Building loyalty schemes with lasting power

New research suggests that most consumers are aware of retailers’ loyalty schemes, but feel largely unimpressed by their rewards. Joe Fernandez finds out how companies can motivate their customers to buy their brands in the long term

Loyalty should be at the heart of marketing strategy, but research suggests it is in fact a forgotten art.

Almost half of the UK population take no part in a loyalty scheme, despite registering for them, according to research by loyalty programmes specialist The Logic Group and global research company Ipsos MORI.

Logic Group chief executive Antony Jones says: “The problem is that brands add consumers’ names to their lists, but then appear to forget them. There isn’t enough engagement, which leaves people with a card they don’t use.”

A survey of 2,000 adults found that most people (51%) who have joined loyalty schemes in the retail sector feel only “fairly satisfied” with the benefits on offer, while just 24% in retail, and 13% in financial services, feel “very satisfied”.

Ipsos MORI managing director of loyalty Simon Atkinson says that, due to the recession, the focus has shifted from acquiring as many customers as possible to keeping customers spending and loyal.

“In a business environment where the focus has shifted to the retention of customers, it is striking that so many of us don’t feel part of loyalty schemes. And those of us that are members of loyalty schemes don’t necessarily value them. Current programmes need to be reviewed if businesses want to create true loyalty,” he says.

Supermarkets, banks and building societies act as a reference point for attitudes to loyalty, with 72% of us feeling loyal to at least one company or organisation operating in these sectors, according to the research.

With consumers voting on their feet as they go about their daily lives, companies shouldn’t just think about how to acquire new customers, but should actually think about how to embed loyalty into their brands once again, the report argues.

Logic Group’s Jones adds that this doesn’t mean just discounting and points collection, but also consistently good customer service. He says: “It sounds basic, but good customer service is essential for a brand to gain any loyalty.

“Good customer service came out top in our research for the factors that encourage spending, with 34% of loyalty members saying it would motivate them to spend more, while poor customer service was the top reason that brands lose loyalty (44%). Rewards and savings are all well and good, but it is the first lesson you learn in business, that the customer is always right, that’s most important and, now more than ever, brands have to remember that.”

The sector performing the best in the loyalty scheme market is the shopping and retail marketplace. Schemes such as Nectar, Boots Advantage and Tesco Clubcard are boosting their profiles using new marketing campaigns, and have led the way in showing how customer data can be used to boost customer morale.

However, other retailers have relied too much on the store-card idea and have failed to promote it in any way after the customer has signed up.
Atkinson explains: “A major disadvantage to the loyalty marketplace has been the “forgotten customer” trend – brands that sign up customers to join their retail database, and don’t make an effort to talk to them afterwards.

“This is such a waste, particularly for young people aged 15 to 24, who simply don’t know the benefits of loyalty, and sign up to something purely for an offer or discount. There has to be a much better push for these schemes to get customers involved and properly loyal – not just spontaneously loyal.”

Meanwhile, the high street is facing mounting competition from online retailers, which place a heavy emphasis on repeat purchases and completing abandoned transactions.

The likes of CD Wow! and have recently launched loyalty schemes, and Amazon and Asos both use email marketing to boost completed transactions, with affiliate marketing also playing a key role in increasing these figures. Online shopping spend is estimated to grow by 13.3% in 2009 to £20.9bn, despite overall retail growth declining by 0.6%, according to a report by Verdict Research.

Jones says: “Online retailers are placing more onus on loyalty than their bricks-and-mortar competitors at the moment, so marketers should think carefully how they go about drawing customers into their stores and spending more. They have to implement a scheme which is as easy and simple as online registration – online lacks that human touch, marketers can re-introduce that by thinking fast.”

Better scrutiny of customer satisfaction and loyalty offers is core to achieving this human touch, says Atkinson. According to the research, good customer service and relevant rewards that provide money off are most likely to get loyalty scheme members spending more. Concepts likely to put people off include unachievable rewards (28%), unrealistic points expiry deadlines (20%) or too much communication (18%).

Ipsos MORI found that of the 100 “captains of industry” it surveyed last year, 57% of business leaders stated they intend to focus on nurturing and keeping existing customers rather than attracting new ones (23%) during 2009.

