Trouble at till

Companies are recognising that there are other ways of engendering loyalty than just card programmes.

If you were to ask a young female clothes shopper on the high street which store she is in, there is a 50/50 chance she would not know. That is the stark reality of fashion retailing in the UK, according to Iestyn Roberts, customer relationship management director at the Sears group.

This is not just a result of comparative shopping, which sees 16- to 24-year-olds visiting every single outlet in one afternoon. It is also a consequence of the increasing parity of offers, pricing, and merchandise within each price band. Building a distinctive brand is hard enough, so what chance do retailers have of establishing loyalty?

Incentivising purchase, whether through short-term reward schemes or long-term card-based programmes, will certainly not be enough. Roberts says: “With a 120 coat from Wallis, if a shopper doesn’t like it, she won’t buy it – that doesn’t change, however many air miles you offer. But you may get onto the repertoire by offering a sweetener.”

With so much emphasis on loyalty, especially on card schemes, it is easy to assume that marketing plays the primary role in building the relationship with customers. But this not only overstates the potential impact of such schemes, it also implies that loyalty is crudely mechanical – dangle the right reward in front of a shopper and they will keep coming back.

“Customers are rarely loyal,” says Edwina Dunn, managing director of database consultants Dunn Humby. She says the perception should be inverted. “There is more of an obligation on the organisation to be loyal to their customers.”. The best evidence of the impact such market-led, rather than marketing-led, thinking can have is to be found at Asda.

According to Taylor Nelson AGB’s Superpanel, in the quarter ending October 1996, Asda’s value share of all households stood at 12.9 per cent. While this compared with 19 per cent for Tesco and 17 per cent for Sainsbury’s, the multiple had increased its share by over one per cent in a year without the help of a loyalty card. Even more significantly, share also grew by over one per cent among holders of any retail loyalty card, while 16.2 per cent of non-card holders also used Asda, compared with 15.3 per cent a year earlier.

Asda’s positioning of everyday low prices is recognised as having a strong hold on its customer base. Allan Reece, client services director at Taylor Nelson AGB’s Superpanel, believes one reason may be geography. “Asda is strong in the North, while Tesco and Sainsbury’s are more in the South. Perhaps there is a slight difference in attitude. In the North, shoppers are saying they want the money-off now, rather than in 13 weeks. In the South, consumers are happy to wait for the benefits to come through the post later,” he says.

One view is that many of the current schemes which are intended to build loyalty are actually no different from Asda’s approach. “Loyalty has a long-term and a short-term aspect,” says Jonathan Plowden Roberts, head of consultancy at The Database Group. “Retailers are stimulating the short-term, because it is about frequency of purchase. They are not rewarding loyalty, they are maintaining the price war.”

This is not to imply that card schemes do not have an impact. Far from it – for Tesco, Sainsbury’s and Safeway there have been clear rises in key measures of customer loyalty. Comparing Superpanel data for Safeway shoppers in October 1995 and 1996 (before and after the launch of its ABC card) demonstrates the real benefits to the retailer.

Average spend per visit among card holders rose to 19.50 from 17.50, while spend when shopping elsewhere fell to 11.70 from 12.50. The number of trips to other stores made by ABC card holders fell to 98 in a year from 106. Commenting on the increase achieved by all the major multiples, Reece says: “They are not necessarily increasing the frequency of visit to their stores, but they are increasing the number of major shopping trips. There is an increase in the basket size over the rate of inflation.”

What this is adding to, of course, is the concentration of power into the major grocery chains. Their share, now standing at 85 per cent, was growing at a rate of one per cent annually. But since the introduction of loyalty schemes, this has climbed to a two per cent annual rise.

City analysts are happy at the impact loyalty schemes have on the bottom line, which has led to a perception that they are the cure-all for financial underperformance. Sainsbury’s only launched the Reward Card after heavy pressure from shareholders to improve return on investment.

Other retailers under similar pressure have followed suit. WH Smith has been testing its Clubcard in the North, with 250,000 members so far. The company says that holders visit the stores 18 per cent more often and spend 26 per cent more. However, the store is offering a two per cent discount – double the rate of the supermarkets – and the ultimate benefit to the bottom line will take some time to emerge.

