Misplacing loyalty

Loyalty schemes are often used as a quick fix by marketers to lure customers to their brand and keep them coming back. But they will not work unless they benefit both parties. By David Benady

Turning an occasional shopper into a regular customer is one of the toughest battles in consumer marketing. Outside an elite of favoured brands, fierce competition makes it a struggle to keep customers coming back for more.

Schemes such as Tesco Clubcard, Boots Advantage Card and Air Miles have showered points-based loyalty schemes on shoppers. According to their supporters, these schemes reward regular customers and encourage a long-lasting and harmonious marriage between consumers and brand owners.

Others dismiss loyalty schemes as a costly and irrelevant marketing gimmick, arguing that they draw brand owners into creating an expensive and cumbersome infrastructure which is alien to their core business. Supermarket chain Asda rejects the use of loyalty point schemes in favour of ploughing the considerable investments involved into price cuts.

Critics see the term “loyalty” as a piece of silvery-tongued marketing-speak that distracts from the important issues of creating a product or service that meets people’s needs. Matthew Heath, a director at relationship marketing agency LIDA, says that Marmite, Guinness and Mini – a LIDA client – as well as other top brands, have regular customers who love the products, but he is sceptical of calling this loyalty: “It is such an abused term. We’ve imported it from real life where there is no more noble ambition than to be loyal to a friend. Some people really like certain brands, but I would hesitate to call it loyalty. A lot of brands have repeat purchasers. But in the case of Tesco, for example, how far would they drive past a Sainsbury’s to get there?”Proponents of loyalty cards accept that there are examples of schemes which fail both customers and the brands that create them. Drew Thomson, chairman of Iris and former chief executive of Air Miles, says: “I’m a believer in loyalty schemes but only when they are used properly and appropriately and are not short-term tactical marketing. Some people talk about loyalty when actually they mean sales promotion.”

He draws a distinction between stand-alone loyalty schemes such as Clubcard and Boots Advantage Card and what he calls “co-aligned loyalty programmes” such as Nectar and Air Miles which bring together groups of brands. He believes this latter group are more about adding stimulation and fun to the shopping experience. Stand-alone loyalty schemes build long-term relationships with customers and use data to create insights into customers’ preferences and behaviour.

Thomson cites Barclaycard as an example of a brand that has failed to establish a consistent loyalty platform. It operated its own scheme, but dropped this in favour of the Nectar scheme, which it then exited after two years. Vodafone was also a short-term member of the Nectar scheme, dropping out after a two-year involvement. Thomson says: “Where people are embarking on loyalty schemes now, my advice is if it is going well, keep investing and keep it fresh. The problem is too many schemes don’t change along with their customers, they jump in and out.”

More than just cards

However, with so many loyalty schemes about, consumers’ wallets are bulging with cards. But there is more to loyalty than a piece of smart plastic, according to Matt Atkinson, chief executive of EHS Brann, which works on Tesco Clubcard. He says: “Often when we use the term loyalty programme, it conjures up – often wrongly – a plastic card that allows you to collect and redeem points. This is the last thing you should think about when considering how to persuade customers to stay loyal to your brand.”

Brands should reward behaviour that is important to meeting their business targets, he says, whether it is trying out a new product or getting back lapsed users. Companies need to be aware that consumers are portfolio shoppers and buy a range of products. They need to be able to choose their own level of engagement. Tesco Clubcard, he says, is as much about Tesco showing loyalty to its customers as shoppers being loyal to the supermarket chain.

The loyalty industry argues that Tesco’s massive leap in market share over the past ten years has been driven in part by the attractions of the Clubcard scheme. The programme adds value to Tesco, they claim, by targeting offers at a personal level to shoppers. Against this, it can be argued that the value of Clubcard points could be put directly into price cuts. After all, you don’t need a complex system of swipe cards and a massive data centre to find the information. It is all there on the receipts rolling out of the tills.

Ah, say the proponents, if you introduce a general in-store price cut on a product, occasional shoppers will reap the same benefits as regular customers. Through Clubcard, a loyal shopper can be specifically rewarded without giving value away to those who are only attracted by price cuts. However, it could be argued that this puts Tesco at a disadvantage since the absence of deep price cuts open to all means it will be less likely to attract new shoppers.

But Martin Hayward, strategy director of Tesco subsidiary DunnHumby, which runs the Clubcard data operation, says: “The big difference between those schemes that work and those that don’t is the philosophy behind embarking on the journey. If the organisation has a real commitment to becoming truly customer-centric and building their business around the needs of the consumer, you’ve got a chance of making it work. If the impetus is to lock in customers for the short term you are doomed to failure.”

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