Why offering rewards outside your core product offering could increase loyalty

As brands continually look to differentiate from competitors, those that incentivise customers with rewards outside of their core product offering could do better to build loyalty in the long-term.

Nectar rewards
Nectar uses data to help identify the right mix of partners in a loyalty programme

“No matter how compelling your brand, there is more to customers’ lives than just you,” warns Will Shuckburgh, UK managing director at loyalty brand Nectar. This realisation underlines why brands are increasingly structuring their customer incentives around rewards that go beyond their core product inventory.

And they are wise to do so considering 69% of loyalty programme members in the UK agree that the value of an initiative drops if they are presented with a limited number of rewards.

The research by loyalty firm Collinson Latitude, which looks specifically at airline and hotel loyalty sectors, also finds that half of all users actively look for programmes with more choice, while 37% of respondents say schemes that only offer rewards limited to a brand’s core product inventory – in this case flights, rooms or upgrades – are “dated and old-fashioned”.

Customers that receive a choice of rewards outside of a brand’s core inventory are also more engaged in the long term, the research finds, as 77% of respondents globally continue to spend with the brand and earn further points following a redemption on non-core inventory. This is 6% higher than those who redeem on flights and hotels only.

Brands need a better reward selection

The need to offer a broad choice of rewards is a view supported by Avios Group, which operates the Avios currency for British Airways Executive Club. Hannah Fletcher, head of customer marketing, says: “It is becoming increasingly important for brands to offer flexible collection and redemption options across a range of partners as they compete for visibility in the loyalty market.”

Nearly eight million people collect Avios points across 220 countries when booking travel and making everyday purchases through partner brands in the grocery and utility sectors. Last year, Avios points were used to book 606,000 flights every month. “Not only do our partners see an increase in their customers’ spend, they see an increase in customers themselves, who in turn are inspired by our wide breadth of partners,” she says. “Crucially, the reward programme must be meaningful, offering valuable and relevant rewards to customers.”

READ MORE: How to innovate with incentives

This is also true of partnerships between smaller brands. In March, London-based brands Pod, a health food chain with 22 takeaway restaurants across the capital, and mobile cycle repair and servicing business NipNip partnered to incentivise both audiences. Customers who got their bikes serviced at NipNip received a 50% off voucher for Pod, valid for two weeks.

Brands need to offer diverse rewards for loyalty schemes to stay competitive

Within four days of launch, more than 300 vouchers had been downloaded and 100 were redeemed. In addition, NipNip’s email had a 50% open rate – a 20% increase on its usual rate.

Rosie Parkes, marketing manager at Pod, believes the synergy between the two brands is clear. “Both NipNip and Pod help Londoners to live healthier lives,” she says. “Like Pod, NipNip is an independent organisation which [aims to be] fresh and innovative in its marketing efforts. This ‘like-minded’ ethos means the two companies are well suited. There were not hundreds of hoops to go through to get the partnership established.”

Pod was keen to engage NipNip’s customers and use its database of individual cyclists to reach organisations and buildings with employees and tenants who use NipNip’s services. “Ultimately, the objective was to increase footfall into Pod’s estate of ‘food-to-go’ restaurants in the ‘stretched square mile’ of London,” adds Parkes.

NipNip, meanwhile, was keen to differentiate itself from competitors by incentivising customers with something less common than the usual bicycle seat cover. “Treating our customers to an exclusive half-price meal at Pod is very attractive to NipNip and a way of further engaging with our customer base,” says director and founder Matthew Farr.

It may be seen as a bold approach but it makes sense, as Nectar’s Shuckburgh notes: “Sometimes the best offer for your customer is something totally different, and with a completely different brand. Ultimately, respecting this shows how you truly understand your customer and that you’re willing to build a more trusted, confident and long-term relationship with them.”