So is introducing a loyalty scheme the solution for other retail chains whose profits are under similar pressure and whose shareholders are becoming restless? Sears is in exactly that position, but Rob-erts says: “It is not a quick fix for profits, nor a panacea. You spend a lot and you can’t get out because customers come to expect it.”

The range of brands owned by Sears also means it is difficult to put in place a scheme that is valid in all its stores. At the top end, Selfri dges attracts high-spending, upmarket shoppers, while at the bottom end, Shoe Express meets the needs of price-conscious, hard-pressed consumers.

Another issue is whether the transactional data which is amassed through loyalty cards is strictly necessary (after all, it has been said that Tesco was incapable of processing the data it gathered for the first six months of its Clubcard). Even when a card is issued, this does not guarantee it will be used.

Roberts notes that a trial was run in one women’s wear chain which offered a card with soft benefits, such as service levels, gift wrapping and the like. The aim was to have a mechanism to track the behaviour of shoppers who did not have a storecard.

“A lot of people signed up, but nobody presented the card in the shops. They saw no need because there were no hard benefits,” he says.

One solution may be to get involved with another store chain which already has transactional data. Plowden Roberts at the Database Group believes supermarkets might find it of interest to get into partnership with department stores, for example.

“They have had storecards for a long time and have information on their spending, so you can look at loyalty,” he says. Matching databases to see the overlap and then inferring loyalty from storecard holders back onto grocery shoppers is perfectly feasible.

Investing in service levels without the cost of a card infrastructure may engender just as much loyalty. This is what Sears is now trying out with its Renaissance formats in Richards stores. If sales rise, shareholders are unlikely to quibble about the absence of a customer database.

Dunn agrees that, “it is the service end which is the differentiator”. But she also warns that without the ability to track individual customers, the real state of a business can be hidden from view. “Using average measures is a really thorny problem. Because of the way they are reported, you can suddenly find things going wrong and you can’t pinpoint where. For example, if sales are dropping, you can’t find out where,” she says.

Conversely, issuing a reward card can create a new problem for the bottom line. “People don’t think about exit strategies, then they panic when they realise the liability they have built up. They have to do something to soak up the points,” says Suzanne Partridge, associate director at through-the-line agency Interfocus. Airlines are prime examples of companies which have to handle their liability extremely carefully – if too many free seats are outstanding, they could theoretically be driven into bankruptcy.

But ending a scheme is not easy, either. For one thing, consumers take a long time to adapt. Taylor Nelson AGB’s Omnimas survey tracks participation and awareness of loyalty schemes among 2,000-plus adults. In April 1996, Esso’s Tiger Tokens had the highest awareness of any petrol scheme at 41 per cent, even though it had been scrapped nearly a year earlier. Partridge notes that the danger is of leaving a gap in consumer expectations between the ending of one scheme and the start of another, in the case of Esso, its price-cutting Pricewatch.

What happens to those expectations and the loyalty they foster if a significant shift in the market takes place? The BP-Mobil merger is a prime example. BP had ceased its own scheme in 1994, replacing it with short-term sales promotions. Mobil, however, has been running Premier Points for some years. These are still being issued at the newly-merged forecourts. But Partridge wonders: “Is the loyalty to Premier Points, not the retailer?”

Loyalty is also overlapping. According to Omnimas in July 1996, adults participate in an average of 2.2 schemes across all sectors. This understates the uptake of Sainsbury’s Reward Scheme, which had only just been launched, and which is likely to have shifted that average upwards. Those individuals holding a Sainsbury’s card were likely to be participating in 2.9 schemes on average.

Partridge acknowledges that there are “card junkies”, although she believes this was a trend of several years ago which has now waned. What may not have lessened, however, is the proportion of shoppers who are premium hunters, switching allegiance according to which retailer is offering the best discounts.

Nowadays, that may mean sustaining enough spending on each card to ensure a reward is forthcoming. After all, none of the grocery multiples with a card scheme manages to get more than 50 per cent of total household grocery spending, according to Superpanel.

What this indicates is that the market needs to be segmented before a scheme is set up, excluding those low-margin, low-profit customers from the outset. And just as loyalty schemes may not be appropriate to every shopper, the simple truth is that they may not be appropriate to every retailer either, no matter how much the marketing department objects.

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