Can loyalty scheme innovations earn back lost customers?

Can innovations in loyalty re-engage a public whose buying decisions, thanks to the recession, have become much more pragmatic?

In the wake of Tesco’s disappointing financial results last month, chief executive Philip Clarke noted that the supermarket giant needs to use its Clubcard loyalty scheme to help differentiate itself from low-cost rivals. He suggested that Tesco cannot compete with Aldi and Lidl on price alone and that it must also reinvigorate existing marketing platforms like Clubcard if it is to reverse its slide.

Tesco enhanced the Clubcard proposition earlier this year, launching a new Fuel Save scheme that gives customers discounts on fuel when they collect Clubcard points. There are bigger plans in the pipeline too, with Tesco planning on launching a new ‘digital Clubcard’ for smartphones; indeed its own branded smartphone is pre-installed with Tesco services. It is thought this upgraded version will enable customers to tailor their rewards around their own shopping needs.

Although Tesco is planning a major investment in Clubcard, there are signs that consumer loyalty towards supermarkets is in decline. A survey by Cint, a provider of DIY market research tools, shows that almost half of UK consumers (48 per cent) feel neither loyal nor disloyal towards the supermarket they use the most (see below).

The research finds that only 16 per cent of people regard loyalty programmes as the main reason for choosing a particular supermarket, compared to price (63 per cent) and location (54 per cent). Indeed, with supermarkets at war over price, shoppers may become even less loyal (see ‘How to stop your brand becoming a commodity’).

Tesco fuelsave
Tesco’s Fuel Save scheme gives customers discounts on fuel when they collect Clubcard points

Jan-Pieter Lips, EMEA president of Aimia, the company behind the Nectar loyalty programme, agrees that consumers’ shopping habits have changed dramatically as a result of the recession, and that price has become an increasingly important factor. He argues, however, that this trend has also led to an increased use of loyalty schemes as savvy shoppers seek out the best deals.

“We’ve seen that happen at Nectar, where there has been a 40 per cent increase in points issuance over the past three years,” says Lips. “Our own research shows that nearly half of consumers believe the recession has fundamentally changed how they shop and made them more savvy even as the economy picks up.”

In addition to providing the loyalty scheme for retailers such as Sainsbury’s and Homebase, Nectar has partnered with a range of companies to offer rewards that go beyond simply providing discounts on people’s shopping. This includes partnerships with the likes of easyJet, Vue Cinemas and the Tragus restaurant group. Such deals allow Nectar card users to redeem points when buying products and services such as flights, cinema tickets and meals.

Last year, Nectar repositioned its own marketing messages in order to put greater focus on how loyalty points can be used to redeem rewards. The move was an acknowledgement that some consumers let their points build up without redeeming them. Nectar aims to increase shopper engagement with its scheme and its partners by putting greater emphasis on redemption.

Nectar first great western
To encourage engagement, Nectar has linked with rail operator First Great Western so that travellers can collect points with journeys

It continued this approach last month by agreeing its first partnership with a UK rail operator. The deal with FirstGroup means that passengers on the First Great Western line can collect Nectar points when they buy train tickets online. Regular rail commuters have a particular incentive to engage with the scheme, with 2,500 Nectar points awarded for annual season tickets, 200 for monthly passes and 50 for weekly tickets.

Nectar is not alone in putting a fresh twist on a traditional loyalty mechanic. Vehicle services company RAC launched a prepaid debit card last month that gives members cashback on purchases with the RAC and its partners. Anyone buying a new 12-month UK breakdown policy or car, home or motorbike insurance receives the RAC Member Benefits card preloaded with £20, £50 or £100 depending on the number of products purchased.

RAC
RAC’s new Member Benefits card gives members cashback on purchases with the company and its partners, including Asda and House of Fraser

RAC says its scheme is unique because it has adapted a model used for employee benefit cards to the consumer market. The card, provided by employee and customer engagement agency Grass Roots, also allows members to earn up to 15 per cent cashback on purchases from more than 60 partners including Asda and House of Fraser.

RAC head of membership Alex Heath says: “We wanted a transparent loyalty scheme that wasn’t based on a confusing points-based system, which would be valued by members. The RAC Member Benefits card couldn’t be simpler: the more products a member buys, the more cash they earn.”

