I’m regaining my faith in loyalty programmes

I have a bit of an embarrassing admission to make. I’ve never liked loyalty programmes. Not as a consumer. And not really as a planner either.

The truth is I find loyalty programmes tend to attract bores. By which I mean the kind of person who corners you at a party and delights in explaining in great detail how they got £750 off a new Vauxhall Astra by collecting tokens printed on the side of gravy browning packets.

My first planning director was a wonderful ad man of the old school who clearly shared my unreasoned prejudice. For him, loyalty was the result of brand affinity, pure and simple. Armies, countries and football teams don’t have loyalty schemes. Successful brands shouldn’t need them either.

Luckily for my career, I have never quite succumbed to this extreme position. I have always been surrounded by sensible people who argue a convincing case for well-constructed loyalty programmes.

They marshal a lot of compelling facts to support their argument. The incremental revenue and profits which loyalty programmes can deliver are clear to see from control studies. Furthermore, the actionable behavioural insights gleaned from 100% transactional visibility can be revelatory.

However, my instinctive prejudice remains. And it is bolstered by some very rational concerns. Loyalty programmes require a huge investment, both initial and ongoing. There is also a risk that you create loyalty not to the brand, but to the scheme itself.

Others clearly share these concerns. To the extent that the loyalty landscape appears to be changing of late. So much so that my natural prejudice against loyalty programmes is beginning to soften.

The change is a little like the transformation in strategic bombing brought about by stealthy aircraft and smart munitions. Years ago, vast fleets of bombers were required to destroy one target using “dumb” bombs. Now that target can be destroyed using just one smart bomb dropped by just one stealthy plane.

The large investment required is just one aspect of the “dumbness” of traditional large-scale loyalty programmes. Another is the points collection mechanic, which has a propensity to attract gift-chasing Astra-man rather than building and rewarding true brand affinity.

Other criticisms can be levelled at “dumb” loyalty schemes. They run the risk of being perceived as discrete bolt-ons rather than as integral parts of the total brand experience (I hasten to add that Tesco Clubcard is an honourable exception to this). Furthermore, they limit their ambition to a one-dimensional dialogue (often just monologue) between the brand and the customer. This appears almost quaintly old-fashioned in an age of peer-to-peer conversations and the social web.

Although the horizon is hazy, it’s just about possible to discern the outlines of the emergent “smart” loyalty phenomenon. What, then, might be the key characteristics of such a new model loyalty programme?

Traditionally, participation in a loyalty programme has been extended to the whole of a brand’s customer base. This allows the brand to influence the transactions of every customer segment. It also generates reams of behavioural insight. However, this global coverage is the principal driver of high costs in traditional loyalty programmes. By contrast “smart” loyalty initiatives – like “smart” munitions – target only those customers whose behaviour a brand really needs to influence.

Tight focus on a defined customer segment is therefore the first characteristic of “smart” loyalty programmes. A good example of this is the M&S Premium Club. In this case the audience is discrete and largely self-selecting: shopping enthusiasts. What’s more, customers actually pay a monthly fee to belong, which probably means the programme is effectively self-funding.

The second characteristic of “smart” loyalty programmes is that they eschew narrow reliance on “earn and burn” points schemes. Instead, they offer genuine preference drivers based on an insight into what customers really want from the category. For example, in female fashion (so I’m told) being on the inside of the latest trends is a matter of life and death for high value shoppers. So exclusive access to the latest collections is just one of the benefits offered by US department store Nordstrom’s Fashion Circle programme.

Back in a category where I feel much more comfortable (those heels are murder) the Starbucks loyalty card offers its users free Wi-Fi access together with extras like additional shots and toppings free with every transaction. While I have to say I prefer the coffee at Costa, the free Wi-Fi means that Starbucks gets my custom every time I need to rent desk space for ten minutes.

A few of the best traditional loyalty programmes occasionally manage to pass the Turing test. By which I mean that maybe once or twice a year, they succeed in creating the illusion that there is a controlling intelligence at work somewhere in the soul of the machine. An intelligence which observes your behaviour and reacts with triggered actions which are relevant and therefore genuinely welcome. (Of course, this may be blind luck. But let’s be generous. It’s nearly Christmas.)

A third characteristic of “smart” loyalty schemes is that they go beyond the usual one-dimensional dialogue. They effectively “triangulate” the customer relationship by facilitating conversations between their customers, and even between customers and prospects. A good example of this is Mothercare’s Gurgle.com, which is a little like Netmums but without the annoying biscuit references.

The fourth and final characteristic of “smart” loyalty programmes may be the most radical of all. What if your brand’s new loyalty programme wasn’t a programme at all, but rather a collection of diverse loyalty-inspiring brand behaviours linked together and driven by data? For someone who has the same feelings toward loyalty programmes that Groucho Marx had toward clubs, I say this can’t come a day too soon.

Richard Madden is planning director at Kitcatt Nohr Alexander Shaw