Loyalty – what’s the point?

Stuart Evans, UK general manager of loyalty specialist ICLP, discusses the benefits of points versus vouchers to develop long-term loyalty not just boost sales.

Many retailers are scrambling to implement data capture programmes ahead of the seasonal peak period having understood the value of a direct to customer communication channel rather than rely on in-store and advertising promotions.

The move to pre-Christmas tactical discounting and even sales has been necessary to try and capture greater share of the festive spend, however this can be a direct cost of diluting walk-in revenue i.e. discounting to customers who would have paid full price.

Customer database building and subsequent tactical and discrete targeted promotions using vouchers and specific discounts is a better way of protecting margins. In some cases a full blown loyalty programme with points and regular discount offers is worth the effort to achieve an ongoing dialogue with, and therefore opportunity to promote to, different customer segments.

The simple equation is that to incentivise one off customer transactions, in-store or from press advertising to drive short term footfall, a strong and easy to use voucher is the preferred mechanic, albeit a crude and blunt tool.

House of Fraser have just run a £5 voucher in the Metro for any beauty spend over £50. However for any retailer with a reasonable chance of repeat visits from the same customer a points programme offers the opportunity to be more refined using data and customer insight, reward ’loyal’ behaviour and incentivise key purchases, typically for things that complement what you already buy to extend your basket value.

The challenge to points based programmes though is cost of points. A new accounting rule ’IFRIC 13’ now means the business case for in-house new loyalty programmes will have a very heavy cost of ’deferred revenue’ in the first stages of customer engagement, directing hitting the operating P&L, unless creative accounting solutions can be found to avoid this impact.

So this leads us back to vouchers which have other advantages. As well as being a specific, if not targeted, customer reward or incentive they have the distinct advantage of being directly time limited.

Unlike loyalty points customers expect vouchers to have an expiry date and therefore need to be used in a specific time window.

Matching the time specific voucher mechanic to the retail annual cycle throws up some clear opportunities. Like House of Fraser other retailers are trying to capture a bigger chunk of the festive spend, whether through wine or more recently video game discounting in the supermarkets. For example offers to credit card bases like Selfridges and offers to American Express card holders – spend anything in store to receive a ten pound voucher.

Then there is the January sale period – whether this is the time to promote further voucher based discounting to drive footfall or will sufficient stock be cleared anyway is a decision that can be left until the end of December or later if necessary.

The ideal time for fashion retail to incentivise customers is right after the sales period i.e. when the new season’s collection is in store and there is the rush to be the ’first to own’ the latest designs, some customers do a ’wardrobe’ shop and most importantly all the new lines are at full value prices.

In summary with up to 75% of retail footfall in some cases happening in November and December, the current market economics and customers increased willingness to use vouchers and points to achieve savings means most retailers need a clear customer relationship strategy. Short term tactical activity like vouchers to drive immediate business goals can be the start of this customer journey, but if they do not capture a contact point, ideally an email address then the voucher might as well be a printed on a £5 note if not feeding the longer term relationship strategy.