Are loyalty schemes broken?

Many loyalty schemes are failing to understand the distinction between implicit and explicit drivers and the emotional needs of consumers, but behavioural data can put brands on the right path.

Starbucks
My Starbucks rewards scheme introduced mobile order and pay last year

If true customer loyalty exists, why are there so many unused loyalty points on the high street? Even if those customers are loyal, are reward schemes incentivising the right behaviour?

These are two major questions affecting brands’ loyalty programmes today, and they are vital since loyalty is primarily driven by likeability (86% of consumers say) and trust (83%) rather than reward schemes, according to a report by consultancy Rare shown exclusively to Marketing Week. Meanwhile, purchases are driven by price (81%), quality (80%) and convenience (55%).

The survey of more than 1,000 UK consumers also shows that many of the high street’s loyalty schemes are under-performing across four key metrics including ease of use, purchase experience, delivery on promise and personalisation.

Rare’s founder Ben Pask believes that the biggest learning for brands is the distinction between implicit drivers of loyalty – such as the quality of service and brand trust – and explicit drivers, for example rewards and points.

“Explicit drivers, in terms of loyalty schemes, are not driving value for [brands] in the right way – they are not incentivising the right behaviour or enticing people to come back,” he says.

Pask adds: “Brands don’t necessarily focus much time on that because it is always exciting to create a new app to incentivise people through explicit drivers of loyalty. It’s great to have that ability but if trust is low and quality of service doesn’t ring true, you are wasting your time, effort and energy. It’s about taking a step back and looking at the behaviour you want to incentivise.”

The loyalty experience index is based on respondents’ claims about brands they are most loyal to and how much they agree that loyalty schemes deliver on the four metrics. It reveals that only the My Starbucks Rewards and Amazon Prime programmes perform above benchmark.

READ MORE: ‘Amazon’s one-click shopping keeps us awake at night’ admits John Lewis

The offerings from M&S, Boots and Superdrug are in line with the benchmark whereas loyalty programmes from brands such as Tesco, O2, John Lewis, Waitrose and Costa are falling behind their high street counterparts.

Many of the brands analysed perform below the index score for ‘delivered on their promise’ where consumers say brand consistency is key, since 26% mention the terms ‘trust’ and ‘consistency’ as an important element of brand loyalty.

Ian Cranna, vice-president marketing and category EMEA at Starbucks, echoes these findings. He says that “loyalty is much more than just a functional offer” and that the brand’s own reward schemes give it the “opportunity to connect with customers outside of the store” through its mobile app and email communications.

Cranna says that customers’ trust is intrinsic to what the brand offers as well as the relationship between employees and customers. This helps to keep the customer experience familiar and consistent across sites, he claims.

However, the success of the My Starbucks Rewards scheme in the report could also be a result of innovation in loyalty beyond points and more towards convenience and experience. The coffee chain launched Mobile Order and Pay last autumn, which lets consumers customise their drink and food order and save time in the queue.

READ MORE: Starbucks plots real-time personalisation as it looks to boost loyalty

It has resulted in membership in the programme increasing 14% year-on-year and 12% in Q2 compared with Q1 in 2016. Cranna adds: “We are constantly looking to innovate and evolve our offer. We know customers love the benefits including free drinks, preview access and exclusive offers. The number of customers paying with our mobile app continues to grow, providing more convenience for those customers.”

Brand loyalty graph

Personalisation not performing

Personalisation is a key theme for brands in building relationships with consumers and therefore creating loyalty. The report, however, shows that many brands are not performing in this area.

Pask says: “One of the biggest issues was personalisation. People aren’t necessarily given a personal experience – it’s [about] the use of data and recognising what people want and what drives them to come back.”

Brands that do well in ‘offering a personalised service’ include Starbucks, Amazon, M&S, Nando’s, Tesco, Waitrose and British Airways. This is surprising, since some loyalty schemes that are built on personalised offers and data-driven targeting are not performing as well, such as O2’s Priority Moments, Boots’ Advantage Card and the Nectar card.

Sports brand Sweaty Betty is in the process of developing a more sophisticated loyalty programme, working with Rakuten Marketing, to ensure that loyal customers have the same customer service and experience regardless of where they interact with the brand and the type of device.

“Personalisation and consistency are key,” says Emma Rushe, senior performance marketing manager at Sweaty Betty. “A tailored user experience allows customers to feel valued, which in turn will inspire them to return and experience the same service time again.”

