Future Loyalties

As the dust settles on the customer loyalty hype of the early Nineties, only one thing seems certain: nobody can agree on what the future holds for reward schemes. Of course, the brightest and best practitioners are aware – as they always were – that real loyalty is rarely felt by an individual for a company. However, understanding of reward schemes and the accompanying technology has developed over time, and a new awareness of what can and should be done is influencing both work done today and work planned for tomorrow.

One oft-repeated prediction for the future is that loyalty programmes will increasingly become a part of an overall drive to build one-to-one relationships with customers. Marketing guru Don Peppers makes this point in his book Enterprise One to One: Tools for Competing in the Interactive Age: “Building long-term customer relationships is about basing all interaction on the sustained loop of feedback and customisation that is at the heart of the learning relationship which characterises the one-to-one enterprise.

“This learning relationship ensures that it is always in the customer’s self-interest to remain with the company that has developed the relationship to begin with. This kind of customer-driven business relies on delivering highly tailored individualised products and services to each of its customers.”

Not only will customers be more individually targeted – data collection and data use will also be handled in a more targeted way.

Brendan Smith, marketing support manager of The Continuity Company, says: “Many of the loyalty schemes in operation are failing to positively influence shopper behaviour. Although there are advantages to be gained by being the first in a market sector to launch a loyalty scheme (Tesco certainly stole a march over its major competitors with the launch of Clubcard), followers have consistently missed the opportunity to learn from their rivals’ mistakes and launch more effective schemes.

“As a result we now see an environment in which consumers participate in several loyalty programmes and passively collect points out of habit, rather than being challenged to spend more each shopping trip or to shop more frequently. This is hardly surprising given that most schemes offer blanket rewards (usually one per cent), so that even the indiscriminate shoppers can be rewarded for what is, in essence, disloyal behaviour.”

Smith recommends that loyalty programmes introduce tiered rewards, so that the most loyal customers benefit most from the programme. He says: “Using the customer database, it is easy to identify different spending bands, to which different value rewards can be attached. This will also encourage customers to spend a little more in order to reach the next band and receive a reward of higher value.”

Safeway has recently built a tiered system into its ABC card, whereby its customers are now rewarded with double and triple points at certain spending levels.

Smith also argues that long-term loyalty schemes need an occasional boost to rejuvenate consumer interest, ideally through short-term tactical programmes offering exciting collectable rewards. “They should set challenging, yet achievable, spending requirements to qualify for the offer and be structured to ensure that the highest spending customers receive the highest value rewards,” he comments.

Debate rages over whether the UK or the US is ahead in terms of the schemes on offer. The truth seems to be that the approaches are fundamentally different and that future growth will be determined as much by the historical activities of each country as by the influence of its neighbours across the Atlantic.

Todd Merry is a partner at relationship marketing agency Miller Bainbridge & Partners. He expects to see loyalty programmes in the UK go the way of the US, “where schemes that don’t at least break even are being chucked out”.

He says: “There are very few point-based systems in the States now. Cards are used simply as a money-off system rather than for more expensive points gathering. With points systems you may be able to collect lots of detailed information, but most companies don’t use most of that information. In the US, coupons are universal – pages and pages of them in the papers plus free dispensers in aisles next to products and even coupons on the backs of till receipts. I don’t know why this hasn’t happened in the UK. I would certainly expect to see more coupons – both card- and paper-based – here over the next few years. I certainly can’t imagine supermarkets can sustain the points systems they use now.”

Other practitioners disagree. Mark Patron, managing director of Claritas UK, says: “If you look at how Tesco and Safeway are using their loyalty data for cross-selling and segmentation, they are way ahead.”

Iain Cox, Mondex International senior manager for new products and features, adds: “There may be less use of data collected than there ought to be, but there is more than is often assumed. I expect that in the future companies will make more tailored offers to people based on more information about their purchasing behaviour. If you hold data on particular consumers’ purchasing behaviour, such as noticing they buy fresh fish from you but don’t visit the deli counter, you can make offers to entice them where they don’t normally go. Of course, you have to apply common sense too so that if people haven’t mentioned babies on their application form you don’t offer them incentives to buy nappies.”

Merry also predicts a more precise targeting of both scheme and rewards. He says: “I would expect to see companies making customers work harder to be in the scheme. With Virgin Atlantic, for example, you have to fly business class or do three economy transatlantic flights to demonstrate your value as a customer. I would also expect to see greater attempts to tie rewards to brand image, as American Express already does, so that it makes sure any restaurant tied in with the scheme has the right image. Compare that with Barclaycard which offers something for everyone. I realise its customer base is much larger, but it diffuses the reward and waters down the scheme’s ability to align the brand with the reward.”

It seems certain that smart card technology will have a big impact on the way loyalty programmes are run. Cox explains: “In future, smart cards will be able to run operating programmes and you will be able to add software to them so they can carry more than one loyalty programme.” Smith adds: “Smart card technology will allow loyalty programmes to be targeted on a store by store basis, as well as an individual basis. The systems will offer the ability to reward customers at point of purchase with messages given to the shopper through the terminals. Add to this the greater security smart cards offer and the ability to run multi-retailer schemes and Visa/ Debit applications all on one card, and we are suddenly faced with a powerful marketing tool.”

One growing realisation among loyalty scheme practitioners is that some products and services lend themselves better to loyalty programmes than others. Merry says: “The reality is that in supermarkets price or location or convenience is what is important to shoppers, so they don’t naturally lend themselves to loyalty programmes.”

Stephen Taylor, head of Loyalty Management UK, a management consultancy specialising in loyalty programmes, predicts the market will go in one of two directions, but that the current plethora of standalone programmes will not survive. “We will either see big companies running joint programmes or the restructuring of programmes away from point-based schemes, where points are used to buy prizes, towards affinity schemes where added-value services (like priority booking) are offered in a targeted way to certain individuals. With this sort of system, the reward can be tailored to the customer – and represents that customer’s value to you – and the scheme should be more cost-effective.”

This view is echoed by Pete Sherrill, senior vice-president of relationship marketing consultant TSC Europe. He says: “Companies have to keep up to date with which aspects of their product or service their customers value – some may be interested in product features, others will be more price-sensitive – so that they can ensure they deliver on those value propositions. You also need to make sure that this knowledge is disseminated throughout the organisation so the customer will have a good experience of the company whoever they are dealing with.”

Whatever the future holds for loyalty schemes, an increased emphasis on targeting and on customer service looks sure to be an integral part of it. And this can only be a good thing for everyone, from companies and consultancies to consumers themselves.

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