Not just a token gesture

Companies benefit when both employees and customers show loyalty. But how can this be encouraged? Richard West looks at vouchers, rewards and recognition

A romantic once wrote: “The best things in life are never rationed. Friendship, loyalty, love, do not require coupons.” One can say with some confidence that whoever came up with that clearly never shopped in a supermarket or attended a marketing strategy review. It’s hard to remember a time when loyalty and coupons (or vouchers) didn’t go hand in hand.

Yet loyalty is one of the most misused words in the English language. Most people aren’t sure what it is – though many probably associate it with “customers” and “staff” and realise that it has something to do with making sure both are happy.

Well, that is partly true. In retail, loyalty is certainly an important element of the relationship marketing process and in the workplace, a happy, motivated workforce is likely to be more loyal, stable and hence more productive. In both cases, loyalty is unquestionably recognised as a good thing, leading to better sales, performance and ultimately profits. So what has that got to do with vouchers?

The statistics tell an interesting story. The Tesco Clubcard, for instance, is one of the most successful retail relationship marketing programmes in the UK. Every quarter, the company sends out £50m worth of vouchers to its Clubcard holders. Redemption rates regularly exceed 90 per cent and create massive sales peaks.

Elsewhere, gift vouchers have steadily grown in popularity over the past 30 years. According to the Voucher Association, approximately £1.2bn a year is spent on gift vouchers in the UK – with the corporate sector spending about 60 per cent of the total on reward and staff loyalty schemes.

The power of paper

So what psychological forces are at work? After all, whether they come via Tesco or team leaders, vouchers are essentially pieces of paper that work in a roughly similar way to money. But in terms of reward and motivation, our attitudes towards money and vouchers couldn’t be more different.

Numerous workplace studies have shown that when it comes to motivating staff, money tends to be spent on day-to-day living, so it often fails to achieve the desired morale-boosting effect. Vouchers, on the other hand, are more memorable – firstly because people like to be recognised for their achievements and secondly, because recipients remember how they spent their vouchers and connect the purchases (or the experiences) with the work they did to get them.

By rights, this sector of the UK voucher market should be in terminal decline after the Government removed the tax benefits of giving vouchers as employee rewards. However, employers recognise that the benefits in terms of motivation and staff morale far outweigh the costs, so sales keep growing – according to the Voucher Association – by an estimated ten per cent a year.

Capital Incentives & Motivation managing director Graham Povey has spent a large part of his professional life developing incentive and reward programmes. He says: “When it comes to rewarding employees, vouchers are ideal because they have an immediate impact.

“Being rewarded for good work is important, but it is just as important to be recognised within the organisation for your achievements. Most of all, the recognition has to be sincere, genuine and given promptly. Receiving something anonymously, in recognition of something you did weeks ago, will probably demotivate rather than inspire.”

So if motivating employees in order to create loyalty is driven as much by the need for public and sincere recognition as it is by tangible rewards, does this weaken the parallels between employee and customer loyalty programmes?

In the old days, small shopkeepers could get to know their customers personally and build loyalty by rewarding some of them with special services and attention. However, as companies began to grow, it became increasingly difficult to identify the most valuable customers and to collect and retain accurate information.

Come the late 20th century, retail had reached maturity and consumers became more cynical and less brand-loyal. Relationship management and loyalty programmes started to appear as companies realised the importance of creating longer-term relationships with their customers; loyalty cards were emblematic of this more personalised approach.

Cutting the cards

Even so, many would argue that the success of loyalty cards was (and still is) equivocal. Safeway was just one of several retailers that, after a few years’ experimentation, abandoned the loyalty card in favour of price cuts. Since then, the debate has raged on about the efficacy of loyalty programmes.

Despite the fact that the majority of consumers seem to agree that companies should reward loyalty, in the past few years the popularity of such programmes has been matched by the growth of short-term tactical promotions offering consumers enticements to switch suppliers with introductory offers and special deals.

Strategic futures and marketing consultancy the Henley Centre found that nearly half of all consumers say they have recently switched their primary supplier for at least one product, whether it is financial services, telecommunications or household utilities, and a further third are planning to switch.

Maybe that is nothing particularly new – after all, people have always shopped around for the best deals. However, what the survey did reveal was the emergence of a new breed of consumer – the “serial switchers” – who have changed suppliers in two or more categories.

Henley Centre consultant Sunita Sharman says: “We found that serial switchers tend to be young – mainly aged 25 to 44 – and affluent. They are more media-aware, more cynical and more aware about the information that they have at their fingertips. Price is considered the greatest benefit. However, we found that serial switchers are often also experiencing major upheaval or change in their lives, which act as triggers to change.”

Factors such as deregulation in certain markets and greater use of the internet, which allows consumers to compare products and prices, have certainly made switching easier. However, Sharman believes that many companies, despite proclaiming their “customer focus”, make things worse by encouraging consumers to be disloyal.

She says: “Four out of five consumers agree that ‘companies should reward loyal customers instead of offering the best deals to new customers,’ yet many companies devote more effort to acquiring new customers than they do to maintaining existing ones. Customers don’t want to spend time shopping around and checking deals, and would rather companies didn’t make them do this.”

Discounting at what price?

Peter Motley, head of campaigns at online CRM consultancy insightexec.com, argues that there is nothing wrong with using price as a marketing tool, but warns that price discrimination must be handled carefully. He says: “The obvious danger is that customers will buy on price rather than value. At the same time, you have to look at other factors, such as life-cycles; if you sell products that have a short life-cycle at a discount, can you sustain the price? If the product has a longer life-cycle, how do you deal with the price issue second time around? Offering a price deal to one segment of the market and not to the others could make one or more types of customer feel hard done by.”

‘P’ is for principles

The trouble, Motley says, is that too many companies have lost sight of some basic marketing principles. “If you abuse any of the four ‘P’s (product, price, position, promotion), in this case ‘price’, you risk losing credibility. A good example is the discount supermarkets in the US. Eventually, no one bought from them because customers did not feel valued,” he says.

Sharman, however, goes further. She believes that the strategies adopted by many companies have created a promiscuous group of “rate-chasers” and serial switchers. The question is, she says, whether they are worth chasing. She adds: “The majority of consumers genuinely want to be loyal. Switching is a fact of life, but two thirds of consumers say they stay with a company because of good customer service.

“Showing recognition of a customer’s loyalty as well as delivering high-quality, personalised service, ensures that individuals will not feel like ‘just another customer’ and it may persuade them to settle with your brand.”

Of the two supermarkets referred to in this article, it is no coincidence that one was taken over by a competitor while the other has become the UK’s leading retailer. Safeway chose to fight on price: Tesco opted for service and loyalty. And, though it would be mistaken to overplay the significance of vouchers, they undoubtedly played a part.

With gift vouchers becoming increasingly popular, retailers have learned plenty about their importance when it comes to building loyalty through targeted rewards. And, with a new generation of schemes such as gift cards, mobile vouchers and online programmes all coming on stream, companies are realising that, as well as rewarding loyalty, vouchers allow consumers to interact with the brand in ways that, until recently, would have been impossible.

It may not be the most romantic union imaginable, but the relationship between loyalty and vouchers could be a very long and happy one.

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