A new approach to the loyalty scheme has also emerged at the John Lewis Partnership. The myJohnLewis scheme, unveiled last year, aims to differentiate itself from points-based schemes by providing customers with exclusive rewards tailored to their interests. The scheme began with a trial among customers in its children’s nursery section that offered targeted benefits and recommendations to mothers, and has been extended across the business.

Sister company Waitrose has also eschewed traditional points-based schemes by offering instant rewards. MyWaitrose entitles cardholders to one free tea or coffee every day in store, as well as money off their shopping when they buy selected newspapers and spend £10 in store – up from £5 when the scheme launched.

Speaking to Marketing Week earlier this year, Waitrose managing director Mark Price suggested that traditional schemes such as Tesco Clubcard are “meaningless” because consumers derive little value from collecting points over a period of time. Waitrose serves around 1 million free drinks a week through the scheme, which has nearly 4 million members. Price believes this level of engagement is vindication for the retailer’s alternative approach.

However, Lips at Aimia says that loyalty schemes must strike a balance between points collection and the instant gratification of rewards and redemption. Last year, Nectar launched a three-week ‘summer of rewards’ initiative where members could double the value of their vouchers when redeemed with selected partners.

“That kind of activity means that people will engage with a promotion in the short term, rather than saving up their points for a flight or Christmas shop,” notes Lips. “Even within a long-term customer engagement strategy it’s possible to create short-term excitement.”

Subway
Subway, one of the first to introduce a mobile loyalty programme, is updating its app this month

Innovation in loyalty tends to result in higher spending customers. Sandwich chain Subway was one of the first brands to introduce a mobile version of its loyalty programme when it launched the Subcard app in 2009. This month, the company is upgrading the app with new services and functions after enjoying rapid growth and high levels of engagement on the platform.

EIPC, a Subway franchisee-owned company that manages Subcard, reports that customers who access the app spend 22p more per visit than plastic card users and visit outlets 3.5 times more frequently. The app allows users to scan their phones at the till to collect points and they can give feedback on their in-store experience online.

Subway is adding features this month such as a nutritional calculator that enables customers to see the nutritional information of their favourite sandwich or they can enter their own nutritional requirements to receive recommendations. The app will also use geo-targeting to send push notifications to people in the vicinity of its outlets.

There have been more than 600,000 downloads of the app so far. EIPC says mobile represents about a quarter of the total loyalty scheme’s users and the percentage is growing: a third of new accounts are created in the app. EIPC commercial director Ben Fricke believes the app will continue to grow and says he is surprised that many brands still do not have a mobile version of their loyalty scheme.

“There are many things you can do with an app that you can’t with a plastic card, such as showing the points balance in an easy way or having extra functionality like a store finder,” he says.

“It staggers me that five years on from having launched our app there are still many loyalty schemes that haven’t got into this space.”

Big three challenge 

1. Engaging customers

While it is relatively easy for brands to encourage consumers to sign up for their loyalty schemes, the bigger challenge is ensuring they continue to engage with them. Offering loyalty points is of little use to brands if consumers fail to redeem their rewards or if shoppers do not regard the loyalty scheme as a compelling reason to make repeat purchases. Using customer data to offer targeted and personalised rewards is an effective way of boosting engagement.

2. Being original

The recession brought a wave of new loyalty schemes and promotions into the marketplace since brands felt compelled to offer consumers new ways to make their money go further. As the economy improves, brands must ensure that their loyalty offer is different from competitors and enticing to consumers who have grown weary of aggressive promotional messaging. Using different channels like mobile to enhance a loyalty scheme is one way to innovate and stand out from the crowd.

3. Achieving a strong return

Some brands invest huge sums in their loyalty programmes as they seek to acquire and retain customers. Loyalty marketers must have a strong grasp of how this investment affects sales and influences customer behaviour in the long term. Brands also need to show flexibility in how they use this investment to adapt their loyalty schemes around different promotions throughout the year.

Supermarkets and loyalty: the stats

13% – the proportion of consumers who feel very loyal towards their supermarket

48% –  feel neither loyal nor disloyal

4 – loyalty schemes are ranked as fourth most important when choosing a supermarket, after price, location and quality

30% – the proportion of shoppers who will definitely use the same supermarket this year

57% – the proportion of shoppers who will probably use the same supermaket this year

Source: Cint

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