Going beyond a transaction

The acknowledged demand for more diverse rewards is also evident in the fitness sector. Everyone Active Group, which operates 117 leisure centres in partnership with local councils across England, incentivises members to achieve their recommended 30 minutes of exercise five times a week. “Ultimately, we want to retain our members for longer and enhance our product proposition when our prospective members are making a decision to join,” says Mark Talley, group fitness development manager.

Working in partnership with fitness rewards app Bounts, members receive rewards for visiting their local leisure centre, as well as for any exercise they do outside the centre, tracked by a wearable fitness device or linked app. Points can be redeemed on Everyone Active products and at a range of retailers including Sunglass Hut, B&Q and John Lewis.

Food chain Pod partnered with cycle repair brand NipNip to increase footfall into its restaurants

Talley says the wide range of reward partners offers value to the group’s proposition and makes a difference when people are considering joining. “High street vouchers, for example, have high perceived value. It also encourages members to stay active and so helps with retention.” In the first three months of the partnership with Bounts, approximately 41,000 Everyone Active members had started collecting points.

Tesco has long given users of its Clubcard scheme the opportunity to redeem points at a range of partners, including iTunes, English Heritage and Pizza Express. But as the supermarket chain acknowledges, there is a risk of being too diverse. “When we are rewarding such a variety of customer audiences, the challenge is to not create a range of offers so broad it is hard to see what is available, as well as not creating an offer too narrow that it is not relevant to all,” a spokesperson says.

The supermarket has also created groups such as the Tesco Loves Baby Club, which provides additional value to customers beyond vouchers.

“Reward schemes do not necessarily create loyalty and we are increasingly seeing a desire from brands to create ‘membership’ and to harness loyalty beyond simple transactions,” says Sam Shaw, behavioural analyst at behavioural insight firm Canvas8. “Tesco Clubcard users get vouchers to the cinema and Legoland but they also become part of the Tesco Loves Baby Club, which offers ‘expert advice and information at every stage from pregnancy to toddler’. This helps create a community far beyond Tesco’s core offering.”

Data is a game changer

The answer to striking the right balance lies in using data to help identify the right mix of partners in a loyalty programme – and ensure that the timing is right.

Nectar uses such information to target its rewards, looking not only at what customers have bought before but also using other data such as location and weather to provide relevant offers in real-time.

READ MORE: Using data creatively is essential to loyalty scheme success

“Allowing customers to access offers based on their habits, where they are and what they are doing enables Nectar to become truly useful to its customers in a way that old-style loyalty schemes could not achieve,” says Shuckburgh. “For example, over the Easter weekend we treated our customer base to heavily discounted Caffè Nero drinks to warm them up in the bad weather.”

As more brands diversify their loyalty programmes beyond their core product offering, well timed and targeted rewards of this kind are surely the next step as brands look to differentiate themselves.

Sofology taps into customer lifestyles

During Easter this year, furniture retailer Sofology ran a customer incentive campaign in partnership with Lifestyle, the incentive and reward offer run by Red Letter Days for Business.

Depending on the amount spent, customers were rewarded with a voucher to be redeemed at companies including wine, holiday, fashion and electronics brands. If a customer bought a sofa costing between £1,000 and £1,999, for example, they would receive a £50 Lifestyle voucher.

The objective was to drive footfall and conversion over the key trading period, and to thank customers for shopping with Sofology. “Our interest in customers’ lifestyles led to our partnership with Lifestyle,” says Stephanie Haworth, senior brand and advertising manager. “Not only did the e-voucher offer an incentive for customers to pop in-store or call our direct sales line, it also allowed us to help boost other areas of their lives, such as a new addition to their wardrobe or a family day out.”

Haworth says the voucher will “enable our brand to be remembered at these touchpoints in our customers’ lives, and not only when they are sitting on the sofa”. She adds: “They will hopefully remember Sofology when deciding what to spend their voucher on and enjoying their purchase. It will allow us to engage with consumers not only in their lounge but also in their wardrobe, kitchen and car.”

The campaign drove visits to the website as well as footfall to stores – over 35,000 customers – and the retailer saw record sales on the bank holiday Monday, reaching 117% of its target.

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