Jones says: “As the recession bites, it’s clear that businesses have a very clear brief: focus on improving the customer experience and building loyalty through schemes that deliver rewards that are actually valued by customers.”

Focusing on the consumer remains a difficult task for marketers, however. Pressure to keep the company from recording losses means that brands may spend less time and resources setting up and maintaining loyalty cards, and instead focus on price promotions and discounting.

Jones argues that today’s consumer is “more likely to have loyalty values and be driven by an increased sense of autonomy, heightened feelings of distrust, cynicism and impatience, a spirit of experimentation and an onus of being savvy”.

This is especially the case when you break down social habits by age ranges, with customers aged under 55 more likely to embrace loyalty across the places they pay to visit.

Atkinson concludes: “Be it a loyalty card or a CRM system, customers are happy to join because they think it’s a good scheme to be in. There needs to be better understanding of what should be achieved in the end – be it rewards, offers, advice or good old communication. This can’t be forgotten about once data is in, there has to be something to gain to keep that loyalty momentum going.”

The Frontline

Jan-Pieter Lips
Managing director at Nectar

Loyalty is not necessary for every business, but it is the best value-led tool to reward and understand customers.

The key to making it work is to ensure you’re correctly using the wealth of customer information collected and offering customers benefits based on what they like and where they are already embedded in loyalty collections.

Loyalty marketers have to test their schemes a lot and segmentation is very crucial to its success. It won’t work unless you actively build knowledge on your customer base and then add layers of information to this by getting to know your customers better. At its core, loyalty is intelligence driven, and relies on high-quality re-targeting to ensure it continues to be worth the investment.

Paul Barber
Executive director at Tottenham Hotspur FC

The current economic climate has made customer loyalty strategies even more important in the areas of ticketing, hospitality and retail as a means of encouraging repeat purchases and also as an added incentive where a purchase decision may be more discretionary in a tougher budgetary period.

The next challenge for football clubs is to enhance their understanding of their customers by capturing, sorting, analysing and using customer information more productively and profitably when launching new products and services or creating new marketing campaigns.

Graham Horner
Head of loyalty at Coca-Cola Great Britain

When times are tough, businesses focus on their existing customers. And those that have a loyalty programme have levers they can pull to maintain brand engagement and drive sales. Through the data they collect, firms have insight to make the right strategic choices.

Customers are savvy. They know that participating in a loyalty programme is an exchange: they surrender their data, they get rewards. The success of Coke Zone, Coca-Cola’s rewards programme, demonstrates that this is an exchange they are more than willing to make.

Iain Pringle
Head of loyalty and customer insight at The Mileage Company

The key to incentivising customers from a loyalty perspective is offering a strong proposition for “spenders” and “savers”. The mistake many schemes make is that they simply offer a differed discount to customers. While these propositions are attractive to “spenders” they often ignore the long-term loyalty benefit of tying in the 50% of customers who say that they would prefer to save for long-term higher value rewards such as Airmiles.

At a customer level, where customers interact with a brand, especially via a loyalty scheme, they often demand that this interaction is acted upon. Not using data to maximise returns from marketing spend or better understand the risks associated with business decisions is far more dangerous than the perceived threat of data misuse.

Things marketers should ponder when considering loyalty

  • When operating a loyalty scheme, think about getting the basics right. Customers need to be very clear that the rewards need to be relevant to them and in a format they can access.
  • Consider the best tools and metrics for measuring customer satisfaction and loyalty: do they have a proven track record in helping you to manage performance or impact on the bottom line?
  • Do these tools and metrics need a rethink in the current climate? Think about how the expectations of customers are changing. Perhaps behaviours are broadly stable or maybe new patterns are emerging. Established models and segmentations may need a rethink.
  • Businesses need to consider if they have a good understanding of what their most profitable or valuable customers are thinking.

The proportion of UK consumers who feel loyal to at least one supermarket, building society or bank

The proportion of people who felt “very satisfied” with their loyalty scheme

The share of loyalty members who said “good customer service” would encourage them to spend more

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