A Question of loyalty

In the UK customer loyalty programmes are everywhere. Consumers are well versed in such programmes, and almost expect to be offered some form of incentive to buy from a particular company. But how do consumers in other markets around the world respond to this approach?

One thing that consumers have in common – whether they be in Europe, Africa, Asia or the US – is that they will respond to an offer if they perceive that it represents good value for money. This holds true for customer loyalty programmes. Quite obviously, the first to launch is generally the one who gains the most – we saw this here in the UK with Tesco. Those who follow, unless they do something dramatically different, generally do not perform so well. Once the bandwagon gets overloaded, more innovation is needed to stay ahead of the pack.

In the US, birth place of loyalty schemes, the cycle is slightly ahead of ours, and so may be the best indicator for the future. At one stage over 6,500 supermarkets offered some form of loyalty scheme. Inevitably this meant that consumers discovered that they could shop anywhere and receive virtually the same offer. The programmes were being viewed by consumers as part of the retailer’s core offer. They were no longer adding value to the proposition.

Many of the schemes also encouraged the sort of behaviour that retailers wanted to discourage – shoppers could buy from a number of competing retailers in the knowledge that they would be rewarded no matter how often, and regardless of how much, they purchased. The offers had become stale and uninteresting.

Retailers in the US have now moved to relationship marketing, personalising and tailoring their rewards to individual consumers. Those customers that are most loyal receive the highest value rewards – away from the standard seen here in the UK with a one per cent return for every shopper, regardless of spend. More than that, the retailers really don’t care if the cherry pickers are lost. One chain, Green Hill Farms, actually saw a decline in customers but an increase in profits, due precisely to attracting loyal, high spenders and de-selecting some of the very low spenders.

Retailers also discovered that like any brand, their programmes needed regular promotion or an occasional relaunch. This led to the use of short-term tactical promotions overlaid onto existing long-term schemes to provide the consumer with a fresh proposition. Of course, consumers responded positively to such initiatives as they provided a change from the usual offering. The schemes operated in much the same way as the Sainsbury’s BA flights offer last autumn (instead of shoppers being rewarded for their normal shopping cycle, they were encouraged to concentrate their spend with one chain over a defined period). Businesses across the US are realising greater success as a result of this revamping of their schemes.

On this side of the Atlantic, the Dutch market has already reached a stage where the consumer is losing interest – participation in such schemes is falling, and although schemes such as Air Miles still have a large number of participants, the majority of those participants are passively collecting.

Outside of the UK, the Dutch market is probably the most advanced in Europe in terms of electronic loyalty systems. Multi-retailer smart card programmes are prevalent, led by major banks. In fact, it is estimated that there are more loyalty cards in circulation than people.

Strangely, Albert Heijn, the country’s largest supermarket retailer, has just launched a simple bar code card that gives discounts on grocery purchases. Four hundred products are on special offer each week, and the consumer, who is issued with two cards and two key fob miniatures, gets instant discounts off their shopping bill if they purchase any of the participating products. Albert Heijn intends to use the data captured to market directly to consumers. However, this was not made clear at the outset, and already many consumers are complaining, with groups of them stating that they intend to swap cards in an effort to confuse the retailer.

But as in the US, consumers have tired of long-term schemes. Recent research carried out in Holland by ICB Management Consultants asked 130 marketing managers of retail chains which activities increased customer loyalty. The report found that long-term programmes were most effective at maintaining the loyalty of regular customers, while short-term initiatives were more effective at increasing the number of primary customers and attracting new customers.

The situation in Italy, however, is very different. Customer loyalty programmes are extremely popular and attract huge participation rates. The promotional laws in Italy © state that where the consumer is required to reach a certain level of expenditure in order to be rewarded, the promoter must sell the reward at a price lower than the original cost. About 90 per cent of the schemes use products as rewards, as opposed to cash or services. The products are usually collectable as part of a set.

Clearly, the value of a product is much higher than the cost of that product to the chain, so the shopper’s perceived value of the reward is very much higher than if they were offered the cash equivalent in shopping vouchers. To research the success of offering product, one chain, GS, offered their shoppers either cash or product, and 87 per cent of participants redeemed for products.

Most long-term schemes overlay short-term tactical programmes, so the consumer is constantly offered fresh ideas to stimulate interest. A key point here is that these short-term schemes (16-to-20 weeks) have defined start/stop dates. This ensures that there are no outstanding points to be accrued, and that the success of the scheme can be judged immediately.

In France, customer loyalty programmes are still in their infancy. As a result, consumers are still showing a great deal of enthusiasm. The rewards offered are usually products or cash, and although electronic cards are becoming increasingly popular, many schemes are still paper-based. As in Holland and Italy, many retailers are offering short-term, product-based programmes in conjunction with their longer term schemes, which are proving to be very popular.

Further afield, the customer loyalty concept is in various stages of development. In New Zealand, for example, 20 major retail chains are signed up to the Fly Buy (Air Miles-type) scheme. This programme was originally set up by The Bank of New Zealand and Shell in October 1996, and was initially very successful. The scheme has attracted over 500,000 participants, with over 100,000 people eligible for free flights.

However, consumer interest in the scheme is now fading, and with so many retailers signed up, there is little scope for these to differentiate their offer. Many are now looking for a point of difference, with creative, exclusive alternatives. The feeling is that consumers prefer short-term over long-term programmes, because of the continually changing offer with short-term programmes.

Throughout the Far East, loyalty schemes in general are not widespread. In the developing retail industry, for example, businesses are using new store openings to expand their business and attract new shoppers, rather than investing in a long-term loyalty programme. However, like all shoppers, those in the Far East are very open to a good offer. Retailers such as Park n Shop, Welcome Hong Kong, Macro Taiwan and Parkson Malaysia are using tactical short-term programmes to boost their sales.

In Japan, PET cards (a cheap, disposable magnetic card that allows retailers to print information directly onto the card), are being used by the majority of supermarkets. This simple, but seemingly effective scheme, rewards shoppers with points on the card that can be exchanged for discounts. These programmes achieve huge participation and have largely taken the place of discounting.

In some markets the response to the first product-based programmes is overwhelming. A recent example was in Czechoslovakia, where one chain registered a 27 per cent increase in sales over a 15-week period.

A review of loyalty programmes across different markets shows that the loyalty cycle appears the same: programmes are launched, become sophisticated, are copied, become common-place and finally become just another part of the retailer’s offer. Other than being the first to launch, the key for the most successful programmes has been to use the information provided to change their offering to suit their consumers. Then, once a plateau has been reached, they keep the scheme fresh for the consumer by having their long-term programme overlaid with short-term initiatives. It is a serious game of give and take – reward for loyalty – which can easily flounder if the consumer is not constantly challenged and driven.


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