The new guard of loyalty schemes

With consumers in the driving seat and brands competing for their attention, three innovations in loyalty scheme programmes are helping some stand out from the crowd.

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An innovative set of business models are changing the way loyalty schemes operate. While traditional models ask consumers to collect points or sign up for information on new products, the new guard hopes to steal a march on the established schemes.

Data-matching schemes, subscription-fee clubs and social network loyalty schemes are all hoping to transform the customer experience with their business models. Each model deviates from mainstream loyalty schemes.

Dr Nicola Millard, customer experience futurologist at BT, argues that there has long been the need for a revolution in the loyalty area. “Companies running loyalty programmes need to pay attention to what customers want from a ’loyalty relationship’,” she says. “Customers are in the driving seat and it is companies that are desperate for loyalty at the moment, rather than the other way around.”

These new schemes may be different in nature but they share a common goal in using big data from multiple sources, including social media networks, to unearth what will make customers’ relationships with companies better, says Millard.

The need for new loyalty scheme formats appears to be clear to consumers. Loyalty initiatives are less relevant to the needs of consumers in 2011 than they were two years previously and brands need to focus on this, according to the 2011 Colloquy Cross-Cultural Loyalty Study.

The study shows a mere 31% of consumers feel like the loyalty programme communications they receive are relevant and tailored to their needs. This is where new business models have the potential to use data more effectively than their peers. Mark Roy, chair of The Direct Marketing Association Data Council, says: “Why customers become loyal is because brands deliver the things they want. The key point is using data in a way to further loyalty.”

1. Business Model One

Data-matching schemes

Utility provider Npower has launched its In Good Company loyalty initiative, which brings corporate and residential customers together. It claims the programme marks the first time a UK company has brought together its corporate and domestic customers to “build a community” with a range of offers.

While the initiative is still at the development stage, Npower has announced that a number of brands, including Caffè Nero, The National Trust and Cineworld, are potentially available to collaborate in it.

Since Npower is a utility provider, the quality and quantity of data it holds on its customers is very high, which is attractive to third-party partners. Scott Evenden, general manager of doing business at Comet one of Npower’s corporate customers but not yet a partner brand for In Good Company believes the scheme is truly something new.

“By becoming part of the In Good Company initiative, companies are able to offer consumers excellent deals, added value for money and promotions, that are specifically applicable to them. Npower then creates a unique selling point against its competitors by teaming up with other brands to offer customer rewards,” he says.

“The benefits of working with a large utility provider, such as Npower, is that a promotion can be created that truly benefits all parties, from businesses through to individual consumers.”

Aside from giving consumers the opportunity to reap the rewards of discounted leisure activities, Npower’s strategy could be seen as a boon for all brands involved as the halo effect of being a well-known and trusted brand rubs off from one corporate partner to another.

“In principle, the idea of a service provider using its corporate customers to offer deals to its consumer customer base sounds collaborative and promising,” says former marketer at financial services brand AXA Amanda Phillips. “But we must watch out for the end customer feeling compromised, because they do not perceive there to be a logical link between a service provider and the partner brand, there is no real value in the third-party offer or that they get bombarded with offers.”

To really engender loyalty, a brand must find a deeper connection with their customer base and not rely on offers. Mark Roy, chair of The DMA Data Council warns/ “We are in a world that is incredibly data centric and increasingly consumer centric. We are trying to give customers confidence in the relationship we have with them or the prospective relationship we are likely to have.”

The data-matching scheme is likely to find success if it can truly deliver relevant promotions to its customers. There is a danger, however, that if this model becomes standard, with other utility providers signing up corporate partners, customers may feel they are being offered promotions purely because a brand is partnered with the scheme, rather than on a personalised basis.

“The whole shift within loyalty has changed,” says the DMA’s Roy. “It is no longer glorified sales promotion and based around discounts and gifts. Real loyalty gets around a potential conflict between an incentive and the real values of a brand.”

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2. Business Model Two

Subscription-fee schemes

Fee-based loyalty programmes are still relatively rare in the UK and US. But recent launches are hoping to be pioneers in using data to encourage customers to pay a subscription to take part in a loyalty scheme.

Premium grocery retail and delivery brand Ocado is using this strategy to fend off competition in the crowded supermarket sector. While it does not need a loyalty programme to attain information on what its customers buy, because it collects data from their transactions, it uses a fee-based loyalty scheme to differentiate itself from rivals. Since Waitrose can now deliver within the M25, following the end of a commercial agreement with Ocado this year, it needs to set itself apart from its former partner.

Last month, Ocado launched an initiative offering customers discounts on more than 500 products in exchange for an annual subscription fee. This loyalty programme, called the Ocado Saving Pass, on a subscription model, is seen as a way of gaining greater engagement with those people who are most likely to be high-profit customers.

