star Collection was closed down, it left behind a reasonable database of prospects which was profiled to find the high-value segments. They were then mailed an invitation to join the new Global Collection. This is operated around the co-branded Royal Bank of Scotland Global Visa card and a non-credit swipe card.

In addition, says Wilson: “We are working very hard for other motorists who have low mileage but are still valuable.” On-site enhancements will be the most likely outcome, but it could lead to the return of the “free glasses” promotion. “It will be the old fashioned promotional mechanism, where proofs of purchase are mailed in. But by asking for information on buying behaviour, there will be a filter,” she says.

High-value customers will be recruited to the loyalty programme, the rest just get their merchandise.

BP has already been down this road. It had been locked into a long-term scheme called Options, offering a retail gift voucher, which was not particularly successful. “It had become wallpaper,” says Matthew Hooper, managing director of agency Interfocus. “The company wanted promotional activity that was ongoing and focused on rewarding customers. Our suggestion was to get back to short-term activity and run schemes over four months.”

The result was Free Movies, in a Warner Brothers tie-in, followed by a music promotion with Sony, then Free Movies II.

When London Transport wanted to build loyalty while also reducing illegal reselling of its one-day travelcards, agency Promotional Results suggested an old-style incentive scheme to encourage travellers to save their tickets. By saving five they were able to get discounts on West End theatre tickets through Ticketmaster, and meals in Pelican Group restaurants. It proved to be LT’s most successful promotion to date, attracting redemptions from 19 per cent of its target market.

Says David Thursfield, managing director of Promotional Results: “We were surprised how many people regularly use it. The immediate response showed they were collecting very early on – some were applying in the second week of the campaign.” He believes the scheme has demonstrated that building loyalty is not about technology, it is about offering an attractive enough incentive to increase frequency of purchase.

It will increasingly be the relevance of the offer to the product and its customers which will win the battle of attrition. Money-off will always appeal to consumers, but it erodes already narrow margins. What promoters and marketers must do is look more closely at their target market in order to understand what will appeal.

This is where technology comes into play again, even if not as infrastructure. The mass of consumer data now available makes it possible for marketers to look at what triggers an uplift in purchasing behaviour and to develop more tailored promotions. Taylor Nelson AGB’s SmartBase is one such resource, and its group marketing director, David Sneesby, says: “If someone is buying a lot of Italian pre-prepared food, like pasta, but not wine, you can give that person an offer that says ‘why not try some Chianti and here’s 1 off the bottle’. That is tailored and of benefit.”

If planned well, even small rewards can still boost participation in a scheme. As Pino Grillo, managing director of Things, says: “There is an entry cost to hook people into a programme – you have to give something away and everybody needs a T-shirt. You can never have enough of them.” And if you make it a Ralph Lauren shirt, the perceived value is that much higher.

Micky Rodrigues, marketing director at DSL Promotional Clothing, agrees: “The strength of traditional premiums and incentives is they are tangible and provide immediate rewards to the consumer. They are unique to each promotion. They can support and enhance a brand’s image.”

It is the fact that premiums have a powerful impact on consumer behaviour that is forcing marketers to review which they use. According to Argos’ Gayton, what might appear to be a simple incentive scheme can in fact generate loyalty. He points to Mobil’s use of Premier Points. “One third of their customers have been committed to the scheme now for four or five years,” he says.

So far nobody has made the bold assumption that a relationship can be built without putting some form of reward in place. On the contrary, many of them are now reviewing old techniques that have been overshadowed by the electronic point of sale (EPOS) revolution in retail promotions.

They might discover some valuable new tools. As Andy Wood, business manager marketing and analytics at NCH Promotional Services, says: “Certain people seem to look at the marketing mix not in its entirety. For example, some wouldn’t touch coupons. Their perception of the typical user is someone over 55, female and a widow. That is completely untrue. They can be a very powerful mechanism, particularly in shifting product and getting uptake.”

And nothing is quite as powerful as travel when it comes to incentives. The onward march of Air Miles is proof positive that people love to fly and will change their behaviour towards companies that give them this possibility. Collectors will opt for Shell, use their NatWest Access card and shop in Sainsbury’s because those companies offer miles. The travel incentive helps those clients to increase share of spend and build loyalty.

Judith Thorn, marketing director of Air Miles, points out a key difference between them and conventional travel-based promotional offers is that “many of those are put together on the basis that a vast proportion won’t redeem. We actively want collectors to redeem, because then they become advocates”.

This is not a “back to basics” revenge of the premium story, however. The new, technology-led loyalty programmes are making the kind of marketing activity possible that was previously only dreamt of. Talking to your best customers, tracking switchers, and reducing wastage are all major benefits. But what is emerging is that if you have to give something away, make sure it is an item that will genuinely make the recipient feel good about your company.

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