Are loyalty cards missing the point?

Loyalty schemes, particularly the large-scale point collecting programmes used by the major retailers, are going to have to reinvent themselves in order to stay abreast of the revolution in “social media”, according to industry experts.

Loyalty Management Group (LMG), which operates the Nectar card on behalf of 17 partners, is talking to agencies about the future of loyalty schemes in the UK (MW last week). LMG marketing director John Sheekey denies the move has been triggered by a fall in the number of Nectar cardholders using their points. He claims that seven out of every ten cardholders redeem points on a regular basis, while 94% of those holders who are “inactive” say they plan to redeem them in the future.

Sheekey argues that the fact LMG is looking for input from agencies is not an indication that there is anything wrong with the concept. “It’s sensible business strategy to explore possibilities,” he says.

From points to promotion
However, some observers feel the explosive growth in new media and social networking has fundamentally changed the concept of loyalty. Point collecting programmes are passé, they claim – what retailers and other brands need now is a programme that actively turns consumers into promoters.

Steve Barton, chief executive of direct marketing agency Keevill Barton Kershaw, which is on Nectar’s roster, says: “Loyalty schemes can no longer be just ‘points for prizes’. You need to get consumers in the door, you need to get them in more often and you need to get them talking about your brand in a positive way.” Another loyalty expert is even more blunt. “The old model, where you focus on the 20% of customers who deliver 80% of your sales, is flawed. The question you have to ask customers now is: ‘how likely are you to recommend?'” Dunnhumby, the specialist customer relationship management consultancy that is now 84% owned by Tesco, has worked with the retail giant on the running of its Club Card loyalty scheme and also works for other retailers including Krogers in the US and Casino in France.

Director of consumer strategy and futures at Dunnhumby Martin Hayward says: “If you serve your customers properly and respond to their needs, they will act as advocates for you. But you can’t force them – it’s better if they do it spontaneously.” At the heart of any loyalty scheme is a mass of raw data on consumer behaviour. Theoretically, retailers should be able to take information about consumers’ shopping baskets, cross reference it with lifestyle data, and then target individual consumers with communications offering them something directly relevant to them.

That has been the theory for 20 years, but few schemes actually deliver that sort of personalised targeting on any kind of on-going basis. Indeed, anecdotal evidence suggests that consumers are beginning to become disillusioned with the whole concept.

A call to advocacy
The big issue, then, is how to convert passive customers into active campaigners on the brand’s behalf. But for LMG and Nectar, the challenge is arguably an even greater one as LMG does not actually have access to basket level data – it only “owns” information on total spend.

Nectar has 17 partners in the UK, which should provide it with a wide range of incentives it can offer cardholders. Unfortunately, the question has to be whether even the best offers can overcome the lack of basic information about exactly what customers are spending their money on.

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