Ocado co-founder Jason Gissing says: “We are pleased to be helping our customers secure even better value when shopping at Ocado in a time of growing economic uncertainty.”

The Saving Pass discount is an addition to Ocado’s earlier subscription fee offer that allows customers unlimited free deliveries. Shoppers can choose an annual fee from £1.99 to £5.99 to get a discount on a particular group of products, such as household cleaning, or pay a higher one-off annual fee to get the discount across all categories.

Gissing says that using the paid-for loyalty scheme model will result in savings over the year for Ocado customers. He hopes to see a further boost in revenues at the retailer, where total sales were up 16.9% to £147.9m for the three months to August 2011, up from £126.5m in the previous year.

At The Telegraph, marketing director Graham Horner says he takes every opportunity to understand the brand’s customers. A fee-based loyalty scheme runs off the company’s single customer view database, which integrates data from all the media business’ touchpoints reader subscriptions, data services, fantasy games and offers.

“Our subscriber loyalty programme has enabled us to enrich our data asset further and by asking subscribers to register to access the loyalty offers website, we have been able to identify those customers with a ’digital propensity’,” says Horner. “In turn, we have been able to target self-management processes, such as online subscription renewals, to these individuals thereby increasing uptake and saving us considerable cost at the call centre.”

The dress hire brand Girl Meets Dress also charges a monthly fee for customers to access its loyalty scheme. The company offers women designer dresses at lower prices than they would normally cost to buy. They can choose from more than 2,000 outfits from 150 designer labels.

The subscription model means Girl Meets Dress, part of the Anything for Hire network, gets guaranteed sales and advanced payment for future services. “The model is great at building loyalty and reduces the client-acquisition cost,” says Anything For Hire brand portfolio sales director Sarah Kataria. “The data acquired is useful in customer profiling and targeting. It gives a clear indication of what works so a maximum return on investment can be achieved.”

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3. Business Model Three

Social network loyalty schemes

The starting point of a data-centric approach to loyalty is using the insights from a loyalty programme to deliver more relevant communications with customers. With more than 800 million users and more than 50% of these logging on at least once each day, many marketers now see Facebook and other networks as the future of loyalty clubs.

Food brand Heinz has recently launched an innovative use of social couponing to drive awareness and trial of its Tomato Ketchup Fiery Chilli product. In this campaign, the brand offers a 25p coupon to fans, which becomes 50p when forwarded to friends.

People must ’Like’ the Heinz Facebook page before they can click through to the coupons, which are available for the chilli and fiery chilli flavours. This rewards existing fans and engenders new ones.

Heinz Tomato Ketchup marketing manager Ian McCarthy says: “Social media provides a platform for our brand fans to engage with the brand and with each other, and gives us a valuable source of insight. Facebook allows Heinz to capitalise on the wealth of information it has about its fans, and use it for future product development or communication ideas.”

Another company using Facebook, along with location network Foursquare, to invoke loyalty through social media is American Express. It has created a scheme called Link, Like, Love, which links users’ AmEx cards to their Facebook accounts. When customers visit the loyalty club’s page on Facebook, they can then choose deals and these will be automatically loaded onto their credit card, with no coupons or printouts necessary. More than 100 merchants have joined up for the scheme, including Virgin America and Dunkin’ Donuts.

American Express is also helping retailers create their own social loyalty schemes. Using a system called Go Social, they can set up deals on networks from Facebook to Foursquare, which link back to American Express.

The company is also serving its business-to-business customers with a loyalty scheme allowing small businesses to pay for their Facebook ads with its Membership Rewards points. This initiative claims to be the first time any company has connected a rewards programme to advertising spend in this way, the brand claims. American Express’ vice chairman Ed Gilligan said at the time that this was the right technique to “leverage the marketing power of the world’s largest social media platform in a smart and effective way”.

Entertainment brand Microsoft Xbox has launched an online social loyalty scheme (rewards.xbox.com) where players get points for a number of interactions with the brand and can redeem them for other Microsoft content. After signing up, the brand rewards people for interactions like renewing their Gold membership, subscribing to and using Netflix, or giving the brand social feedback on its Xbox Live network.

Data is a central part of this story and is the driving force behind the programme’s success. “As the programme develops, you will see the reward mechanics become more relevant,” says Xbox EMEA head of member engagement Mark Dawson. “With brands that offer digital services, there is always going to be a wealth of data available and some brands have rushed into this ’loyalty/rewards’ space only to find themselves backpeddling or not actually delivering on their rewards mantra.”

He claims that the social loyalty scheme works for Xbox because the company backs everything up with a large amount of customer data so it can offer personalised services appropriate to its audience.

He says: “We feel we have the right internal backing, the appropriate focus and the robust IT systems to deliver a customer-centric programme that benefits both our customers and our commercial objectives.”

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