The brand is therefore connecting the way it interacts with customers in-store and online and is personalising content to reflect the stage the consumer is at in the purchase, for example, offering tailored discounts and offers based on purchase history. Rushe says: “There is a huge opportunity for brands to differentiate themselves and build customer loyalty by taking a brand-led approach, upselling complementary products and services to appropriate segments.”

Brand likeability builds loyalty

The research suggests that loyalty is an emotional response, rather than functional, as many of the brands that respondents say they ‘would always buy from if given a choice’ – including Amazon, Heinz, Samsung, Apple and Tesco – are firm favourites for 90% of consumers.

“Transactional loyalty is dead,” says Rachel Barton, managing director at consultancy firm Accenture, where she leads advanced customer strategy. “With over £450m dormant loyalty points in the UK alone and a switching economy worth £221bn, it is clear that reward schemes are no longer a differentiator for brands looking to build long-term, valuable connections with customers.”

Barton argues that brands need to see loyalty in emotional terms and not just reward consumers for purchases. She says: “Humans have an emotional need to build loyal relationships – and not just with people. Seeking meaningful relationships with companies and brands is important too. Marketers must understand how to use experience and relationship to appeal to the emotional side of consumers, providing something of real value.”

She adds: “Only then will brands have earned the privilege of longer-term loyalty and the value that comes with that.”

Restaurant chain Meat Liquor’s rewards and incentives programme is based on a two-way relationship where the customer experience is put to the test on site.

The chain works with customer feedback startup Letyano, which offers consumers rewards for answering seven questions about their experience.

The staff introduce the system to customers at their table, who can instantly sign up for rewards that differ depending on the time of day, such as discounts off food during the day or a free drink in the evening.

Marketing manager Lucy Sutcliffe says: “It’s done quickly, which gives it an edge over other loyalty schemes that say ‘come back next time for 20% off’.”

She adds: “We value customer opinion and things do vary day-to-day and by time of day.
We have implemented a few things off the back of [feedback]. At some sites, the music level for lunch time wasn’t appropriate for people coming in for a business lunch or from the office and wanting to chat, so we lowered the levels. Our sites are quite dark, so we added a little bit of light at different times of day.”

Sutcliffe claims the scheme is working because people who recognise the Letyano system
are coming back and that has provided “a medium of communication between the customer and the business”.

She also says Meat Liquor is not a brand that “lends itself to the usual loyalty” and reward schemes but does send out a ‘meat mailer’ with other offers and discounts.

What brands are you happy to buy from

Obtaining the right data is vital

Successful loyalty schemes have the power of customer data behind them but the report argues for less transactional data to be used in favour of more behavioural data and psychology.

Air France KLM’s frequent flyer scheme, Flying Blue, which works with loyalty company Collinson Latitude, launched an online store with personalisation features such as wish lists, comparisons and recommendations, to give members a choice of more than 3,000 rewards that could be purchased by using miles, or miles and cash payments.

The rewards were sourced using insights garnered from the programme, such as behavioural and contextual data. Madeleine van Wilderen, head of commercial partnerships at Flying Blue, says the brand aimed to “create a stronger brand experience for their loyalty programme members” and to “increase long-term engagement”. She says there has been a 150% increase in the volume of members redeeming miles since its launch in October 2014.

At Meat Liquor, the Letyano system also helps the brand with data collection. “You can tailor the questions in the app to hone in on something that you want to know about and get data on, which you can’t do with ‘come back and collect’ type rewards,” says Sutcliffe:

She adds: “We can explore different avenues or if it’s a repeat comment from customers, we can implement that as a question to get specific information and their opinion, which enables us to make appropriate changes as a business.”

How loyalty changes by life stage

Although likeability, trust and quality are key drivers across all age groups, the report shows that people’s motivations towards brands can vary depending on life stage. As needs, responsibilities and desires evolve with age, so does the loyalty to brands and the drivers behind it. Personalisation is a higher priority for today’s teenagers, or Generation K (54%),
and millennials (52%) than for Generation X (48%) and baby boomers (40%). Fun is also important, with 64% of Generation K listing this as a priority compared with 60% of millennials, 55% of Generation X and 44% of baby boomers.

Value for money is more important for baby boomers (70%) and Gen X (70%) than it is for millennials (65%) and Gen K (61%).

Loyalty schemes therefore not only need to keep up with the changing nature and definition of loyalty but they also need to use data to reassess what behaviours they reward and whether these match consumers needs.

The deadline for entering this year’s Data Storytelling Awards is 19 July. For more information click here.

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Comments
  • Isaac 15 Jul 2016 at 2:43 pm

    I recently did my dissertation on exactly the same thing! Some of the findings are like reading it back, I should have just waited a few months for this to come out. Great read!

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